Letter Regarding Regulation Z "Truth in Lending"
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October 4, 1989 To the Addressee:
Enclosed for those who maintain sets of the Board of Governors' regulations are the following documents: 1.
Regulation Z, "Truth in Lending," as amended effective June 7, 1989.
(This pamphlet supersedes the previous revision of the regulation and all subsequent amendments thereto.) The Official Staff Commentary on Regulation Z, effective April 1, 1988, and the February 28, 1989 amendments thereto, remain current and should not be discarded. 2.
Technical corrections to the Regulation Z pamphlet with respect to Sections 226.5a(a)(3), 226.5a(g)(2)(i) and (ii), 226.9(e) and (f).
These corrections appeared in the Federal Register of August 11, 1989 (Vol. 54, No. 154). Questions regarding Regulation Z may be directed to our Compliance Examinations Department (Tel. No. 212-720-5914). Circulars Division FEDERAL RESERVE BANK OF NEW YORK Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Board of Governors of the Federal Reserve System TRUTH IN LENDING TECHNICAL CORRECTIONS TO REGULATION Z PAMPHLET The revision of Regulation Z, effective June 7, 1989, is corrected as follows (corrections are underscored): § 226.5a Credit and Charge Card Applications and Solicitations * * * (a) * * * (3) Exceptions. This section does not apply to home equity plans accessible by a credit or charge card that are of the type subject to the requirements of sec tion 226.5b; overdraft lines of credit tied to asset accounts accessed by check-guarantee cards or by debit cards; or lines of credit accessed by check-guarantee cards or by debit cards that can be used only at automated teller machines.
* * * (g) * * * (2)(i) Two-cycle average daily bal ance (including new purchases). This balance is the sum of the aver age daily balances for two billing cy cles. The first balance is for the cur rent billing cycle, and is figured by adding the outstanding balance (in cluding new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding billing cycle (phrase deleted).
(ii) Two-cycle average daily bal ance (excluding new purchases). This balance is the sum of the aver age daily balances for two billing cy cles. The first balance is for the cur rent billing cycle, and is figured by adding the outstanding balance (ex cluding new purchases and deducting payments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding billing cycle (phrase deleted).
* * * Note: T hese corrections appear in the Federal Register o f A ugust 11, 1989 (V ol. 5 4 , No. 154) P R IN T E D IN N E W YORK (O V ER ) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.9 Subsequent Disclosure Requirements * * * (e) Disclosures upon renewal of credit or charge card. (1) Notice prior to renewal. Except as provided in para graph (e)(2) of this section, a card is suer that imposes any annual or other periodic fee to renew a credit or charge card account of the type sub ject to section 226.5a, including any fee based on account activity or inac tivity, shall mail or deliver written notice of the renewal to the cardhold er * * * (f) Change in credit card account in surance provider. (1) Notice prior to change. If a credit card issuer plans to change the provider of insurance for repayment of all or part of the out standing balance of an open-end credit card account of the type sub ject to section 226.5a, the card issuer shall mail or deliver the cardholder written notice of the change not less than 30 days before the change in providers occurs. * * * Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Board of Governors of the Federal Reserve System Regulation Z Truth in Lending 12 CFR 226; as amended effective June 7, 1989 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve District in which the inquiry arises. July 1989 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Contents Page Subpart A—General Section 226.1—Authority, purpose, coverage, organization, enforcement and liability .......................................... (a) Authority...................................... (b) Purpose........................................ (c) Coverage...................................... (d) Organization................................ (e) Enforcement and liability............ Section 226.2—Definitions and rules of construction.......................................... (a) Definitions.................................... (b) Rules of construction.................. Section 226.3—Exempt transactions . . . . (a) Business, commercial, agricultural, or organizational cred it............................................ (b) Credit over $25,000 not secured by real property or a dwelling ... (c) Public utility credit...................... (d) Securities or commodities accounts........................................ (e) Home fuel budget p lan s.............. (f) Student loan programs................ Section 226.4—Finance charge................ (a) Definition...................................... (b) Examples of finance charges........ (c) Charges excluded from the finance charge.............................. (d) Insurance...................................... (e) Certain security interest charges . (f) Prohibited offsets.......................... Subpart B—Open-End Credit Section 226.5—General disclosure requirements (a) Form of disclosures...................... (b) Time of disclosures...................... (c) Basis of disclosures and use of estimates ...................................... (d) Multiple creditors; multiple consumers.................................... (e) Effect of subsequent events.......... Page Section 226.5a—Credit and charge card applications and solicitations.............. (a) General rules................................ (b) Required disclosures.................... (c) Direct-mail applications and solicitations.................................. (d) Telephone applications and solicitations.................................. (e) Applications and solicitations made available to general public . (f) Special charge card rule—card issuer and person extending credit not the same person...................... (g) Balance-computation methods defined.......................................... Section 226.5b—Requirements for home equity plans................................ (a) Form of disclosures...................... (b) Time of disclosures...................... (c) Duties of third parties.................. (d) Content of disclosures.................. (e) Brochure...................................... (f) Limitations on home equity plans (g) Refund of fees.............................. Section 226.6—Initial disclosure statem ent................................................. (a) Finance charge ............................ (b) Other charges .............................. (c) Security interests.......................... (d) Statement of billing rights............ (e) Home equity plan information ... Section 226.7—Periodic statement.......... (a) Previous balance.......................... (b) Identification of transactions . . . . (c) Credits.......................................... (d) Periodic rates................................ (e) Balance on which finance charge computed...................................... (f) Amount of finance charge.......... (g) Annual percentage rate................ (h) Other charges .............................. (i) Closing date of billing cycle; new balance.......................................... Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Contents Regulation Z Page (j) Free-ride period........................ (k) Address for notice of billing errors............................................ Section 226.8—Identification of transactions.......................................... (a) Sale credit .................................... (b) Nonsale credit.......................... Section 226.9—Subsequent disclosure requirements ........................................ (a) Furnishing statement of billing rights............................................ (b) Disclosures for supplemental credit devices and additional features.......................................... (c) Change in terms .......................... (d) Finance charge imposed at time of transaction.................................... (e) Disclosures upon renewal of credit and charge card ................ (f) Change in credit card account insurance provider........................ Section 226.10—Prompt crediting of payments.............................................. (a) General rule.............................. (b) Specific requirements for payments.................................. (c) Adjustment of account............ Section 226.11—Treatment of credit balances................................................ Section 226.12—Special credit card provisions.............................................. (a) Issuance of credit cards............ (b) Liability of cardholder for unauthorized use...................... (c) Right of cardholder to assert claims or defenses against card issuer........................................ (d) Offsets by card issuer prohibited . 20 (e) Prompt notification of returns and crediting of refunds.......... (f) Discounts; tie-in arrangements... 21 (g) Relation to Electronic Fund Transfer Act and Regulation E .. Section 226.13—Billing-error resolution . 21 (a) Definition of billing erro r........ (b) Billing-error notice.................. (c) Time for resolution; general procedures................................ Page (d) Rules pending resolution............ (e) Procedures if billing error occurred as asserted.................... (f) Procedures if different billing error or no billing error occurred. 22 (g) Creditor’s rights and duties after resolution...................................... 22 (h) Reassertion of billing error.......... (i) Relation to Electronic Fund Transfer Act and Regulation E .. Section 226.14—Determination of annual percentage rate ........................ 23 (a) General rule.................................. (b) Annual percentage rate for section 226.5a and 226.5b disclosures, for initial disclosures and for advertising purposes........ (c) Annual percentage rate for periodic statements...................... (d) Calculations where daily periodic rate applied.................................. Section 226.15—Right of rescission........ (a) Consumer’s right to rescind........ (b) Notice of right to rescind............ (c) Delay of creditor’s performance.. (d) Effects of rescission...................... (e) Consumer’s waiver of right to rescind.......................................... (f) Exempt transactions.................... Section 226.16—Advertising .................. (a) Actually available term s.............. (b) Advertisement of terms that require additional disclosures----- (c) Catalogs and multiple-page advertisements.............................. (d) Additional requirements for home equity plans.................................. Subpart C—Closed-End Credit Section 226.17—General disclosure requirements ........................................ (a) Form of disclosures...................... (b) Time of disclosures...................... (c) Basis of disclosures and use of estimates ...................................... (d) Multiple creditors; multiple consumers.................................... (e) Effect of subsequent events.......... Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Contents Page (f) Early disclosures..................... (g) Mail or telephone orders—delay in disclosures........................... (h) Series of sales—delay in disclosures............................... (i) Interim student credit extensions . Section 226.18—Content of disclosures .. (a) Creditor................................... (b) Amount financed..................... (c) Itemization of amount financed .. (d) Finance charge ............................ (e) Annual percentage rate........... (f) Variable r a te ........................... (g) Payment schedule................... (h) Total of payments................... (i) Demand feature....................... (j) Total sale price ............................ (k) Prepayment............................. (/) Late payment.......................... (m) Security interest....................... (n) Insurance................................. (o) Certain security interest charges . (p) Contract reference................... (q) Assumption policy ...................... (r) Required deposit..................... Section 226.19—Certain residential mortgage transactions.......................... (a) Time of disclosure................... (b) Certain variable-rate transactions Section 226.20—Subsequent disclosure requirements ........................................ (a) Refinancings........................... (b) Assumptions........................... (c) Variable-rate adjustments........... Section 226.21—Treatment of credit balances................................................ Section 226.22—Determination of annual percentage rate...................................... (a) Accuracy of annual percentage rate........................................... (b) Computation tools................... (c) Single add-on rate transactions .. (d) Certain transactions involving ranges of balances................... Section 226.23—Right of rescission... (a) Consumer’s right to rescind....... (b) Notice of right to rescind....... (c) Delay of creditor’s performance.. (d) Effects of rescission................. (e) Consumer’s waiver of right to rescind..................................... Page (f) Exempt transactions.................... Section 226.24—Advertising .................. (a) Actually available term s.............. (b) Advertisement of rate of finance charge............................................ (c) Advertisement of terms that require additional disclosures . . . . (d) Catalogs and multiple-page advertisements.............................. Subpart D—Miscellaneous Section 226.25—Record retention.......... (a) General rule.................................. (b) Inspection of records.................... Section 226.26—Use of annual percentage rate in oral disclosures . . . . (a) Open-end credit............................ (b) Closed-end credit.......................... Section 226.27—Spanish language disclosures............................................ Section 226.28—Effect on state laws . . . . (a) Inconsistent disclosure requirements................................ (b) Equivalent disclosure requirements................................ (c) Request for determination.......... (d) Special rule for credit and charge cards.............................................. Section 226.29—State exemptions.......... (a) General rule.................................. (b) Civil liability................................ (c) Applications ................................ Section 226.30—Limitation on rates . . . . Appendix A—Effect on state law s.......... Appendix B—State exemptions.............. Appendix C—Issuance of staff interpretations...................................... 40 Appendix D—Multiple-advance construction loans................................ Appendix E—Rules for card issuers that bill on a transaction-by transaction basis.................................... Appendix F—Annual percentage rate computations for certain open-end credit plans............................................ iii Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Contents Regulation Z Page Appendix G—Open-end model forms and clauses........................................ Appendix H—Closed-end model forms and clauses........................................ Appendix I—Federal enforcement agencies ............................................ Appendix J—Annual percentage rate computations for closed-end credit transactions...................................... TRUTH IN LENDING A C T ........ COMPETITIVE EQUALITY BANKING ACT SECTION 1204 Page ..
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Regulation Z Truth in Lending 12 C F R 226; as am end ed effective June 7, 1989 SUBPART A—GENERAL SECTION 226.1—Authority, Purpose, Coverage, Organization, Enforcement and Liability (a) Authority. This regulation, known as Regulation Z, is issued by the Board of Gov ernors of the Federal Reserve System to im plement the federal Truth in Lending and Fair Credit Billing Acts, which are contained in title I of the Consumer Credit Protection Act, as amended (15 USC 1601 et seq.). This regulation also implements title XII, section 1204 of the Competitive Equality Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 552). Information-collection requirements contained in this regulation have been approved by the Office of Management and Budget under the provisions of 44 USC 3501 et seq. and have been assigned OMB No. 7100-0199. (b) Purpose. The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer’s principal dwelling, regulates certain credit card prac tices, and provides a means for fair and timely resolution of credit billing disputes. The regu lation does not govern charges for consumer credit. In addition, the regulation requires a maximum interest rate to be stated in vari able-rate contracts secured by the consumer’s dwelling, and imposes limitations on home eq uity plans that are subject to the requirements of section 226.5b. The regulation does not govern charges for consumer credit. (c) Coverage. (1) In general, this regulation applies to each individual or business that offers or extends credit when four condi tions are met: (i) the credit is offered or extended to consumers; (ii) the offering or extension of credit is done regularly; 1 (iii) the credit is subject to a finance charge or is The meaning of “regularly” is explained in the defini tion of “creditor” in section 226.2(a). payable by a written agreement in more than four installments; and (iv) the credit is primarily for personal, family, or house hold purposes.
(2) If a credit card is involved, however, certain provisions apply even if the credit is not subject to a finance charge, or is not payable by a written agreement in more than four installments, or if the credit card is to be used for business purposes. (3) In addition, certain requirements of section 226.5b apply to persons who are not creditors but who provide applications for home equity plans to consumers. (d) Organization. The regulation is divided into subparts and appendices as follows: (1) Subpart A contains general informa tion. It sets forth: (i) the authority, pur pose, coverage, and organization of the reg ulation; (ii) the definitions of basic terms; (iii) the transactions that are exempt from coverage; and (iv) the method of determin ing the finance charge.
(2) Subpart B contains the rules for openend credit. It requires that initial disclo sures and periodic statements be provided, as well as additional disclosures for credit and charge card applications and solicita tions and for home equity plans subject to the requirements of sections 226.5a and 226.5b, respectively. It also describes spe cial rules that apply to credit card transac tions, treatment of payments and credit balances, procedures for resolving credit billing errors, annual percentage rate calcu lations, rescission requirements, and adver tising rules.
(3) Subpart C relates to closed-end credit. It contains rules on disclosures, treatment of credit balances, annual percentage rate calculations, rescission requirements, and advertising.
(4) Subpart D contains rules on oral dis closures, Spanish-language disclosure in Puerto Rico, record retention, effect on state laws, state exemptions, and rate limitations.
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§226.1 Regulation Z (5) There are several appendices contain ing information such as the procedures for determinations about state laws, state ex emptions and issuance of staff interpreta tions, special rules for certain kinds of cred it plans, a list of enforcement agencies, and the rules for computing annual percentage rates in closed-end credit transactions. (e) Enforcement and liability. Section 108 of the act contains the administrative enforce ment provisions. Sections 112, 113, 130, 131, and 134 contain provisions relating to liability for failure to comply with the requirements of the act and the regulation. Section 1204(c) of title XII of the Competitive Equality Banking Act of 1987, Pub. L. No. 100-86, 101 Stat. 552, incorporates by reference administrative enforcement and civil liability provisions of sections 108 and 130 of the act. SECTION 226.2—Definitions and Rules of Construction (a) Definitions. For purposes of this regula tion, the following definitions apply: (1) “Act” means the Truth in Lending Act (15 USC 1601 et seq.).
(2) “Advertisement” means a commercial message in any medium that promotes, di rectly or indirectly, a credit transaction. (3) [Reserved] (4) “Billing cycle” or “cycle” means the in-terval between the days or dates of regu lar periodic statements. These intervals shall be equal and no longer than a quarter of a year. An interval will be considered equal if the number of days in the cycle does not vary more than four days from the regular day or date of the periodic statement.
(5) “Board” means the Board of Gover nors of the Federal Reserve System. (6) “Business day” means a day on which a creditor’s offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescis sion under sections 226.15 and 226.23, the term means all calendar days except Sun days and the legal public holidays specified [Footnote reserved] in 5 USC 6103(a), such as New Year’s Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Co lumbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
(7) “Card issuer” means a person that is sues a credit card or that person’s agent with respect to the card.
(8) “Cardholder” means a natural person to whom a credit card is issued for consum er credit purposes, or a natural person who has agreed with the card issuer to pay con sumer credit obligations arising from the is suance of a credit card to another natural person. For purposes of section 226.12(a) and (b), the term includes any person to whom a credit card is issued for any pur pose, including business, commercial, or ag ricultural use, or a person who has agreed with the eard issuer to pay obligations aris ing from the issuance of such a credit card to another person.
(9) “Cash price” means the price at which a creditor, in the ordinary course of busi ness, offers to sell for cash the property or service that is the subject of the transaction. At the creditor’s option, the term may in clude the price of accessories, services relat ed to the sale, service contracts and taxes and fees for license, title, and registration. The term does not include any finance charge.
(10) “Closed-end credit” means consumer credit other than “open-end credit” as de fined in this section.
(11) “Consumer ” means a cardholder or a natural person to whom consumer credit is offered or extended. However, for purposes of rescission under sections 226.15 and 226.23, the term also includes a natural per son in whose principal dwelling a security interest is or will be retained or acquired, if that person’s ownership interest in the dwelling is or will be subject to the security interest.
(12) “Consumer credit” means credit of fered or extended to a consumer primarily for personal, family, or household purposes. (13) “Consummation” means the time that a consumer becomes contractually ob ligated on a credit transaction. (14) “Credit” means the right to defer Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.2 payment of debt or to incur debt and defer its payment.
(15) “Credit card” means any card, plate, coupon book, or other single credit device that may be used from time to time to ob tain credit. “Charge card” means a credit card on an account for which no periodic rate is used to compute a finance charge. (16) “Credit sale” means a sale in which the seller is a creditor. The term includes a bailment or lease (unless terminable with out penalty at any time by the consumer) under which the consumer— (i) Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the proper ty and services involved; and (ii) Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement.
(17) “Creditor” means:
(i) A person (A) who regularly extends consumer credit 3 that is subject to a fi nance charge or is payable by written agreement in more than four installments (not including a downpayment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.
(ii) For purposes of sections 226.4(c) (8) (Discounts), 226.9(d) (Finance Charge Imposed at Time of Transac tion), and 226.12(e) (Prompt Notifica tion of Returns and Crediting of Re funds), a person that honors a credit card.
(iii) For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a fi nance charge and is not payable by writ ten agreement in more than four installments.
(iv) For purposes of subpart B (except A person regularly extends consumer credit only if it extended credit more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. for the credit and charge card disclosures contained in sections 226.5a and 226.9(e) and (0, the finance-charge dis closures contained in sections 226.6(a) and 226.7(d) through (g) and the right of rescission set forth in section 226.15) and subpart C, any card issuer that ex tends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments.
(18) “Downpayment” means an amount, including the value of any property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge. (19) “Dwelling” means a residential struc ture that contains one to four units, wheth er or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mo bile home, and trailer, if it is used as a residence.
(20) “Open-end credit” means consumer credit extended by a creditor under a plan in which— (i) The creditor reasonably contem plates repeated transactions; (ii) The creditor may impose a finance charge from time to time on an outstand ing unpaid balance; and (iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding bal ance is repaid.
(21) “Periodic rate” means a rate of fi nance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year. (22) “Person” means a natural person or an organization, including a corporation, partnership, proprietorship, association, co operative, estate, trust, or government unit. (23) “Prepaid finance charge” means any finance charge paid separately in cash or by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.2 Regulation Z check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.
(24) “Residential mortgage transaction” means a transaction in which a mortgage, deed of trust, purchase money security in terest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the con sumer’s principal dwelling to finance the ac quisition or initial construction of that dwelling.
(25) “Security interest” means an interest in property that secures performance of a consumer credit obligation and that is rec ognized by state or federal law. It does not include incidental interests such as interests in proceeds, accessions, additions, fixtures, insurance proceeds (whether or not the creditor is a loss payee or beneficiary), pre mium rebates, or interests in after-acquired property. For purposes of disclosure under sections 226.6 and 226.18, the term does not include an interest that arises solely by operation of law. However, for purposes of the right of rescission under sections 226.15 and 226.23, the term does include interests that arise solely by operation of law. (26) “State” means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States.
(b) Rules of construction. For purposes of this regulation, the following rules of con struction apply:
(1) Where appropriate, the singular form of a word includes the plural form and plu ral includes singular.
(2) Where the words “obligation” and “transaction” are used in this regulation, they refer to a consumer credit obligation or transaction, depending upon the context. Where the word “credit” is used in this reg ulation, it means “consumer credit” unless the context clearly indicates otherwise. (3) Unless defined in this regulation, the words used have the meanings given to them by state law or contract. (4) Footnotes have the same legal effect as the text of the regulation. SECTION 226.3—Exempt Transactions This regulation does not apply to the follow ing: 4 (a) Business, commercial, agricultural, or or ganizational credit. (1) An extension of credit primarily for a business, commercial or ag ricultural purpose.
(2) An extension of credit to other than a natural person, including credit to govern ment agencies or instrumentalities. (b) Credit over $25,000 not secured by real property or a dwelling. An extension of credit not secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer, in which the amount financed exceeds $25,OCX) or in which there is an express written commitment to extend credit in excess of $25,000. (c) Public utility credit. An extension of cred it that involves public utility services provided through pipe, wire, other connected facilities, or radio or similar transmission (including ex tensions of such facilities), if the charges for service, delayed payment, or any discounts for prompt payment are filed with or regulated by any government unit. The financing of dura ble goods or home improvements by a public utility is not exempt.
(d) Securities or commodities accounts.
Transactions in securities or commodities ac counts in which credit is extended by a bro ker-dealer registered with the Securities and Exchange Commission or the Commodity Fu tures Trading Commission.
(e) Home fuel budget plans. An installment agreement for the purchase of home fuels in which no finance charge is imposed. (f) Student loan programs. Loans made, in sured, or guaranteed pursuant to a program authorized by Title IV of the Higher Educa tion Act of 1965 (20 USC 1070 et seq.). The provisions in sections 226.12(a) and (b) governing the issuance of credit cards and the liability for their unau thorized use apply to all credit cards, even if the credit cards are issued for use in connection with extensions of credit that otherwise are exempt under this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.4 SECTION 226.4— Finance Charge (a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It in cludes any charge payable directly or indirect ly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. (b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically exclud ed by paragraphs (c) through (e) of this section:
(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges. (2) Service, transaction, activity, and car rying charges, including any charge im posed on a checking or other transaction account to the extent that the charge ex ceeds the charge for a similar account with out a credit feature.
(3) Points, loan fees, assumption fees, find er’s fees, and similar charges. (4) Appraisal, investigation, and credit re port fees.
(5) Premiums or other charges for any guarantee or insurance protecting the credi tor against the consumer’s default or other credit loss.
(6) Charges imposed on a creditor by an other person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation. (7) Premiums or other charges for credit life, accident, health, or loss-of-income in surance, written in connection with a credit transaction.
(8) Premiums or other charges for insur ance against loss of or damage to property, or against liability arising out of the owner ship or use of property, written in connec tion with a credit transaction. (9) Discounts for the purpose of inducing payment by a means other than the use of credit.
(c) Charges excluded from the finance charge. The following charges are not finance charges:
(1) Application fees charged to all appli cants for credit, whether or not credit is ac tually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institu tion for paying items that overdraw an ac count, unless the payment of such items and the imposition of the charge were pre viously agreed upon in writing. (4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis.
(5) Seller’s points.
(6) Interest forfeited as a result of an inter est reduction required by law on a time de posit used as security for an extension of credit.
(7) The following fees in a transaction se cured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount: (i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.
(ii) Fees for preparing deeds, mortgages, and reconveyance, settlement, and simi lar documents.
(iii) Notary, appraisal, and credit report fees.
(iv) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the act.
(d) Insurance. (1) Premiums for credit life, accident, health, or loss-of-income insur ance may be excluded from the finance charge if the following conditions are met: (i) The insurance coverage is not re quired by the creditor, and this fact is disclosed.
(ii) The premium for the initial term of insurance coverage is disclosed. If the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.4 Regulation Z term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under section 226.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage.
(iii) The consumer signs or initials an affirmative written request for the insur ance after receiving the disclosures speci fied in this paragraph. Any consumer in the transaction may sign or initial the request.
(2) Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of prop erty,5 may be excluded from the finance charge if the following conditions are met: (i) The insurance coverage may be ob tained from a person of the consumer’s choice,6 and this fact is disclosed. (ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insur ance is less than the term of the transac tion, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under section 226.17(g), and certain closed-end credit transactions involving an insur ance plan that limits the total amount of indebtedness subject to coverage. (e) Certain security interest charges. If item ized and disclosed, the following charges may be excluded from the finance charge: (1) Taxes and fees prescribed by law that actually are or will be paid to public offi cials for determining the existence of or for perfecting, releasing, or satisfying a security interest.
5 This includes single interest insurance if the insurer waives all right of subrogation against the consumer. 6 A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer. (2) The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed the fees described in paragraph (e)(1) of this sec tion that otherwise would be payable. (f) Prohibited offsets. Interest, dividends, or other income received or to be received by the consumer on deposits or investments shall not be deducted in computing the finance charge. SUBPART B—OPEN-END CREDIT SECTION 226.5—General Disclosure Requirements (a) Form of disclosures. (1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writ ing,7 in a form that the consumer may keep.8 (2) The terms “finance charge” and “an nual percentage rate,” when required to be disclosed with a corresponding amount or percentage rate, shall be more conspicuous than any other required disclosure.9 (3) Certain disclosures required under sec tion 226.5a for credit and charge card appli cations and solicitations must be provided in a tabular format or in a prominent loca tion in accordance with the requirements of that section.
(4) For rules governing the form of disclo sures for home equity plans, see section 226.5b(a).
(b) Time of disclosures. (1) Initial disclo sures. The creditor shall furnish the initial 7 The disclosure required by section 226.9(d) when a finance charge is imposed at the time of a transaction need not be written.
8 The disclosures required under section 226.5a for credit and charge card applications and solicitations, the home equity disclosures required under section 226.5b (d), the alternative summary billing-rights statement provided for in section 226.9(a)(2), the credit and charge card renewal disclosures required under section 226.9(e), and the disclo sures made under section 226.10(b) about payment re quirements need not be in a form that the consumer can keep.
9 The terms need not be more conspicuous when used under section 226.5a for credit and charge card applica tions and solicitations, under section 226.7(d) on periodic statements, under section 226.9(e) in credit and charge card renewal disclosures, and under section 226.16 in advertisements.
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Regulation Z § 226.5a disclosure statement required by section 226.6 before the first transaction is made under the plan.
(2) Periodic statements, (i) The creditor shall mail or deliver a periodic statement as required by section 226.7 for each bill ing cycle at the end of which an account has a debit or credit balance of more than $1 or on which a finance charge has been imposed. A periodic statement need not be sent for an account if the creditor deems it uncollectible, or if delinquency collection proceedings have been institut ed, or if furnishing the statement would violate federal law.
(ii) The creditor shall mail or deliver the periodic statement at least 14 days prior to any date or the end of any time period required to be disclosed under section 226.7(j) in order for the consumer to avoid an additional finance or other charge.10 A creditor that fails to meet this requirement shall not collect any fi nance or other charge imposed as a result of such failure.
(3) Credit and charge card application and solicitation disclosures. The card issuer shall furnish the disclosures for credit and charge card applications and solicitations in ac cordance with the timing requirements of section 226.5a.
(4) Home equity plans. Disclosures for home equity plans shall be made in accord ance with the timing requirements of sec tion 226.5b (b).
(c) Basis of disclosures and use of estimates. Disclosures shall reflect the terms of the legal obligation between the parties. If any informa tion necessary for accurate disclosure is un known to the creditor, it shall make the disclosure based on the best information rea sonably available and shall state clearly that the disclosure is an estimate. (d) Multiple creditors; multiple consumers. If the credit plan involves more than one credi tor, only one set of disclosures shall be given, and the creditors shall agree among them selves which creditor must comply with the This timing requirement does not apply if the creditor is unable to meet the requirement because of an act of God, war, civil disorder, natural disaster, or strike. requirements that this regulation imposes on any or all of them. If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the ac count. If the right of rescission under section 226.15 is applicable, however, the disclosures required by sections 226.6 and 226.15(b) shall be made to each consumer having the right to rescind.
(e) Effect of subsequent events. If a disclosure becomes inaccurate because of an event that occurs after the creditor mails or delivers the disclosures, the resulting inaccuracy is not a violation of this regulation, although new dis closures may be required under section 226.9(c).
SECTION 226.5a—Credit and Charge Card Applications and Solicitations (a) General rules. The card issuer shall pro vide the disclosures required under this sec tion on or with a solicitation or an application to open a credit or charge card account. (1) Definition of solicitation. For purposes of this section, the term “solicitation” means an offer by the card issuer to open a credit or charge card account that does not require the consumer to complete an application.
(2) Form of disclosures, (i) The disclo sures in paragraph (b)(1) through (7) of this section shall be provided in a prominent location on or with an appli cation or a solicitation, or other applica ble document, and in the form of a table with headings, content, and format sub stantially similar to any of the applicable tables found in appendix G. (ii) The disclosures in paragraph (b) (8) through (10) of this section shall be provided either in the table containing the disclosures in paragraph (b)(1) through (7), or clearly and conspicuous ly elsewhere on or with the application or solicitation.
(iii) The disclosure required under para graph (b)(5) of this section shall contain the term “grace period.”
(iv) The terminology in the disclosures under paragraph (b) of this section shall Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.5a Regulation Z be consistent with that to be used in the disclosures under sections 226.6 and 226.7.
(3) Exceptions. This section does not apply to home equity plans accessible by a credit or charge card that are subject to the re quirements of section 226.5b; overdraft lines of credit tied to asset accounts ac cessed by check-guarantee cards or by debit cards; or lines of credit accessed by checkguarantee cards or by debit cards that can be used only at automated teller machines. (4) Fees based on a percentage. If the amount of any fee required to be disclosed under this section is determined on the ba sis of a percentage of another amount, the percentage used and the identification of the amount against which the percentage is applied may be disclosed instead of the amount of the fee.
(5) Certain fees that vary by state. If the amount of any fee referred to in paragraph (b)(8) through (10) of this section varies from state to state, the card issuer may dis close the range of the fees instead of the amount for each state, if the disclosure in cludes a statement that the amount of the fee varies from state to state. (b) Required disclosures. The card issuer shall disclose the items in this paragraph on or with an application or a solicitation in accord ance with the requirements of paragraphs (c), (d) or (e) of this section. A credit card issuer shall disclose all applicable items in this para graph except for paragraph (b) (7) of this sec tion. A charge card issuer shall disclose the applicable items in paragraph (b)(2), (4), and (7) through (10) of this section. (1) Annual percentage rate. Each periodic rate that may be used to compute the fi nance charge on an outstanding balance for purchases, expressed as an annual percent age rate (as determined by section 226.14(b)). When more than one rate ap plies, the range of balances to which each rate is applicable shall also be disclosed. (i) If the account has a variable rate, the card issuer shall also disclose the fact that the rate may vary and how the rate is determined.
(ii) When variable-rate disclosures are provided under paragraph (c) of this sec tion, an annual percentage rate disclosure is accurate if the rate was in effect within 60 days before mailing the disclosures. When variable-rate disclosures are pro vided under paragraph (e) of this sec tion, an annual percentage rate disclosure is accurate if the rate was in effect within 30 days before printing the disclosures. (2) Fees for issuance or availability. Any annual or other periodic fee, expressed as an annualized amount, or any other fee that may be imposed for the issuance or avail ability of a credit or charge card, including any fee based on account activity or inactivity.
(3) Minimum finance charge. Any mini mum or fixed finance charge that could be imposed during a billing cycle. (4) Transaction charges. Any transaction charge imposed for the use of the card for purchases.
(5) Grace period. The date by which or the period within which any credit extended for purchases may be repaid without incurring a finance charge. If no grace period is pro vided, that fact must be disclosed. If the length of the grace period varies, the card issuer may disclose the range of days, the minimum number of days, or the average number of days in the grace period, if the disclosure is identified as a range, mini mum, or average.
(6) Balance-computation method.
The name of the balance-computation method listed in paragraph (g) of this section that is used to determine the balance for pur chases on which the finance charge is com puted, or an explanation of the method used if it is not listed. The explanation may appear outside the table if the table contains a reference to the explanation. In determin ing which balance-computation method to disclose, the card issuer shall assume that credit extended for purchases will not be repaid within the grace period, if any. (7) Statement on charge card payments. A statement that charges incurred by use of the charge card are due when the periodic statement is received.
(8) Cash-advance fee. Any fee imposed for an extension of credit in the form of cash. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z (9) Late-payment fee. Any fee imposed for a late payment.
(10) Over-the-limit fee. Any fee imposed for exceeding a credit limit. (c) Direct-mail applications and solicitations. The card issuer shall disclose the applicable items in paragraph (b) of this section on or with an application or solicitation that is mailed to consumers.
(d) Telephone applications and solicitations. (1) Oral disclosure. The card issuer shall orally disclose the information in paragraph (b)(1) through (7) of this section, to the extent applicable, in a telephone application or solicitation initiated by the card issuer. (2) Alternative disclosure. The oral disclo sure under paragraph (d)(1) of this section need not be given if the card issuer either does not impose a fee described in para graph (b)(2) of this section or does not impose such a fee unless the consumer uses the card, and the card issuer discloses in writing within 30 days after the consumer requests the card (but in no event later than the delivery of the card) the following: (i) The applicable information in para graph (b) of this section; and (ii) The fact that the consumer need not accept the card or pay any fee disclosed unless the consumer uses the card. (e) Applications and solicitations made avail able to general public. The card issuer shall provide disclosures, to the extent applicable, on or with an application or solicitation that is made available to the general public, includ ing one contained in a catalog, magazine, or other generally available publication. The dis closures shall be provided in accordance with paragraph (e)(1), (2) or (3) of this section. (1) Disclosure of required credit informa tion. The card issuer may disclose in a prominent location on the application or solicitation the following: (i) The applicable information in para graph (b) of this section;
(ii) The date the required information was printed, including a statement that the required information was accurate as of that date and is subject to change after that date; and § 226.5a (iii) A statement that the consumer should contact the card issuer for any change in the required information since it was printed, and a toll-free telephone number or a mailing address for that purpose.
(2) Inclusion of certain initial disclosures. The card issuer may disclose on or with the application or solicitation the following: (i) The disclosures required under sec tion 226.6(a) through (c); and (ii) A statement that the consumer should contact the card issuer for any change in the required information, and a toll-free telephone number or a mailing address for that purpose.
(3) No disclosure of credit information. If none of the items in paragraph (b) of this section is provided on or with the applica tion or solicitation, the card issuer may state in a prominent location on the appli cation or solicitation the following: (i) There are costs associated with the use of the card; and (ii) The consumer may contact the card issuer to request specific information about the costs, along with a toll-free tele phone number and a mailing address for that purpose.
(4) Prompt response to requests for infor mation. Upon receiving a request for any of the information referred to in this para graph, the card issuer shall promptly and fully disclose the information requested. (f) Special charge card rule—card issuer and person extending credit not the same person. If a cardholder may by use of a charge card ac cess an open-end credit plan that is not main tained by the charge card issuer, the card is suer need not provide the disclosures in paragraphs (c), (d) or (e) of this section for the open-end credit plan if the card issuer states on or with an application or a solicita tion the following:
(1) The card issuer will make an indepen dent decision whether to issue the card; (2) The charge card may arrive before the decision is made about extending credit un der the open-end credit plan; and (3) Approval for the charge card does not Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.5a Regulation Z constitute approval for the open-end credit plan.
(g) Balance-computation methods defined. The following methods may be described by name. Methods that differ due to variations such as the allocation of payments, whether the finance charge begins to accrue on the transaction date or the date of posting the transaction, the existence or length of a grace period, and whether the balance is adjusted by charges such as late fees, annual fees and un paid finance charges do not constitute sepa rate balance-computation methods. (1) (i) Average daily balance (including new purchases). This balance is figured by adding the outstanding balance (includ ing new purchases and deducting pay ments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. (ii) Average daily balance (excluding new purchases). This balance is figured by adding the outstanding balance (exclud ing new purchases and deducting pay ments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. (2) (i) Two-cycle average daily balance (in cluding new purchases). This balance is the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle, and is figured by adding the outstanding balance (includ ing new purchases and deducting pay ments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding bill ing cycle and is figured in the same way as the first balance.
(ii) Two-cycle average daily balance (ex cluding new purchases). This balance is the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle, and is figured by adding the outstanding balance (exclud ing new purchases and deducting pay ments and credits) for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding bill ing cycle and is figured in the same way as the first balance.
(3) Adjusted balance. This balance is fig ured by deducting payments and credits made during the billing cycle from the out standing balance at the beginning of the billing cycle.
(4) Previous balance. This balance is the outstanding balance at the beginning of the billing cycle.
SECTION 226.5b—Requirements for Home Equity Plans The requirements of this section apply to open-end credit plans secured by the consum er’s dwelling. For purposes of this section, an annual percentage rate is the annual percent age rate corresponding to the periodic rate as determined under section 226.14(b). (a) Form of disclosures. (1) General. The dis closures required by paragraph (d) of this section shall be made clearly and conspicu ously and shall be grouped together and segregated from all unrelated information. The disclosures may be provided on the ap plication form or on a separate form. The disclosure described in paragraph (d)(4) (iii), the itemization of third-party fees described in paragraph (d)(8), and the variable-rate information described in para graph (d)(12) of this section may be pro vided separately from the other required disclosures.
(2) Precedence of certain disclosures. The disclosures described in paragraph (d)(1) through (4) (ii) of this section shall precede the other required disclosures. (b) Time of disclosures. The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer.103 (c) Duties of third parties. Persons other than the creditor who provide applications to con- 10a The disclosures and the brochure may be delivered or placed in the mail not later than three business days follow ing receipt of a consumer’s application in the case of appli cations contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.5b sumers for home equity plans must provide the brochure required under paragraph (e) of this section at the time an application is pro vided. If such persons have the disclosures re quired under paragraph (d) of this section for a creditor’s home equity plan, they also shall provide the disclosures at such time.10a (d) Content of disclosures. The creditor shall provide the following disclosures, as applicable:
(1) Retention of information. A statement that the consumer should make or other wise retain a copy of the disclosures. (2) Conditions for disclosed terms, (i) A statement of the time by which the con sumer must submit an application to ob tain specific terms disclosed and an iden tification of any disclosed term that is subject to change prior to opening the plan.
(ii) A statement that, if a disclosed term changes (other than a change due to fluc tuations in the index in a variable-rate plan) prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of all fees paid in connection with the application.
(3) Security interest and risk to home. A statement that the creditor will acquire a security interest in the consumer’s dwelling and that loss of the dwelling may occur in the event of default.
(4) Possible actions by creditor, (i) A state ment that, under certain conditions, the creditor may terminate the plan and re quire payment of the outstanding balance in full in a single payment and impose fees upon termination; prohibit addition al extensions of credit or reduce the cred it limit; and, as specified in the initial agreement, implement certain changes in the plan.
(ii) A statement that the consumer may receive, upon request, information about 10a The disclosures and the brochure may be delivered or placed in the mail not later than three business days follow ing receipt of a consumer’s application in the case of appli cations contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker. the conditions under which such actions may occur.
(iii) In lieu of the disclosure required under paragraph (d) (4) (ii) of this sec tion, a statement of such conditions. (5) Payment terms. The payment terms of the plan, including— (i) The length of the draw period and any repayment period.
(ii) An explanation of how the mini mum periodic payment will be deter mined and the timing of the payments. If paying only the minimum periodic pay ments may not repay any of the principal or may repay less than the outstanding balance, a statement of this fact, as well as a statement that a balloon payment may result.10*5 (iii) An example, based on a $10,000 outstanding balance and a recent annual percentage rate,100 showing the mini mum periodic payment, any balloon pay ment, and the time it would take to repay the $10,000 outstanding balance if the consumer made only those payments and obtained no additional extensions of credit.
If different payment terms may apply to the draw and any repayment period, or if differ ent payment terms may apply within either period, the disclosures shall reflect the dif ferent payment terms.
(6) Annual percentage rate. For fixed-rate plans, a recent annual percentage rate10c imposed under the plan and a statement that the rate does not include costs other than interest.
(7) Fees imposed by creditor. An itemiza tion of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or percentage, and when such fees are payable.
10b A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time. 10c For fixed-rate plans, a recent annual percentage rate is a rate that has been in effect under the plan within the 12 months preceding the date the disclosures are provided to the consumer. For variable-rate plans, a recent annual per centage rate is the most recent rate provided in the histori cal example described in paragraph (d)(12)(xi) of this section or a rate that has been in effect under the plan since the date of the most recent rate in the table. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.5b Regulation Z (8) Fees imposed by third parties to open a plan. A good faith estimate, stated as a sin gle dollar amount or range, of any fees that may be imposed by persons other than the creditor to open the plan, as well as a state ment that the consumer may receive, upon request, a good faith itemization of such fees. In lieu of the statement, the itemiza tion of such fees may be provided. (9) Negative amortization. A statement that negative amortization may occur and that negative amortization increases the principal balance and reduces the consum er’s equity in the dwelling. (10) Transaction requirements. Any limi tations on the number of extensions of cred it and the amount of credit that may be ob tained during any time period, as well as any minimum outstanding balance and minimum draw requirements, stated as dol lar amounts or percentages. (11) Tax implications. A statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan.
(12) Disclosures for variable-rate plans. For a plan in which the annual percentage rate is variable, the following disclosures, as applicable:
(i) The fact that the annual percentage rate, payment, or term may change due to the variable-rate feature. (ii) A statement that the annual per centage rate does not include costs other than interest.
(iii) The index used in making rate ad justments and a source of information about the index.
(iv) An explanation of how the annual percentage rate will be determined, in cluding an explanation of how the index is adjusted, such as by the addition of a margin.
(v) A statement that the consumer should ask about the current index value, margin, discount or premium, and annu al percentage rate.
(vi) A statement that the initial annual percentage rate is not based on the index and margin used to make later rate ad justments, and the period of time such initial rate will be in effect. (vii) The frequency of changes in the annual percentage rate.
(viii) Any rules relating to changes in the index value and the annual percent age rate and resulting changes in the pay ment amount, including, for example, an explanation of payment limitations and rate carryover.
(ix) A statement of any annual or more frequent periodic limitations on changes in the annual percentage rate (or a state ment that no annual limitation exists), as well as a statement of the maximum an nual percentage rate that may be imposed under each payment option. (x) The minimum periodic payment re quired when the maximum annual per centage rate for each payment option is in effect for a $10,000 outstanding bal ance, and a statement of the earliest date or time the maximum rate may be imposed.
(xi) An historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and pay ments would have been affected by indexvalue changes implemented according to the terms of the plan. The historical ex ample shall be based on the most recent 15 years of index values (selected for the same time period each year) and shall re flect all significant plan terms, such as negative amortization, rate carryover, rate discounts, and rate and payment limitations, that would have been affected by the index movement during the period.
(xii) A statement that rate information will be provided on or with each periodic statement.
(e) Brochure. The home equity brochure published by the Board or a suitable substitute shall be provided.
(f) Limitations on home equity plans. No creditor may, by contract or otherwise— (1) Change the annual percentage rate un less— (i) such change is based on an index that is not under the creditor’s control; and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.6 (ii) such index is available to the general public.
(2) Terminate a plan and demand repay ment of the entire outstanding balance in advance of the original term unless— (i) there is fraud or material misrepre sentation by the consumer in connection with the plan;
(ii) the consumer fails to meet the re payment terms of the agreement for any outstanding balance; or (iii) any action or inaction by the con sumer adversely affects the creditor’s se curity for the plan, or any right of the creditor in such security. (3) Change any term, except that a credi tor may— (i) Provide in the initial agreement that specified changes will occur if a specific event takes place (for example, that the annual percentage rate will increase a specified amount if the consumer leaves the creditor’s employment). (ii) Change the index and margin used under the plan if the original index is no longer available, the new index has an historical movement substantially similar to that of the original index, and the new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable. (iii) Make a specified change if the con sumer specifically agrees to it in writing at that time.
(iv) Make a change that will unequivo cally benefit the consumer throughout the remainder of the plan. (v) Make an insignificant change to terms.
(vi) Prohibit additional extensions of credit or reduce the credit limit applica ble to an agreement during any period in which— (A) the value of the dwelling that se cures the plan declines significantly be low the dwelling’s appraised value for purposes of the plan;
(B) the creditor reasonably believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the consumer’s financial circumstances;
(C) the consumer is in default of any material obligation under the agreement;
(D) the creditor is precluded by gov ernment action from imposing the an nual percentage rate provided for in the agreement;
(E) the priority of the creditor’s secu rity interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; (F) the creditor is notified by its regu latory agency that continued advances constitute an unsafe and unsound practice; or (G) the maximum annual percentage rate is reached.
(g) Refund of fees. A creditor shall refund all fees paid by the consumer to anyone in con nection with an application if any term re quired to be disclosed under paragraph (d) of this section changes (other than a change due to fluctuations in the index in a variable-rate plan) before the plan is opened and, as a re sult, the consumer elects not to open the plan. (h) Imposition of nonrefundable fees. Neither a creditor nor any other person may impose a nonrefundable fee in connection with an ap plication until three business days after the consumer receives the disclosures and bro chure required under this section.10d SECTION 226.6—Initial Disclosure Statement The creditor shall disclose to the consumer, in terminology consistent with that to be used on the periodic statement, each of the following items, to the extent applicable: (a) Finance charge. The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows:
10d If the disclosures and brochure are mailed to the con sumer, the consumer is considered to have received them three business days after they are mailed. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.6 Regulation Z (1) A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists with in which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period’s expiration. (2) A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applica ble,11 and the corresponding annual per centage rate.12 When different periodic rates apply to different types of transac tions, the types of transactions to which the periodic rates apply shall also be disclosed. (3) An explanation of the method used to determine the balance on which the finance charge may be computed.
(4) An explanation of how the amount of any finance charge will be determined,13 in cluding a description of how any finance charge other than the periodic rate will be determined.
(b) Other charges. The amount of any charge other than a finance charge that may be im posed as part of the plan, or an explanation of how the charge will be determined. (c) Security interests. The fact that the credi tor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type. (d) Statement of billing rights. A statement that outlines the consumer’s rights and the creditor’s responsibilities under sections 226.12(c) and 226.13 and that is substantially similar to the statement found in appendix G. (e) Home equity plan information. The fol lowing disclosures described in section 226.5b(d), as applicable:
11 A creditor is not required to adjust the range of bal ances disclosure to reflect the balance below which only a minimum charge applies.
12 If a creditor is offering a variable rate plan, the credi tor shall also disclose: (1) the circumstances under which the rate(s) may increase; (2) any limitations on the in crease; and (3) the effect (s) of an increase. 13 If no finance charge is imposed when the outstanding balance is less than a certain amount, no disclosure is re quired of that fact or of the balance below which no finance charge will be imposed.
(1) A statement of the conditions under which the creditor may take certain action, as described in section 226.5b(d)(4)(i), such as terminating the plan or changing the terms.
(2) The payment information described in section 226.5b(d)(5)(i) and (ii) for both the draw period and any repayment period. (3) A statement that negative amortiza tion may occur as described in section 226.5b(d) (9).
(4) A statement of any transaction re quirements as described in section 226.5b(d)(10).
(5) A statement regarding the tax implica tions as described in section 226.5b(d) ( 11).
(6) A statement that the annual percent age rate imposed under the plan does not include costs other than interest as de scribed in section 226.5b(d)(6) and 226.5b(d)(12)(ii).
(7) The variable-rate disclosures described in section 226.5b(d) (12) (viii), (x), (xi), and (xii), as well as the disclosure de scribed in section 226.5b(d) (5) (iii), unless the disclosures provided with the applica tion were in a form the consumer could keep and included a representative payment example for the category of payment option chosen by the consumer.
SECTION 226.7—Periodic Statement The creditor shall furnish the consumer with a periodic statement that discloses the follow ing items, to the extent applicable: (a) Previous balance. The account balance outstanding at the beginning of the billing cycle.
(b) Identification of transactions. An identifi cation of each credit transaction in accord ance with section 226.8.
(c) Credits. Any credit to the account during the billing cycle, including the amount and the date of crediting. The date need not be provided if a delay in crediting does not result in any finance or other charge. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.8 (d) Periodic rates. Each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable,14 and the corresponding annual percentage rate.15 If different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates apply shall also be disclosed. (e) Balance on which finance charge comput ed. The amount of the balance to which a pe riodic rate was applied and an explanation of how that balance was determined. When a balance is determined without first deducting all credits and payments made during the bill ing cycle, that fact and the amount of the credits and payments shall be disclosed. (f) Amount of finance charge. The amount of any finance charge debited or added to the account during the billing cycle, using the term “finance charge.” The components of the finance charge shall be individually itemized and identified to show the amount(s) due to the application of any periodic rates and the amount(s) of any other type of finance charge. If there is more than one periodic rate, the amount of the finance charge attributable to each rate need not be separately itemized and identified.
(g) Annual percentage rate. When a finance charge is imposed during the billing cycle, the annual percentage rate(s) determined under section 226.14, using the term “annual per centage rate.”
(h) Other charges. The amounts, itemized and identified by type, of any charges other than finance charges debited to the account during the billing cycle.
(i) Closing date of billing cycle;
new balance. The closing date of the billing cycle and the account balance outstanding on that date.
(j) Free-ride period. The date by which or the time period within which the new balance or any portion of the new balance must be paid to avoid additional finance charges. If 14 See footnotes 11 and 13. 15 If a variable rate plan is involved, the creditor shall disclose the fact that the periodic rate(s) may vary. such a time period is provided, a creditor may, at its option and without disclosure, im pose no finance charge when payment is re ceived after the time period’s expiration. (k) Address for notice of billing errors. The address to be used for notice of billing errors. Alternatively, the address may be provided on the billing rights statement permitted by sec tion 226.9(a)(2).
SECTION 226.8—Identification of Transactions The creditor shall identify credit transactions on or with the first periodic statement that reflects the transaction by furnishing the fol lowing information, as applicable.16 (a) Sale credit. For each credit transaction involving the sale of property or services, the following rules shall apply: (1) Copy of credit document provided. When an actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transac tion, the transaction is sufficiently identified if the amount of the transaction and either the date of the transaction or the date of debiting the transaction to the consumer’s account are disclosed on the copy or on the periodic statement.
(2) Copy of credit document not provided— creditor and seller same or related person(s). When the creditor and the seller are the same person or related persons, and an ac tual copy of the receipt or other credit doc ument is not provided with the periodic statement, the creditor shall disclose the amount and date of the transaction, and a Failure to disclose the information required by this section shall not be deemed a failure to comply with the regulation if: (1) the creditor maintains procedures reason ably adapted to obtain and provide the information; and (2) the creditor treats an inquiry for clarification or docu mentation as a notice of a billing error, including correcting the account in accordance with section 226.13(e). This ap plies to transactions that take place outside a state, as de fined in section 226.2(a), whether or not the creditor main tains procedures reasonably adapted to obtain the required information.
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§ 226.8 Regulation Z brief identification 17 of the property or services purchased.18 (3) Copy of credit document not provided— creditor and seller not same or related per son (s). When the creditor and seller are not the same person or related persons, and an actual copy of the receipt or other credit document is not provided with the periodic statement, the creditor shall disclose the amount and date of the transaction; the seller’s name; and the city, and state or for eign country where the transaction took place.19 (b) Nonsale credit. A nonsale credit transac tion is sufficiently identified if the first periodic statement reflecting the transaction discloses a brief identification of the transaction; 20 the amount of the transaction; and at least one of the following dates: the date of the transac tion, the date of debiting the transaction to the consumer’s account, or, if the consumer signed the credit document, the date appear ing on the document. If an actual copy of the receipt or other credit document is provided and that copy shows the amount and at least one of the specified dates, the brief identifica tion may be omitted.
SECTION 226.9—Subsequent Disclosure Requirements (a) Furnishing statement of billing rights. (1) Annual statement. The creditor shall 17 As an alternative to the brief identification, the credi tor may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transac tion with that creditor, and if the creditor treats an inquiry for clarification or documentation as a notice of a billing error, including correcting the account in accordance with section 226.13(e).
18 An identification of property or services may be re placed by the seller’s name and location of the transaction when: (1) the creditor and the seller are the same person; (2) the creditor’s open-end plan has fewer than 15,000 ac counts; (3) the creditor provides the consumer with pointof-sale documentation for that transaction; and (4) the creditor treats an inquiry for clarification or documentation as a notice of a billing error, including correcting the ac count in accordance with section 226.13(e). 19 The creditor may omit the address or provide any suit able designation that helps the consumer to identify the transaction when the transaction (1) took place at a loca tion that is not fixed; (2) took place in the consumer’s home; or (3) was a mail or telephone order. 20 See footnote 17.
mail or deliver the billing rights statement required by section 226.6(d) at least once per calendar year, at intervals of not less than 6 months nor more than 18 months, either to all consumers or to each consumer entitled to receive a periodic statement un der section 226.5(b)(2) for any one billing cycle.
(2) Alternative summary statement. As an alternative to paragraph (a)(1) of this sec tion, the creditor may mail or deliver, on or with each periodic statement, a statement substantially similar to that in appendix G. (b) Disclosures for supplemental credit de vices and additional features. (1) If a credi tor, within 30 days after mailing or deliver ing the initial disclosures under section 226.6(a), adds a credit feature to the con sumer’s account or mails or delivers to the consumer a credit device for which the fi nance charge terms are the same as those previously disclosed, no additional disclo sures are necessary. After 30 days, if the creditor adds a credit feature or furnishes a credit device (other than as a renewal, re supply, or the original issuance of a credit card) on the same finance charge terms, the creditor shall disclose, before the consumer uses the feature or device for the first time, that it is for use in obtaining credit under the terms previously disclosed. (2) Whenever a credit feature is added or a credit device is mailed or delivered, and the finance charge terms for the feature or de vice differ from disclosures previously giv en, the disclosures required by section 226.6(a) that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time.
(c) Change in terms. (1) Written notice re quired. Whenever any term required to be disclosed under section 226.6 is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each con sumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.9 the consumer, or if a periodic rate or other finance charge is increased because of the consumer’s delinquency or default; the no tice shall be given, however, before the ef fective date of the change. (2) Notice not required. No notice under this section is required when the change in volves late-payment charges, charges for documentary evidence, or over-the-limit charges; a reduction of any component of a finance or other charge; suspension of fu ture credit privileges or termination of an account or plan; or when the change results from an agreement involving a court pro ceeding, or from the consumer’s default or delinquency (other than an increase in the periodic rate or other finance charge). (3) Notice for home equity plans. If a credi tor prohibits additional extensions of credit or reduces the credit limit applicable to a home equity plan pursuant to section 226.5b(f)(3)(vi), the creditor shall mail or deliver written notice of the action to each consumer who will be affected. The notice must be provided not later than three busi ness days after the action is taken and shall contain specific reasons for the action. If the creditor requires the consumer to re quest reinstatement of credit privileges, the notice also shall state that fact. (d) Finance charge imposed at time of trans action. (1) Any person, other than the card issuer, who imposes a finance charge at the time of honoring a consumer’s credit card, shall disclose the amount of that finance charge prior to its imposition. (2) The card issuer, if other than the per son honoring the consumer’s credit card, shall have no responsibility for the disclo sure required by paragraph (d)(1) of this section, and shall not consider any such charge for purposes of sections 226.5a, 226.6 and 226.7.
(e) Disclosures upon renewal of credit or charge card. (1) Notice prior to renewal. Ex cept as provided in paragraph (e)(2) of this section, a card issuer that imposes any annual or other periodic fee to renew a credit or charge card account subject to sec tion 226.5a, including any fee based on ac count activity or inactivity, shall mail or de liver written notice of the renewal to the cardholder. The notice shall be provided at least 30 days or one billing cycle, whichever is less, before the mailing or the delivery of the periodic statement on which the renew al fee is initially charged to the account. The notice shall contain the following information:
(i) The disclosures contained in section 226.5a(b)(l) through (7) that would apply is the account were renewed; 20a and (ii) How and when the cardholder may terminate credit availability under the ac count to avoid paying the renewal fee. (2) Delayed notice. The disclosures re quired by paragraph (e)(1) of this section may be provided later than the time in par agraph (e)(1) of this section, but no later than the mailing or the delivery of the peri odic statement on which the renewal fee is initially charged to the account, if the card issuer also discloses at that time that— (i) The cardholder has 30 days from the time the periodic statement is mailed or delivered to avoid paying the fee or to have the fee recredited if the cardholder terminates credit availability under the account; and (ii) The cardholder may use the card during the interim period without having to pay the fee.
(3) Notification on periodic statements. The disclosures required by this paragraph may be made on or with a periodic statement. If any of the disclosures are provided on the back of a periodic statement, the card issuer shall include a reference to those disclo sures on the front of the statement. (f) Change in credit card account insurance provider. (1) Notice prior to change. If a credit card issuer plans to change the pro vider of insurance for repayment of all or part of the outstanding balance of an openend credit card account subject to section 226.5a, the card issuer shall mail or deliver the cardholder written notice of the change not less than 30 days before the change in providers occurs. The notice shall also in- 20a These disclosures need not be provided in tabular for mat or in a prominent location. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.9 Regulation Z elude the following items, to the extent applicable:
(i) Any increase in the rate that will re sult from the change;
(ii) Any substantial decrease in cover age that will result from the change; and (iii) A statement that the cardholder may discontinue the insurance. (2) Notice when change in provider occurs. If a change described in paragraph (f)(1) of this section occurs, the card issuer shall provide the cardholder with a written no tice no later than 30 days after the change, including the following items, to the extent applicable:
(i) The name and address of the new in surance provider;
(ii) A copy of the new policy or group certificate containing the basic terms of the insurance, including the rate to be charged; and (iii) A statement that the cardholder may discontinue the insurance. (3) Substantial decrease in coverage. For purposes of this paragraph, a substantial decrease in coverage is a decrease in a sig nificant term of coverage that might reason ably be expected to affect the cardholder’s decision to continue the insurance. Signifi cant terms of coverage include, for exam ple, the following:
(i) Type of coverage provided; (ii) Age at which coverage terminates or becomes more restrictive;
(iii) Maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or other term affecting the dollar amount of cov erage or benefits provided; (iv) Eligibility requirements and num ber and identity of persons covered; (v) Definition of a key term of coverage such as disability;
(vi) Exclusions from or limitations on coverage; and (vii) Waiting periods and whether cov erage is retroactive.
(4) Combined notification. The notices re quired by paragraph (f)(1) and (2) of this section may be combined provided the tim ing requirement of paragraph (f) (1) of this section is met. The notices may be provided on or with a periodic statement. SECTION 226.10 —Prompt Crediting of Payments (a) General rule. A creditor shall credit a payment to the consumer’s account as of the date of receipt, except when a delay in credit ing does not result in a finance or other charge or except as provided in paragraph (b) of this section.
(b) Specific requirements for payments. If a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments, but accepts a pay ment that does not conform to the require ments, the creditor shall credit the payment within five days of receipt. (c) Adjustment of account. If a creditor fails to credit a payment, as required by para graphs (a) or (b) of this section, in time to avoid the imposition of finance or other charges, the creditor shall adjust the consum er’s account so that the charges imposed are credited to the consumer’s account during the next billing cycle.
SECTION 226.11—Treatment of Credit Balances When a credit balance in excess of $ 1 is creat ed on a credit account (through transmittal of funds to a creditor in excess of the total bal ance due on an account, through rebates of unearned finance charges or insurance premi ums, or through amounts otherwise owed to or held for the benefit of a consumer), the creditor shall— (a) Credit the amount of the credit balance to the consumer’s account;
(b) Refund any part of the remaining credit balance within seven business days from re ceipt of a written request from the consumer; and (c) Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z §226.12 any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer’s current location is not known to the creditor and can not be traced through the consumer’s last known address or telephone number. SECTION 226.12—Special Credit Card Provisions (a) Issuance of credit cards. Regardless of the purpose for which a credit card is to be used, including business, commercial, or agri cultural use, no credit card shall be issued to any person except— (1) In response to an oral or written re quest or application for the card; or (2) As a renewal of, or substitute for, an accepted credit card.21 (b) Liability of cardholder for unauthorized use. (1) Limitation on amount. The liability of a cardholder for unauthorized use 22 of a credit card shall not exceed the lesser of $50 or the amount of money, property, labor, or services obtained by the unauthorized use before notification to the card issuer under paragraph (b)(3) of this section. (2) Conditions of liability. A cardholder shall be liable for unauthorized use of a credit card only if— (i) The credit card is an accepted credit card;
(ii) The card issuer has provided ade quate notice 23 of the cardholder’s maxi mum potential liability and of means by which the card issuer may be notified of loss or theft of the card. The notice shall state that the cardholder’s liability shall 21 For purposes of this section, “accepted credit card” means any credit card that a cardholder has requested or applied for and received, or has signed, used, or authorized another person to use to obtain credit. Any credit card issued as a renewal or substitute in accordance with this paragraph becomes an accepted credit card when received by the cardholder.
22 “Unauthorized use” means the use of a credit card by a person, other than the cardholder, who does not have actual, implied, or apparent authority for such use, and from which the cardholder receives no benefit. 23 “Adequate notice” means a printed notice to a card holder that sets forth clearly the pertinent facts so that the cardholder may reasonably be expected to have noticed it and understood its meaning. The notice may be given by any means reasonably assuring receipt by the cardholder. not exceed $50 (or any lesser amount) and that the cardholder may give oral or written notification, and shall describe a means of notification (for example, a tel ephone number, an address, or both); and (iii) The card issuer has provided a means to identify the cardholder on the account or the authorized user of the card.
(3) Notification to card issuer. Notification to a card issuer is given when steps have been taken as may be reasonably required in the ordinary course of business to pro vide the card issuer with the pertinent in formation about the loss, theft, or possible unauthorized use of a credit card, regard less of whether any particular officer, em ployee, or agent of the card issuer does, in fact, receive the information. Notification may be given, at the option of the person giving it, in person, by telephone, or in writ ing. Notification in writing is considered given at the time of receipt or, whether or not received, at the expiration of the time ordinarily required for transmission, which ever is earlier.
(4) Effect of other applicable law or agree ment. If state law or an agreement between a cardholder and the card issuer imposes lesser liability than that provided in this paragraph, the lesser liability shall govern. (5) Business use of credit cards. If 10 or more credit cards are issued by one card issuer for use by the employees of an orga nization, this section does not prohibit the card issuer and the organization from agreeing to liability for unauthorized use without regard to this section. However, li ability for unauthorized use may be im posed on an employee of the organization, by either the card issuer or the organiza tion, only in accordance with this section. (c) Right of cardholder to assert claims or de fenses against card issuer.24 (1) General rule. When a person who honors a credit card fails to resolve satisfactorily a dispute This paragraph does not apply to the use of a check guarantee card or a debit card in connection with an over draft credit plan, or to a check guarantee card used in con nection with cash advance checks. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.12 Regulation Z as to property or services purchased with the credit card in a consumer credit trans action, the cardholder may assert against the card issuer all claims (other than tort claims) and defenses arising out of the transaction and relating to the failure to re solve the dispute. The cardholder may withhold payment up to the amount of credit outstanding for the property or ser vices that gave rise to the dispute and any finance or other charges imposed on that amount.25 (2) Adverse credit reports prohibited. If, in accordance with paragraph (c)(1) of this section, the cardholder withholds payment of the amount of credit outstanding for the disputed transaction, the card issuer shall not report that amount as delinquent until the dispute is settled or judgment is rendered.
(3) Limitations. The rights stated in para graphs (c)(1) and (2) of this section apply only if— (i) The cardholder has made a good faith attempt to resolve the dispute with the person honoring the credit card; and (ii) The amount of credit extended to obtain the property or services that result in the assertion of the claim or defense by the cardholder exceeds $50, and the dis puted transaction occurred in the same state as the cardholder’s current de signated address or, if not within the same state, within 100 miles from that address.26 * 25 The amount of the claim or defense that the cardhold er may assert shall not exceed the amount of credit out standing for the disputed transaction at the time the card holder first notifies the card issuer or the person honoring the credit card of the existence of the claim or defense. To determine the amount of credit outstanding for purposes of this section, payments and other credits shall be applied to: (1) late charges in the order of entry to the account; then to (2) finance charges in the order of entry to the account; and then to (3) any other debits in the order of entry to the account. If more than one item is included in a single exten sion of credit, credits are to be distributed pro rata accord ing to prices and applicable taxes. 26 The limitations stated in paragraph (c) (3) (ii) of this section shall not apply when the person honoring the credit card: (1) is the same person as the card issuer; (2) is con trolled by the card issuer directly or indirectly; (3) is under the direct or indirect control of a third person that also directly or indirectly controls the card issuer; (4) controls the card issuer directly or indirectly; (5) is a franchised dealer in the card issuer’s products or services; or (6) has obtained the order for the disputed transaction through a mail solicitation made or participated in by the card issuer. (d) Offsets by card issuer prohibited. (1) A card issuer may not take any action, either before or after termination of credit card privileges, to offset a cardholder’s indebted ness arising from a consumer credit trans action under the relevant credit card plan against funds of the cardholder held on de posit with the card issuer. (2) This paragraph does not alter or affect the right of a card issuer acting under state or federal law to do any of the following with regard to funds of a cardholder held on deposit with the card issuer if the same procedure is constitutionally available to creditors generally: obtain or enforce a con sensual security interest in the funds; attach or otherwise levy upon the funds; or obtain or enforce a court order relating to the funds.
(3) This paragraph does not prohibit a plan, if authorized in writing by the card holder, under which the card issuer may periodically deduct all or part of the card holder’s credit card debt from a deposit ac count held with the card issuer (subject to the limitations in section 226.13(d)(1)). (e) Prompt notification of returns and credit ing of refunds. (1) When a creditor other than the card issuer accepts the return of proper ty or forgives a debt for services that is to be reflected as a credit to the consumer’s credit card account, that creditor shall, within seven business days from accepting the re turn or forgiving the debt, transmit a credit statement to the card issuer through the card issuer’s normal channels for credit statements.
(2) The card issuer shall, within three business days from receipt of a credit state ment, credit the consumer’s account with the amount of the refund.
(3) If a creditor other than a card issuer routinely gives cash refunds to consumers paying in cash, the creditor shall also give credit or cash refunds to consumers using credit cards, unless it discloses at the time the transaction is consummated that credit or cash refunds for returns are not given. This section does not require refunds for re turns nor does it prohibit refunds in kind. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z §226.13 (f) Discounts: tie-in arrangements. No card issuer may, by contract or otherwise— (1) Prohibit any person who honors a credit card from offering a discount to a consumer to induce the consumer to pay by cash, check, or similar means rather than by use of a credit card or its underlying ac count for the purchase of property or ser vices; or (2) Require any person who honors the card issuer’s credit card to open or main tain any account or obtain any other service not essential to the operation of the credit card plan from the card issuer or any other person, as a condition of participation in a credit card plan. If maintenance of an ac count for clearing purposes is determined to be essential to the operation of the credit card plan, it may be required only if no service charges or minimum balance re quirements are imposed.
(g) Relation to Electronic Fund Transfer Act and Regulation E. For guidance on whether Regulation Z or Regulation E applies in in stances involving both credit and electronic fund transfer aspects, refer to Regulation E, 12 CFR 205.5(c) regarding issuance and 205.6(d) regarding liability for unauthorized use. On matters other than issuance and liabil ity, this section applies to the credit aspects of combined credit/electronic fund transfer transactions, as applicable. SECTION 226.13—Billing-Error Resolution 27 (a) Definition of billing error. For purposes of this section, the term “billing error” means: (1) A reflection on or with a periodic statement of an extension of credit that is not made to the consumer or to a person who has actual, implied, or apparent au thority to use the consumer’s credit card or open-end credit plan.
A creditor shall not accelerate any part of the consum er’s indebtedness or restrict or close a consumer’s account solely because the consumer has exercised in good faith rights provided by this section. A creditor may be subject to the forfeiture penalty under section 161 (e) of the act for failure to comply with any of the requirements of this section.
(2) A reflection on or with a periodic statement of an extension of credit that is not identified in accordance with the re quirements of sections 226.7(b) and 226.8. (3) A reflection on or with a periodic statement of an extension of credit for prop erty or services not accepted by the con sumer or the consumer’s designee, or not delivered to the consumer or the consum er’s designee as agreed.
(4) A reflection on a periodic statement of the creditor’s failure to credit properly a payment or other credit issued to the con sumer’s account.
(5) A reflection on a periodic statement of a computational or similar error of an ac counting nature that is made by the creditor.
(6) A reflection on a periodic statement of an extension of credit for which the con sumer requests additional clarification, in cluding documentary evidence. (7) The creditor’s failure to mail or deliver a periodic statement to the consumer’s last known address if that address was received by the creditor, in writing, at least 20 days before the end of the billing cycle for which the statement was required. (b) Billing-error notice.28 A billing-error no tice is a written notice29 * from a consumer that— (1) Is received by a creditor at the address disclosed under section 226.7(k) no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error;
(2) Enables the creditor to identify the consumer’s name and account number; and (3) To the extent possible, indicates the consumer’s belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error. 28 The creditor need not comply with the requirements of paragraphs (c) through (g) of this section if the consumer concludes that no billing error occurred and voluntarily withdraws the billing-error notice. 29 The creditor may require that the written notice not be made on the payment medium or other material accompa nying the periodic statement if the creditor so stipulates in the billing rights statement required by sections 226.6(d) and 226.9(a).
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§ 226.13 Regulation Z (c) Time for resolution; general procedures. (1) The creditor shall mail or deliver writ ten acknowledgment to the consumer with in 30 days of receiving a billing-error no tice, unless the creditor has complied with the appropriate resolution procedures of paragraphs (e) and (0 of this section, as applicable, within the 30-day period; and (2) The creditor shall comply with the ap propriate resolution procedures of para graphs (e) and (f) of this section, as appli cable, within two complete billing cycles (but in no event later than 90 days) after receiving a billing-error notice. (d) Rules pending resolution. Until a billing error is resolved under paragraphs (e) or (f) of this section, the following rules apply: (1) Consumer's right to withhold disputed amount; collection action prohibited. The consumer need not pay (and the creditor may not try to collect) any portion of any required payment that the consumer be lieves is related to the disputed amount (in cluding related finance or other charges).30 If the cardholder maintains a deposit ac count with the card issuer and has agreed to pay the credit card indebtedness by periodic deductions from the cardholder’s deposit account, the card issuer shall not deduct any part of the disputed amount or related finance or other charges if a billing error notice is received any time up to three busi ness days before the scheduled payment date.
(2) Adverse credit reports prohibited. The creditor or its agent shall not (directly or indirectly) make or threaten to make an ad verse report to any person about the con sumer’s credit standing, or report that an amount or account is delinquent, because the consumer failed to pay the disputed amount or related finance or other charges. A creditor is not prohibited from taking action to col lect any undisputed portion of the item or bill; from de ducting any disputed amount and related finance or other charges from the consumer’s credit limit on the account; or from reflecting a disputed amount and related finance or other charges on a periodic statement, provided that the creditor indicates on or with the periodic statement that payment of any disputed amount and related finance or other charges is not required pending the creditor’s compli ance with this section.
(e) Procedures if billing error occurred as as serted. If a creditor determines that a billing error occurred as asserted, it shall within the time limits in paragraph (c)(2) of this sec tion— (1) Correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable; and (2) Mail or deliver a correction notice to the consumer.
(f) Procedures if different billing error or no billing error occurred. If, after conducting a reasonable investigation,31 a creditor deter mines that no billing error occurred or that a different billing error occurred from that as serted, the creditor shall within the time limits in paragraph (c)(2) of this section— (1) Mail or deliver to the consumer an ex planation that sets forth the reasons for the creditor’s belief that the billing error al leged by the consumer is incorrect in whole or in part;
(2) Furnish copies of documentary evi dence of the consumer’s indebtedness, if the consumer so requests; and (3) If a different billing error occurred, correct the billing error and credit the con sumer’s account with any disputed amount and related finance or other charges, as applicable.
(g) Creditor's rights and duties after resolu tion. If a creditor, after complying with all of the requirements of this section, determines that a consumer owes all or part of the disput ed amount and related finance or other charges, the creditor— (1) Shall promptly notify the consumer in writing of the time when payment is due and the portion of the disputed amount and related finance or other charges that the consumer still owes;
If a consumer submits a billing error notice alleging either the nondelivery of property or services under para graph (a)(3) of this section or that information appearing on a periodic statement is incorrect because a person hon oring the consumer’s credit card has made an incorrect report to the card issuer, the creditor shall not deny the assertion unless it conducts a reasonable investigation and determines that the property or services were actually de livered, mailed, or sent as agreed or that the information was correct.
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Regulation Z § 226.14 (2) Shall allow any time period disclosed under sections 226.6(a)(1) and 226.7(j), during which the consumer can pay the amount due under paragraph (g)(1) of this section without incurring additional finance or other charges;
(3) May report an account or amount as delinquent because the amount due under paragraph (g)(1) of this section remains unpaid after the creditor has allowed any time period disclosed under sections 226.6(a)(1) and 226.7(j) or 10 days (whichever is longer) during which the consumer can pay the amount; but (4) May not report that an amount or ac count is delinquent because the amount due under paragraph (g)(1) of the section remains unpaid, if the creditor receives (within the time allowed for payment in paragraph (g)(3) of this section) further written notice from the consumer that any portion of the billing error is still in dis pute, unless the creditor also— (i) Promptly reports that the amount or account is in dispute;
(ii) Mails or delivers to the consumer (at the same time the report is made) a written notice of the name and address of each person to whom the creditor makes a report; and (iii) Promptly reports any subsequent resolution of the reported delinquency to all persons to whom the creditor has made a report.
(h) Reassertion of billing error. A creditor that has fully complied with the requirements of this section has no further responsibilities under this section (other than as provided in paragraph (g)(4) of this section) if a con sumer reasserts substantially the same billing error.
(i) Relation to Electronic Fund Transfer Act and Regulation E. If an extension of credit is incident to an electronic fund transfer, under an agreement between a consumer and a fi nancial institution to extend credit when the consumer’s account is overdrawn or to main tain a specified minimum balance in the con sumer’s account, the creditor shall comply with the requirements of Regulation E, 12 CFR 205.11, governing error resolution rath er than those of paragraphs (a), (b), (c), (e), (f), and (h) of this section. SECTION 226.14 —Determination of Annual Percentage Rate (a) General rule. The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate. An annual percentage rate shall be considered accurate if it is not more than | of 1 percentage point above or below the an nual percentage rate determined in accord ance with this section.311 (b) Annual percentage rate for section 226.5a and 226.5b disclosures, for initial disclosures and for advertising purposes. Where one or more periodic rates may be used to compute the finance charge, the annual percentage rate(s) to be disclosed for purposes of sections 226.5a, 226.5b, 226.6, and 226.16 shall be computed by multiplying each periodic rate by the number of periods in a year. (c) Annual percentage rate for periodic state ments. The annual percentage rate(s) to be disclosed for purposes of section 226.7(d) shall be computed by multiplying each period ic rate by the number of periods in a year and, for purposes of section 226.7(g), shall be de termined as follows:
(1) If the finance charge is determined solely by applying one or more periodic rates, at the creditor’s option, either— (i) By multiplying each periodic rate by the number of periods in a year; or (ii) By dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (ex pressed as a percentage) by the number of billing cycles in a year. (2) If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the appli 31a An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a viola tion of this regulation if: (1) the error resulted from a cor responding error in a calculation tool used in good faith by the creditor; and (2) upon discovery of the error, the credi tor promptly discontinues use of that calculation tool for disclosure purposes, and notifies the Board in writing of the error in the calculation tool. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§226.14 Regulation Z cation of a periodic rate, other than a charge with respect to any specific transac tion during the billing cycle, by dividing the total finance charge for the billing cycle by the amount of the balance(s) to which it is applicable 32 and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year.33 (3) If the finance charge imposed during the billing cycle is or includes a charge re lating to a specific transaction during the billing cycle (even if the total finance charge also includes any other minimum, fixed, or other charge not due to the appli cation of a periodic rate), by dividing the total finance charge imposed during the billing cycle by the total of all balances and other amounts on which a finance charge was imposed during the billing cycle with out duplication, and multiplying the quo tient (expressed as a percentage) by the number of billing cycles in a year,34 except that the annual percentage rate shall not be less than the largest rate determined by multiplying each periodic rate imposed dur ing the billing cycle by the number of peri ods in a year.35 (4) If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the appli cation of a periodic rate and the total fi nance charge imposed during the billing cy cle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor’s option, by multi plying each applicable periodic rate by the number of periods in a year, notwithstand ing the provisions of paragraphs (c)(2) and (3) of this section.
(d) Calculations where daily periodic rate ap plied. If the provisions of paragraphs (c)(1) 32 If there is no balance to which the finance charge is applicable, an annual percentage rate cannot be determined under this section.
33 Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to the opening of the account, the amount of such charge shall not be included in the calculation of the annual percentage rate.
34 See appendix F regarding determination of the denom inator of the fraction under this paragraph. 35 See footnote 33.
(ii) or (2) of this section apply and all or a portion of the finance charge is determined by the application of one or more daily periodic rates, the annual percentage rate may be de termined either— (1) By dividing the total finance charge by the average of the daily balances and multi plying the quotient by the number of billing cycles in a year; or (2) By dividing the total finance charge by the sum of the daily balances and multiply ing the quotient by 365.
SECTION 226.15—Right of Rescission (a) Consumer's right to rescind. (l)(i) Ex cept as provided in paragraph (a) (1) (ii) of this section, in a credit plan in which a security interest is or will be retained or acquired in a consumer’s principal dwell ing, each consumer whose ownership in terest is or will be subject to the security interest shall have the right to rescind: each credit extension made under the plan; the plan when the plan is opened; a security interest when added or increased to secure an existing plan; and the in crease when a credit limit on the plan is increased.
(ii) As provided in section 125(e) of the act, the consumer does not have the right to rescind each credit extension made un der the plan if such extension is made in accordance with a previously established credit limit for the plan.
(2) To exercise the right to rescind, the consumer shall notify the creditor of the re scission by mail, telegram, or other means of written communication. Notice is consid ered given when mailed, or when filed for telegraphic transmission, or, if sent by other means, when delivered to the creditor’s des ignated place of business.
(3) The consumer may exercise the right to rescind until midnight of the third busi ness day following the occurrence described in paragraph (a)(1) of this section that gave rise to the right of rescission, delivery of the notice required by paragraph (b) of this section, or delivery of all material dis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z §226.15 closures,36 whichever occurs last. If the re quired notice and material disclosures are not delivered, the right to rescind shall ex pire three years after the occurrence giving rise to the right of rescission, or upon trans fer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the act.
(4) When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers.
(b) Notice of right to rescind. In any transac tion or occurrence subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer enti tled to rescind. The notice shall identify the transaction or occurrence and clearly and conspicuously disclose the following: (1) The retention or acquisition of a secu rity interest in the consumer’s principal dwelling.
(2) The consumer’s right to rescind, as de scribed in paragraph (a)(1) of this section. (3) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business.
(4) The effects of rescission, as described in paragraph (d) of this section. (5) The date the rescission period expires. (c) Delay of creditor's performance. Unless a consumer waives the right to rescind under paragraph (e) of this section, no money shall be disbursed other than in escrow, no services shall be performed, and no materials delivered until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded. A creditor The term “material disclosures” means the informa tion that must be provided to satisfy the requirements in section 226.6 with regard to the method of determining the finance charge and the balance upon which a finance charge will be imposed, the annual percentage rate, the amount or method of determining the amount of any membership or participation fee that may be imposed as part of the plan, and the payment information described in section 226.5b(d)(5)(i) and (ii) that is required under section 226.6(e)(2).
does not violate this section if a third party with no knowledge of the event activating the rescission right does not delay in providing materials or services, as long as the debt in curred for those materials or services is not secured by the property subject to rescission. (d) Effects of rescission. (1) When a consum er rescinds a transaction, the security inter est giving rise to the right of rescission be comes void, and the consumer shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action neces sary to reflect the termination of the securi ty interest.
(3) If the creditor has delivered any mon ey or property, the consumer may retain possession until the creditor has met its ob ligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the credi tor or, where the latter would be impracti cable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the cred itor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation. (4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be mod ified by court order.
(e) Consumer's waiver of right to rescind. The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that de scribes the emergency, that specifically modi fies or waives the right to rescind, and that bears the signatures of the consumers entitled Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.15 Regulation Z to rescind. Printed forms for this purpose are prohibited.
(f) Exempt transactions. The right to rescind does not apply to the following: (1) A residential mortgage transaction. (2) A credit plan in which a state agency is a creditor.
SECTION 226.16—Advertising (a) Actually available terms. If an advertise ment for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor. (b) Advertisement of terms that require addi tional disclosures. If any of the terms required to be disclosed under section 226.6 is set forth in an advertisement, the advertisement shall also clearly and conspicuously set forth the following:363 (1) Any minimum, fixed, transaction, ac tivity or similar charge that could be imposed.
(2) Any periodic rate that may be applied expressed as an annual percentage rate as determined under section 226.14(b). If the plan provides for a variable periodic rate, that fact shall be disclosed. (3) Any membership or participation fee that could be imposed.
(c) Catalogs and multiple-page advertise ments. (1) If a catalog or other multiple-page advertisement gives information in a table or schedule in sufficient detail to permit de termination of the disclosures required by paragraph (b) of this section, it shall be considered a single advertisement if— (i) The table or schedule is clearly and conspicuously set forth; and (ii) Any statement of terms set forth in section 226.6 appearing anywhere else in the catalog or advertisement clearly re fers to that page on which the table or schedule begins.
(2) A catalog or multiple-page advertise ment complies with this paragraph if the 36a Jhe disclosures given in accordance with section 226.5a do not constitute advertising terms for purposes of the requirements of this section. table or schedule of terms includes all ap propriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered.
(d) Additional requirements for home equity plans. (1) Advertisement of terms that re quire additional disclosures. If any of the terms required to be disclosed under section 226.6(a) or (b) or the payment terms of the plan are set forth, affirmatively or nega tively, in an advertisement for a home equi ty plan subject to the requirements of sec tion 226.5b, the advertisement also shall clearly and conspicuously set forth the following:
(i) Any loan fee that is a percentage of the credit limit under the plan and an es timate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range. (ii) Any periodic rate used to compute the finance charge, expressed as an annu al percentage rate as determined under section 226.14(b).
(iii) The maximum annual percentage rate that may be imposed in a variablerate plan.
(2) Discounted and premium rates. If an advertisement states an initial annual per centage rate that is not based on the index and margin used to make later rate adjust ments in a variable-rate plan, the advertise ment also shall state the period of time such rate will be in effect, and, with equal promi nence to the initial rate, a reasonably cur rent annual percentage rate that would have been in effect using the index and margin.
(3) Balloon payment. If an advertisement contains a statement about any minimum periodic payment, the advertisement also shall state, if applicable, that a balloon pay ment may result.366 (4) Tax implications. An advertisement that states that any interest expense in curred under the home equity plan is or may be tax deductible may not be mislead ing in this regard.
36b see footnote 10b.
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Regulation Z §226.17 (5) Misleading terms. An advertisement may not refer to a home equity plan as “free money” or contain a similarly misleading term.
SUBPART C—CLOSED-END CREDIT SECTION 226.17—General Disclosure Requirements (a) Form of disclosures. (1) The creditor shall make the disclosures required by this subpart clearly and conspicuously in writ ing, in a form that the consumer may keep. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related37 to the disclosures re quired under section 226.18.38 The itemiza tion of the amount financed under section 226.18(c)(1) must be separate from the other disclosures under that section. (2) The terms “finance charge” and “an nual percentage rate,” when required to be disclosed under section 226.18(d) and (e) together with a corresponding amount or percentage rate, shall be more conspicuous than any other disclosure, except the credi tor’s identity under section 226.18(a). (b) Time of disclosures. The creditor shall make disclosures before consummation of the transaction. In certain residential mortgage transactions, special timing requirements are set forth in section 226.19(a). In certain vari able-rate transactions, special timing require ments for variable-rate disclosures are set forth in section 226.19(b) and section 226.20(c). In certain transactions involving mail or telephone orders or a series of sales, the timing of the disclosures may be delayed in accordance with paragraphs (g) and (h) of this section.
37 The disclosures may include an acknowledgment of receipt, the date of the transaction, and the consumer’s name, address, and account number. 38 The following disclosures may be made together or separately from other required disclosures: the creditor’s identity under section 226.18(a), the variable rate example under section 226.18(0(4), insurance under section 226.18(n), and certain security interest charges under sec tion 226.18(0).
(c) Basis of disclosures and use of estimates. (1) The disclosures shall reflect the terms of the legal obligation between the parties. (2) If any information necessary for an ac curate disclosure is unknown to the credi tor, it shall make the disclosure based on the best information reasonably available and shall state that the disclosure is an estimate.
(3) The creditor may disregard the effects of the following in making calculations and disclosures:
(i) That payments must be collected in whole cents.
(ii) That dates of scheduled payments and advances may be changed because the scheduled date is not a business day. (iii) That months have different num bers of days.
(iv) The occurrence of leap year. (4) In making calculations and disclo sures, the creditor may disregard any irreg ularity in the first period that falls within the limits described below and any payment schedule irregularity that results from the irregular first period— (i) For transactions in which the term is less than 1 year, a first period not more than 6 days shorter or 13 days longer than a regular period;
(ii) For transactions in which the term is at least 1 year and less than 10 years, a first period not more than 11 days shorter or 21 days longer than a regular period; and (iii) For transactions in which the term is at least 10 years, a first period shorter than or not more than 32 days longer than a regular period.
(5) If an obligation is payable on demand, the creditor shall make the disclosures based on an assumed maturity of one year. If an alternate maturity date is stated in the legal obligation between the parties, the dis closures shall be based on that date. (6) (i) A series of advances under an agreement to extend credit up to a cer tain amount may be considered as one transaction.
(ii) When a multiple-advance loan to fi Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§226.17 Regulation Z nance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction.
(d) Multiple creditors; multiple consumers. If a transaction involves more than one creditor, only one set of disclosures shall be given and the creditors shall agree among themselves which creditor must comply with the require ments that this regulation imposes on any or all of them. If there is more than one consum er, the disclosures may be made to any con sumer who is primarily liable on the obliga tion. If the transaction is rescindable under section 226.23, however, the disclosures shall be made to each consumer who has the right to rescind.
(e) Effect of subsequent events. If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of this regulation, although new disclosures may be required under paragraph (f) of this section, section 226.19, or section 226.20. (f) Early disclosures. If disclosures are given before the date of consummation of a transac tion and a subsequent event makes them inac curate, the creditor shall disclose the changed terms before consummation, if the annual per centage rate in the consummated transaction varies from the annual percentage rate dis closed under section 226.18(e) by more than | of 1 percentage point in a regular transac tion, or more than £ of 1 percentage point in an irregular transaction, as defined in section 226.22(a).
(g) Mail or telephone orders—delay in disclo sures. If a creditor receives a purchase order or a request for an extension of credit by mail, telephone, or any other written or electronic communication without face-to-face or direct telephone solicitation, the creditor may delay the disclosures until the due date of the first payment, if the following information for rep resentative amounts or ranges of credit is made available in written form to the consum er or to the public before the actual purchase order or request:
(1) The cash price or the principal loan amount.
(2) The total sale price.
(3) The finance charge.
(4) The annual percentage rate, and if the rate may increase after consummation, the following disclosures:
(i) The circumstances under which the rate may increase.
(ii) Any limitations on the increase. (iii) The effect of an increase. (5) The terms of repayment.
(h) Series of sales—delay in disclosures. If a credit sale is one of a series made under an agreement providing that subsequent sales may be added to an outstanding balance, the creditor may delay the required disclosures until the due date of the first payment for the current sale, if the following two conditions are met:
(1) The consumer has approved in writing the annual percentage rate or rates, the range of balances to which they apply, and the method of treating any unearned fi nance charge on an existing balance. (2) The creditor retains no security inter est in any property after the creditor has received payments equal to the cash price and any finance charge attributable to the sale of that property. For purposes of this provision, in the case of items purchased on different dates, the first purchased is deemed the first item paid for; in the case of items purchased on the same date, the low est priced is deemed the first item paid for. (i) Interim student credit extensions. For each transaction involving an interim credit extension under a student credit program, the creditor need not make the following disclo sures: the finance charge under section 226.18(d), the payment schedule under sec tion 226.18(g), the total of payments under section 226.18(h), or the total sale price un der section 226.18 (j).
SECTION 226.18—Content of Disclosures For each transaction, the creditor shall dis close the following information as applicable: Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.18 (a) Creditor. The identity of the creditor making the disclosures.
(b) Amount financed.
The “amount fi nanced,” using that term, and a brief de scription such as “the amount of credit pro vided to you or on your behalf.” The amount financed is calculated by— (1) Determining the principal loan amount or the cash price (subtracting any downpayment);
(2) Adding any other amounts that are fi nanced by the creditor and are not part of the finance charge; and (3) Subtracting any prepaid finance charge.
(c) Itemization of amount financed. (1) A separate written itemization of the amount financed, including: 39 (i) The amount of any proceeds distrib uted directly to the consumer. (ii) The amount credited to the consum er’s account with the creditor. (iii) Any amounts paid to other per sons by the creditor on the consumer’s behalf. The creditor shall identify those persons. 40 41 (iv) The prepaid finance charge. (2) The creditor need not comply with paragraph (c) (1) of this section if the cred itor provides a statement that the consumer has the right to receive a written itemiza tion of the amount financed, together with a space for the consumer to indicate whether it is desired, and the consumer does not re quest it.
(d) Finance charge. The “finance charge,” using that term, and a brief description such as “the dollar amount the credit will cost 39 Good faith estimates of settlement costs provided for transactions subject to the Real Estate Settlement Proce dures Act (12 USC 2601 et seq.) may be substituted for the disclosures required by paragraph (c) of this section. 40 The following payees may be described using generic or other general terms and need not be further identified: public officials or government agencies, credit reporting agencies, appraisers, and insurance companies. 41 The finance charge shall be considered accurate if it is not more than $5 above or below the exact finance charge in a transaction involving an amount financed of $1,000 or less, or not more than $10 above or below the exact finance charge in a transaction involving an amount financed of more than $1,000.
(e) Annual percentage rate. The “annual per centage rate,” using that term, and a brief de scription such as “the cost of your credit as a yearly rate.” 42 (f) Variable rate. (1) If the annual percent age rate may increase after consummation in a transaction not secured by the consum er’s principal dwelling or in a transaction secured by the consumer’s principal dwell ing with a term of one year or less, the fol lowing disclosures:43 * (i) The circumstances under which the rate may increase.
(ii) Any limitations on the increase. (iii) The effect of an increase. (iv) An example of the payment terms that would result from an increase. (2) If the annual percentage rate may in crease after consummation in a transaction secured by the consumer’s principal dwell ing with a term greater than one year, the following disclosures:
(i) The fact that the transaction con tains a variable-rate feature. (ii) A statement that variable-rate dis closures have been provided earlier. (g) Payment schedule.
The number, amounts, and timing of payments scheduled to repay the obligation.
(1) In a demand obligation with no alter nate maturity date, the creditor may com ply with this paragraph by disclosing the due dates or payment periods of any sched uled interest payments for the first year. (2) In a transaction in which a series of payments varies because a finance charge is applied to the unpaid principal balance, the creditor may comply with this paragraph by disclosing the following information: (i) The dollar amounts of the largest and smallest payments in the series. (ii) A reference to the variations in the other payments in the series. 42 For any transaction involving a finance charge of $5 or less on an amount financed of $75 or less, or a finance charge of $7.50 or less on an amount financed of more than $75, the creditor need not disclose the annual percentage rate.
43 Information provided in accordance with sections 226.18(f)(2) and 226.19(b) may be substituted for the dis closures required by paragraph (0 (1 ) of this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§226.18 Regulation Z (h) Total of payments. The “total of pay ments,” using that term, and a descriptive ex planation such as “the amount you will have paid when you have made all scheduled pay ments.” 44 (i) Demand feature. If the obligation has a demand feature, that fact shall be disclosed. When the disclosures are based on an as sumed maturity of one year as provided in section 226.17(c)(5), that fact shall also be disclosed.
(j) Total sale price. In a credit sale, the “total sale price,” using that term, and a descriptive explanation (including the amount of any downpayment) such as “the total price of your purchase on credit, including your downpayment of $________” The total sale price is the sum of the cash price, the items described in paragraph (b)(2), and the fi nance charge disclosed under paragraph (d) of this section.
(k) Prepayment. (1) When an obligation in cludes a finance charge computed from time to time by application of a rate to the unpaid principal balance, a statement indi cating whether or not a penalty may be im posed if the obligation is prepaid in full. (2) When an obligation includes a finance charge other than the finance charge de scribed in paragraph (k) (1) of this section, a statement indicating whether or not the consumer is entitled to a rebate of any fi nance charge if the obligation is prepaid in full.
(/) Late payment. Any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge.
(m) Security interest. The fact that the credi tor has or will acquire a security interest in the property purchased as part of the transac tion, or in other property identified by item or type.
(n) Insurance. The items required by section 226.4(d) in order to exclude certain insurance premiums from the finance charge. In any transaction involving a single payment, the creditor need not disclose the total of payments. (o) Certain security interest charges. The dis closures required by section 226.4(e) in order to exclude from the finance charge certain fees prescribed by law or certain premiums for insurance in lieu of perfecting a security interest.
(p) Contract reference. A statement that the consumer should refer to the appropriate con tract document for information about nonpayment, default, the right to accelerate the maturity of the obligation, and prepay ment rebates and penalties. At the creditor’s option, the statement may also include a refer ence to the contract for further information about security interests and, in a residential mortgage transaction, about the creditor’s policy regarding assumption of the obligation. (q) Assumption policy. In a residential mort gage transaction, a statement whether or not a subsequent purchaser of the dwelling from the consumer may be permitted to assume the re maining obligation on its original terms. (r) Required deposit. If the creditor requires the consumer to maintain a deposit as a condi tion of the specific transaction, a statement that the annual percentage rate does not re flect the effect of the required deposit.45 SECTION 226.19—Certain Residential Mortgage Transactions (a)(1) Time of disclosure. In a residential mortgage transaction subject to the Real Estate Settlement Procedures Act (12 USC 2601 et seq.) the creditor shall make good faith estimates of the disclosures required by section 226.18 before consummation, or shall deliver or place them in the mail not later than three business days after the creditor receives the consumer’s written ap plication, whichever is earlier. (2) Redisclosure required. If the annual percentage rate in the consummated trans action varies from the annual percentage rate disclosed under section 226.18(e) by A required deposit need not include, for example: (1) an escrow account for items such as taxes, insurance or repairs; (2) a deposit that earns not less than 5 percent per year; or (3) payments under a Morris Plan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.20 more than £ of 1 percentage point in a regu lar transaction or more than £ of 1 percent age point in an irregular transaction, as de fined in section 226.22, the creditor shall disclose the changed terms no later than consummation or settlement. (b) Certain variable-rate transactions.45a If the annual percentage rate may increase after consummation in a transaction secured by the consumer’s principal dwelling with a term greater than one year, the following disclo sures must be provided at the time an applica tion form is provided or before the consumer pays a nonrefundable fee, whichever is earlier:45b (1) The booklet titled Consumer Hand book on Adjustable Rate Mortgages pub lished by the Board and the Federal Home Loan Bank Board, or a suitable substitute. (2) A loan program disclosure for each variable-rate program in which the consum er expresses an interest. The following dis closures, as applicable, shall be provided: (i) The fact that the interest rate, pay ment, or term of the loan can change. (ii) The index or formula used in mak ing adjustments, and a source of informa tion about the index or formula. (iii) An explanation of how the interest rate and payment will be determined, in cluding an explanation of how the index is adjusted, such as by the addition of a margin.
(iv) A statement that the consumer should ask about the current margin val ue and current interest rate. (v) The fact that the interest rate will be discounted, and a statement that the con sumer should ask about the amount of the interest rate discount. (vi) The frequency of interest rate and payment changes.
(vii) Any rules relating to changes in 45a Information provided in accordance with variablerate regulations of other federal agencies may be substitut ed for the disclosures required by paragraph (b) of this section.
45b Disclosures may be delivered or placed in the mail not later than three business days following receipt of a consumer’s application when the application reaches the creditor by telephone, or through an intermediary agent or broker.
the index, interest rate, payment amount, and outstanding loan balance including, for example, an explanation of interest rate or payment limitations, negative am ortization, and interest rate carryover. (viii) An historical example, based on a $10,000 loan amount, illustrating how payments and the loan balance would have been affected by interest rate chang es implemented according to the terms of the loan program. The example shall be based upon index values beginning in 1977 and be updated annually until a 15year history is shown. Thereafter, the ex ample shall reflect the most recent 15 years of index values. The example shall reflect all significant loan program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and payment limita tions, that would have been affected by the index movement during the period. (ix) An explanation of how the consum er may calculate the payments for the loan amount to be borrowed based on the most recent payment shown in the histor ical example.
(x) The maximum interest rate and pay ment for a $10,000 loan originated at the most recent interest rate shown in the historical example assuming the maxi mum periodic increases in rates and pay ments under the program; and the initial interest rate and payment for that loan. (xi) The fact that the loan program con tains a demand feature.
(xii) The type of information that will be provided in notices of adjustments and the timing of such notices. (xiii) A statement that disclosure forms are available for the creditor’s other vari able-rate loan programs.
SECTION 226.20—Subsequent Disclosure Requirements (a) Refinancings. A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obli gation undertaken by the same consumer. A refinancing is a new transaction requiring new Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.20 Regulation Z disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing: (1) A renewal of a single payment obliga tion with no change in the original terms. (2) A reduction in the annual percentage rate with a corresponding change in the payment schedule.
(3) An agreement involving a court proceeding.
(4) A change in the payment schedule or a change in collateral requirements as a result of the consumer’s default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid bal ance plus earned finance charge and premi ums for continuation of insurance of the types described in section 226:4(d). (5) The renewal of optional insurance pur chased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as re quired by this subpart.
(b) Assumptions.
An assumption occurs when a creditor expressly agrees in writing with a subsequent consumer to accept that consumer as a primary obligor on an existing residential mortgage transaction. Before the assumption occurs, the creditor shall make new disclosures to the subsequent consumer, based on the remaining obligation. If the fi nance charge originally imposed on the exist ing obligation was an add-on or discount fi nance charge, the creditor need only disclose: (1) The unpaid balance of the obligation assumed.
(2) The total charges imposed by the cred itor in connection with the assumption. (3) The information required to be dis closed under section 226.18(k), (/), (m), and (n).
(4) The annual percentage rate originally imposed on the obligation.
(5) The payment schedule under section 226.18(g) and the total of payments under section 226.18(h), based on the remaining obligation.
(c) Variable-rate adjustments.45c An adjust ment to the interest rate with or without a corresponding adjustment to the payment in a variable-rate transaction subject to section 226.19(b) is an event requiring new disclo sures to the consumer. At least once each year during which an interest rate adjustment is implemented without an accompanying pay ment change, and at least 25, but no more than 120, calendar days before a payment at a new level is due, the following disclosures, as applicable, must be delivered or placed in the mail:
(1) The current and prior interest rates. (2) The index values upon which the cur rent and prior interest rates are based. (3) The extent to which the creditor has foregone any increase in the interest rate. (4) The contractual effects of the adjust ment, including the payment due after the adjustment is made, and a statement of the loan balance.
(5) The payment, if different from that re ferred to in paragraph (c)(4) of this sec tion, that would be required to fully amor tize the loan at the new interest rate over the remainder of the loan term. SECTION 226.21—Treatment of Credit Balances When a credit balance in excess of $ 1 is creat ed in connection with a transaction (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of unearned finance charges or insur ance premiums, or through amounts other wise owed to or held for the benefit of a con sumer), the creditor shall— (a) Credit the amount of the credit balance to the consumer’s account;
(b) Refund any part of the remaining credit balance, upon the written request of the con sumer; and (c) Make a good faith effort to refund to the consumer by cash, check, or money order, or 45c Information provided in accordance with variablerate subsequent-disclosure regulations of other federal agencies may be substituted for the disclosure required by paragraph (c) of this section. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.22 credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than 6 months, except that no further action is required if the consumer’s current location is not known to the creditor and cannot be traced through the consumer’s last known address or telephone number. SECTION 226.22—Determination of Annual Percentage Rate (a) Accuracy of annual percentage rate. (1) The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The annual percentage rate shall be determined in ac cordance with either the actuarial method or the United States Rule method. Explana tions, equations and instructions for deter mining the annual percentage rate in ac cordance with the actuarial method are set forth in appendix J to this regulation.45*1 (2) As a general rule, the annual percent age rate shall be considered accurate if it is not more than | of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.
(3) In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than \ of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.46 (b) Computation tools. (1) The Regulation Z Annual Percentage Rate Tables produced 45d An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this regulation if (1) the error resulted from a corre sponding error in a calculation tool used in good faith by the creditor; and (2) upon discovery of the error, the credi tor promptly discontinues use of that calculation tool for disclosure purposes and notifies the Board in writing of the error in the calculation tool. For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an ir regular first period or an irregular first or final payment). by the Board may be used to determine the annual percentage rate, and any rate deter mined from those tables in accordance with the accompanying instructions complies with the requirements of this section. Vol ume I of the tables applies to single-advance transactions involving up to 480 monthly payments or 104 weekly payments. It may be used for regular transactions and for transactions with any of the following irreg ularities: an irregular first period, an irregu lar first payment, and an irregular final pay ment. Volume II of the tables applies to transactions involving multiple advances and any type of payment or period irregularity.
(2) Creditors may use any other computa tion tool in determining the annual percent age rate if the rate so determined equals the rate determined in accordance with appen dix J, within the degree of accuracy set forth in paragraph (a) of this section. (c) Single add-on rate transactions. If a single add-on rate is applied to all transactions with maturities up to 60 months and if all pay ments are equal in amount and period, a sin gle annual percentage rate may be disclosed for all those transactions, so long as it is the highest annual percentage rate for any such transaction.
(d) Certain transactions involving ranges of balances. For purposes of disclosing the annu al percentage rate referred to in section 226.17(g) (4) (Mail or Telephone Orders— Delay in Disclosures) and (h) (Series of Sales—Delay in Disclosures), if the same fi nance charge is imposed on all balances with in a specified range of balances, the annual percentage rate computed for the median bal ance may be disclosed for all the balances. However, if the annual percentage rate com puted for the median balance understates the annual percentage rate computed for the low est balance by more than 8 percent of the lat ter rate, the annual percentage rate shall be computed on whatever lower balance will pro duce an annual percentage rate that does not result in an understatement of more than 8 percent of the rate determined on the lowest balance.
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§ 226.23 Regulation Z SECTION 226.23—Right of Rescission (a) Consumer's right to rescind. (1) In a credit transaction in which a security inter est is or will be retained or acquired in a consumer’s principal dwelling, each con sumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (0 of this section.47 (2) To exercise the right to rescind, the consumer shall notify the creditor of the re scission by mail, telegram or other means of written communication. Notice is consid ered given when mailed, when filed for tele graphic transmission or, if sent by other means, when delivered to the creditor’s des ignated place of business.
(3) The consumer may exercise the right to rescind until midnight of the third busi ness day following consummation, delivery of the notice required by paragraph (b) of this section, or delivery of all material dis closures,48 whichever occurs last. If the re quired notice or material disclosures are not delivered, the right to rescind shall expire three years after consummation, upon transfer of all of the consumer’s interest in the property, or upon sale of the property, whichever occurs first. In the case of certain administrative proceedings, the rescission period shall be extended in accordance with section 125(f) of the act.
(4) When more than one consumer in a transaction has the right to rescind, the ex ercise of the right by one consumer shall be effective as to all consumers. (b) Notice of right to rescind. In a transaction subject to rescission, a creditor shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind. The no- For purposes of this section, the addition to an existing obligation of a security interest in a consumer’s principal dwelling is a transaction. The right of rescission applies only to the addition of the security interest and not the existing obligation. The creditor shall deliver the notice re quired by paragraph (b) of this section but need not deliver new material disclosures. Delivery of the required notice shall begin the rescission period. ‘“ The term “material disclosures” means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, and the payment schedule.
tice shall be on a separate document that iden tifies the transaction and shall clearly and conspicuously disclose the following: (1) The retention or acquisition of a secu rity interest in the consumer’s principal dwelling.
(2) The consumer’s right to rescind the transaction.
(3) How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor’s place of business.
(4) The effects of rescission, as described in paragraph (d) of this section. (5) The date the rescission period expires. (c) Delay of creditor's performance. Unless a consumer waives the right of rescission under paragraph (e) of this section, no money shall be disbursed other than in escrow, no services shall be performed and no materials delivered until the rescission period has expired and the creditor is reasonably satisfied that the con sumer has not rescinded.
(d) Effects of rescission. (1) When a consum e r r e s c in d s a tr a n s a c tio n , th e s e c u r ity in te r est giving rise to the right of rescission be comes void and the consumer shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action neces sary to reflect the termination of the securi ty interest.
(3) If the creditor has delivered any mon ey or property, the consumer may retain possession until the creditor has met its ob ligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the credi tor or, where the latter would be impracti cable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the cred itor’s designated place of business. If the creditor does not take possession of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation. (4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be mod ified by court order.
(e) Consumer's waiver of right to rescind. The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that de scribes the emergency, specifically modifies or waives the right to rescind, and bears the sig nature of all of the consumers entitled to re scind. Printed forms for this purpose are prohibited.
(f) Exempt transactions. The right to rescind does not apply to the following: (1) A residential mortgage transaction. (2) A refinancing or consolidation by the same creditor of an extension of credit al ready secured by the consumer’s principal dwelling. The right of rescission shall apply, however, to the extent the new amount fi nanced exceeds the unpaid principal bal ance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.
(3) A transaction in which a state agency is a creditor.
(4) An advance, other than an initial ad vance, in a series of advances or in a series of single-payment obligations that is treated as a single transaction under section 226.17 (c)(6), if the notice required by paragraph (b) of this section and all material disclo sures have been given to the consumer. (5) A renewal of optional insurance premi ums that is not considered a refinancing un der section 226.20(a)(5).
SECTION 226.24—Advertising (a) Actually available terms. If an advertise ment for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the creditor. § 226.24 (b) Advertisement of rate of finance charge. If an advertisement states a rate of finance charge, it shall state the rate as an “annual percentage rate,” using that term. If the annu al percentage rate may be increased after con summation, the advertisement shall state that fact. The advertisement shall not state any other rate, except that a simple annual rate or periodic rate that is applied to an unpaid bal ance may be stated in conjunction with, but not more conspicuously than, the annual per centage rate.
(c) Advertisement of terms that require addi tional disclosures. (1) If any of the following terms is set forth in an advertisement, the advertisement shall meet the requirements of paragraph (c) (2) of this section: (i) The amount or percentage of any downpayment.
(ii) The number of payments or period of repayment.
(iii) The amount of any payment. (iv) The amount of any finance charge. (2) An advertisement stating any of the terms in paragraph (c)(1) of this section shall state the following terms,49 as applicable:
(i) The amount or percentage of the downpayment.
(ii) The terms of repayment. (iii) The “annual percentage rate,” us ing that term, and, if the rate may be in creased after consummation, that fact. (d) Catalogs and multiple-page advertise ments. (1) If a catalog or other multiple-page advertisement gives information in a table or schedule in sufficient detail to permit de termination of the disclosures required by paragraph (c) (2) of this section, it shall be considered a single advertisement if— (i) The table or schedule is clearly set forth; and (ii) Any statement of the credit terms in paragraph (c)(1) of this section appear ing anywhere else in the catalog or adver tisement clearly refers to the page on which the table or schedule begins. 49 An example of one or more typical extensions of credit with a statement of all the terms applicable to each may be used.
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§ 226.24 Regulation Z (2) A catalog or multiple-page advertise ment complies with paragraph (c)(2) of this section if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higherpriced property or services offered. SUBPART D—MISCELLANEOUS SECTION 226.25—Record Retention (a) General rule. A creditor shall retain evi dence of compliance with this regulation (oth er than advertising requirements under sec tions 226.16 and 226.24) for two years after the date disclosures are required to be made or action is required to be taken. The adminis trative agencies responsible for enforcing the regulation may require creditors under their jurisdictions to retain records for a longer pe riod if necessary to carry out their enforce ment responsibilities under section 108 of the act.
(b) Inspection of records. A creditor shall permit the agency responsible for enforcing this regulation with respect to that creditor to inspect its relevant records for compliance. SECTION 226.26—Use of Annual Percentage Rate in Oral Disclosures (a) Open-end credit. In an oral response to a consumer’s inquiry about the cost of open-end credit, only the annual percentage rate or rates shall be stated, except that the periodic rate or rates also may be stated. If the annual percentage rate cannot be determined in ad vance because there are finance charges other than a periodic rate, the corresponding annual percentage rate shall be stated, and other cost information may be given.
(b) Closed-end credit. In an oral response to a consumer’s inquiry about the cost of closedend credit, only the annual percentage rate shall be stated, except that a simple annual rate or periodic rate also may be stated if it is applied to an unpaid balance. If the annual percentage rate cannot be determined in advance, the annual percentage rate for a sample transaction shall be stated, and other cost in formation for the consumer’s specific transac tion may be given.
SECTION 226.27—Spanish Language Disclosures All disclosures required by this regulation shall be made in the English language, except in the Commonwealth of Puerto Rico, where creditors may, at their option, make disclo sures in the Spanish language. If Spanish dis closures are made, English disclosures shall be provided on the consumer’s request, either in substitution for or in addition to the Spanish disclosures. This requirement for providing English disclosures on request shall not apply to advertisements subject to sections 226.16 and 226.24 of this regulation. SECTION 226.28—Effect on State Laws (a) Inconsistent disclosure requirements. (1) Except as provided in paragraph (d) of this section, state law requirements that are in consistent with the requirements contained in chapter 1 (General Provisions), chapter 2 (Credit Transactions), or chapter 3 (Credit Advertising) of the act and the im plementing provisions of this regulation are preempted to the extent of the inconsist ency. A state law is inconsistent if it re quires a creditor to make disclosures or take actions that contradict the require ments of the federal law. A state law is con tradictory if it requires the use of the same term to represent a different amount or a different meaning than the federal law, or if it requires the use of a term different from that required in the federal law to describe the same item. A creditor, state, or other interested party may request the Board to determine whether a state law requirement is inconsistent. After the Board determines that a state law is inconsistent, a creditor may not make disclosures using the incon sistent term or form.
(2)(i) State law requirements are incon sistent with the requirements contained in sections 161 (Correction of Billing Er- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z § 226.29 rors) or 162 (Regulation of Credit Re ports) of the act and the implementing provisions of this regulation and are pre empted if they provide rights, responsi bilities, or procedures for consumers or creditors that are different from those re quired by the federal law. However, a state law that allows a consumer to in quire about an open-end credit account and imposes on the creditor an obligation to respond to such inquiry after the time allowed in the federal law for the con sumer to submit written notice of a bill ing error shall not be preempted in any situation where the time period for mak ing written notice under this regulation has expired. If a creditor gives written notice of a consumer’s rights under such state law, the notice shall state that reli ance on the longer time period available under state law may result in the loss of important rights that could be preserved by acting more promptly under federal law; it shall also explain that the state law provisions apply only after expiration of the time period for submitting a prop er written notice of a billing error under the federal law. If the state disclosures are made on the same side of a page as the required federal disclosures, the state disclosures shall appear under a demar cation line below the federal disclosures, and the federal disclosures shall be iden tified by a heading indicating that they are made in compliance with federal law. (ii) State law requirements are incon sistent with the requirements contained in chapter 4 (Credit Billing) of the act (other than sections 161 or 162) and the implementing provisions of this regula tion and are preempted if the creditor cannot comply with state law without vi olating federal law.
(iii) A state may request the Board to determine whether its law is inconsistent with chapter 4 of the act and its imple menting provisions.
(b) Equivalent disclosure requirements. If the Board determines that a disclosure required by state law (other than a requirement relat ing to the finance charge or annual percentage rate) is substantially the same in meaning as a disclosure required under the act or this regu lation, creditors in that state may make the state disclosure in lieu of the federal disclo sure. A creditor, state, or other interested par ty may request the Board to determine wheth er a state disclosure is substantially the same in meaning as a federal disclosure. (c) Request for determination. The proce dures under which a request for a determina tion may be made under this section are set forth in appendix A.
(d) Special rule for credit and charge cards. State law requirements relating to the disclo sure of credit information in any credit or charge card application or solicitation that is subject to the requirements of section 127(c) of chapter 2 of the act (section 226.5a of the regulation) or in any renewal notice for a credit or charge card that is subject to the re quirements of section 127(d) of chapter 2 of the act (section 226.9(e) of the regulation) are preempted. State laws relating to the en forcement of section 127(c) and (d) of the act are not preempted.
SECTION 226.29—State Exemptions (a) General rule. Any state may apply to the Board to exempt a class of transactions within the state from the requirements of chapter 2 (Credit Transactions) or chapter 4 (Credit Billing) of the act and the corresponding pro visions of this regulation. The Board shall grant an exemption if it determines that— (1) The state law is substantially similar to the federal law or, in the case of chapter 4, affords the consumer greater protection than the federal law; and (2) There is adequate provision for enforcement.
(b) Civil liability. (1) No exemptions grant ed under this section shall extend to the civ il liability provisions of sections 130 and 131 of the act.
(2) If an exemption has been granted, the disclosures required by the applicable state law (except any additional requirements not imposed by federal law) shall constitute the disclosures required by this act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 226.29 Regulation Z (c) Applications.
The procedures under which a state may apply for an exemption un der this section are set forth in appendix B. SECTION 226.30—Limitation on Rates A creditor shall include in any consumer credit contract secured by a dwelling and sub ject to the act and this regulation the maxi mum interest rate that may be imposed during the term of the obligation50 when— (a) in the case of closed-end credit, the an nual percentage rate may increase after consummation, or (b) in the case of open-end credit, the an nual percentage rate may increase during the plan.
APPENDIX A—Effect on State Laws Request for Determination A request for a determination that a state law is inconsistent or that a state law is substan tially the same as the act and regulation shall be in writing and addressed to the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. The request shall be made pursuant to the procedures herein and the Board’s Rules of Procedure (12 CFR 262).
Supporting Documents A request for a determination shall include the following items:
(1) The text of the state statute, regula tion, or other document that is the subject of the request.
(2) Any other statute, regulation, or judi cial or administrative opinion that imple ments, interprets, or applies the relevant provision.
(3) A comparison of the state law with the corresponding provision of the federal law, including a full discussion of the basis for the requesting party’s belief that the state 50 Compliance with this section will constitute compli ance with the disclosure requirements on limitations on in creases in footnote 12 to section 226.6(a)(2) and section 226.18(f)(2) until October 1, 1988. provision is either inconsistent or substan tially the same.
(4) Any other information that the re questing party believes may assist the Board in its determination.
Public Notice of Determination Notice that the Board intends to make a de termination (either on request or on its own motion) will be published in the Federal Reg ister, with an opportunity for public comment, unless the Board finds that notice and oppor tunity for comment would be impracticable, unnecessary, or contrary to the public interest and publishes its reasons for such decision. Subject to the Board’s Rules Regarding Availability of Information (12 CFR 261), all requests made, including any documents and other material submitted in support of the re quests, will be made available for public in spection and copying.
Notice After Determination Notice of a final determination will be pub lished in the Federal Register and the Board will furnish a copy of such notice to the party who made the request and to the appropriate state official.
Reversal of Determination The Board reserves the right to reverse a de termination for any reason bearing on the cov erage or effect of state or federal law. Notice of reversal of a determination will be published in the Federal Register and a copy furnished to the appropriate state official. APPENDIX B—State Exemptions Application Any state may apply to the Board for a deter mination that a class of transactions subject to state law is exempt from the requirements of the act and this regulation. An application shall be in writing and addressed to the Secre tary, Board of Governors of the Federal Re serve System, Washington, D.C. 20551, and shall be signed by the appropriate state offi cial. The application shall be made pursuant Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix B to the procedures herein and the Board’s Rules of Procedure (12 CFR 262). Supporting Documents An application shall be accompanied by: (1) The text of the state statute or regula tion that is the subject of the application, and any other statute, regulation, or judicial or administrative opinion that implements, interprets, or applies it.
(2) A comparison of the state law with the corresponding provisions of the federal law. (3) The text of the state statute or regula tion that provides for civil and criminal lia bility and administrative enforcement of the state law.
(4) A statement of the provisions for en forcement, including an identification of the state office that administers the relevant law, information on the funding and the number and qualifications of personnel en gaged in enforcement, and a description of the enforcemnt procedures to be followed, including information on examination pro cedures, practices, and policies. If an ex emption application extends to federally chartered institutions, the applicant must furnish evidence that arrangements have been made with the appropriate federal agencies to ensure adequate enforcement of state law in regard to such creditors. (5) A statement of reasons to support the applicant’s claim that an exemption should be granted.
Public Notice of Application Notice of an application will be published, with an opportunity for public comment, in the Federal Register, unless the Board finds that notice and opportunity for comment would be impracticable, unnecessary, or con trary to the public interest and publishes its reasons for such decision.
Subject to the Board’s Rules Regarding Availability of Information (12 CFR 261), all applications made, including any documents and other material submitted in support of the applications, will be made available for public inspection and copying. A copy of the applica tion also will be made available at the Federal Reserve Bank of each District in which the applicant is situated.
Favorable Determination If the Board determines on the basis of the information before it that an exemption should be granted, notice of the exemption will be published in the Federal Register, and a copy furnished to the applicant and to each federal official responsible for administrative enforcement.
The appropriate state official shall inform the Board within 30 days of any change in its relevant law or regulations. The official shall file with the Board such periodic reports as the Board may require.
The Board will inform the appropriate state official of any subsequent amendments to the federal law, regulation, interpretations, or en forcement policies that might require an amendment to state law, regulation, interpre tations, or enforcement procedures. Adverse Determination If the Board makes an initial determination that an exemption should not be granted, the Board will afford the applicant a reasonable opportunity to demonstrate further that an exemption is proper. If the Board ultimately finds that an exemption should not be grant ed, notice of an adverse determination will be published in the Federal Register and a copy furnished to the applicant. Revocation of Exemption The Board reserves the right to revoke an ex emption if at any time it determines that the standards required for an exemption are not met.
Before taking such action, the Board will notify the appropriate state official of its in tent, and will afford the official such opportu nity as it deems appropriate in the circum stances to demonstrate that revocation is improper. If the Board ultimately finds that revocation is proper, notice of the Board’s in tention to revoke such exemption will be pub lished in the Federal Register with a reason able period of time for interested persons to comment.
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Appendix B Regulation Z Notice of revocation of an exemption will be published in the Federal Register. A copy of such notice will be furnished to the appro priate state official and to the federal officials responsible for enforcement. Upon revocation of an exemption, creditors in that state shall then be subject to the requirements of the fed eral law.
APPENDIX C—Issuance of Staff Interpretations Official Staff Interpretations Officials in the Board’s Division of Consumer and Community Affairs are authorized to is sue official staff interpretations of this regula tion. These interpretations provide the protec tion afforded under section 130(f) of the act. Except in unusual circumstances, such inter pretations will not be issued separately but will be incorporated in an official commentary to the regulation, which will be amended periodically.
Requests for Issuance of Official Staff Interpretations A request for an official staff interpretation shall be in writing and addressed to the Direc tor, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. The request shall contain a complete state ment of all relevant facts concerning the issue, including copies of all pertinent documents. Scope of Interpretations No staff interpretations will be issued approv ing creditors’ forms, statements, or calcula tion tools or methods. This restriction does not apply to forms, statements, tools, or meth ods whose use is required or sanctioned by a government agency.
APPENDIX D—Multiple-Advance Construction Loans Section 226.17(c)(6) permits creditors to treat multiple-advance loans to finance con struction of a dwelling that may be perma nently financed by the same creditor either as a single transaction or as more than one trans action. If the actual schedule of advances is not known, the following methods may be used to estimate the interest portion of the fi nance charge and the annual percentage rate and to make disclosures. If the creditor choos es to disclose the construction phase separate ly, whether interest is payable periodically or at the end of construction, part I may be used. If the creditor chooses to disclose the con struction and the permanent financing as one transaction, part II may be used. Part I—Construction Period Disclosed Separately A. If interest is payable only on the amount actually advanced for the time it is outstanding:
1. Estimated interest—Assume that onehalf of the commitment amount is out standing at the contract interest rate for the entire construction period. 2. Estimated annual percentage rate—As sume a single-payment loan that matures at the end of the construction period. The fi nance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation pur poses is determined by subtracting any pre paid finance charge from one-half of the commitment amount.
3. Repayment schedule—The number and amounts of any interest payments may be omitted in disclosing the payment schedule under section 226.18(g). The fact that in terest payments are required and the timing of such payments shall be disclosed. 4. Amount financed—The amount fi nanced for disclosure purposes is the entire commitment amount less any prepaid fi nance charge.
B. If interest is payable on the entire commit ment amount without regard to the dates or amounts of actual disbursement: 1. Estimated interest—Assume that the en tire commitment amount is outstanding at the contract interest rate for the entire con struction period.
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Regulation Z Appendix D nance charge is the sum of the estimated interest and any prepaid finance charge. The amount financed for computation pur poses is determined by subtracting any pre paid finance charge from one-half of the commitment amount.
3. Repayment schedule—Interest pay ments shall be disclosed in making the re payment schedule disclosure under section 4. Amount financed—The amount fi nanced for disclosure purposes is the entire commitment amount less any prepaid fi nance charge.
E X A M P L E :
Assume a $50,000 loan commitment at 10.5 percent interest with a five-month construc tion period and a prepaid finance charge of 2 2 2 6 . 1 8 ( g ) .
p o in ts .
(A) (B) E stim ated interest:
$ 2 5 ,0 0 0 X .105 -4- 12 X 5 = $1,093.75 $ 5 0 ,0 0 0 X .105 12 X 5 = $2,1 8 7 .5 0 E stim ated A P R :
(1 ,0 9 3 .7 5 + 1 ,000) X 100 4- 5 X 12 = (2 ,1 8 7 .5 0 4- 1,000) x 100 -r- 5 X 12 = (2 5 ,0 0 0 - 1,000) 20.94% (2 5 ,0 0 0 - 1,000) 31.88% Disclosures:
A m o u n t financed $ 4 9 ,0 0 0 .0 0 $49 ,0 0 0 .0 0 Prepaid finance charge 1,000.00 1,000.00 F I N A N C E C H A R G E (estim a te) 2 ,093.75 3,187.50 A N N U A L P E R C E N T A G E R A T E (estim a te) 20.94% 31.88% R ep aym en t: O ne paym en t o f prin cip al o f $ 5 0 ,0 0 0 o n 12-12-80. Inter est on th e am ou n t o f credit o u t stan d in g w ill be paid m on th ly. 4 m o n th ly p aym en ts o f $437.50, b e gin n in g 8-12-80, and a final pay m en t o f $ 5 0 ,4 3 7 .5 0 on 12-12-80. T o ta l o f p aym en ts (estim a te) $ 5 1,093.75 $52 ,1 8 7 .5 0 Part II—Construction and permanent financing disclosed as one transaction A. The creditor shall estimate the interest payable during the construction period to be included in the total finance charge as follows: 1. If interest is payable only on the amount actually advanced for the time it is out standing, assume that one-half of the commitment amount is outstanding at the contract interest rate for the entire con struction period.
2. If interest is payable on the entire com mitment amount without regard to the dates or amounts of actual disbursement, assume that the entire commitment amount is outstanding at the contract rate for the entire construction period. B. The creditor shall compute the estimated annual percentage rate as follows: 1. Estimated interest payable during the construction period shall be treated for computation purposes as a prepaid finance charge (although it shall not be treated as a prepaid finance charge for disclosure purposes).
2. The number of payments shall not in clude any payments of interest only that are made during the construction period. 3. The first payment period shall consist of one-half of the construction period plus the period between the end of the construction period and the first amortization payment. C. The creditor shall disclose the repayment schedule as follows:
I. For loans under paragraph A.l. of part II, without reflecting the number or amounts of payments of interest only that Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix D Regulation Z are made during the construction period. The fact that interest payments must be made and the timing of such payments shall be disclosed.
2.
For loans under paragraph A.2. of part o II, including any payments of interest only that are made during the construction period.
D. The creditor shall disclose the amount fi nanced as the entire commitment amount less any prepaid finance charge. E X A M P L E :
Assume a $50,000 loan commitment at 10.5 percent interest with a five-month construc tion period and a prepaid finance charge of 2 points, followed by 30-year permanent financ ing at the same rate with monthly amortiza tion payments of $457.37. Computation of Estimated APR Interest on amount advanced Interest on entire commitment E stim ated con stru ction interest: $ 2 5 ,0 0 0 X .105 -f 12 X 5 = $1,093.75 $ 5 0 ,0 0 0 X .105 H- 12 X 5 = $ 2 ,1 8 7 .5 0 E stim ated total finance charge: 3 6 0 X $ 4 5 7 .3 7 = $164,6 5 3 .2 0 P rin cip al — 50,0 0 0 .0 0 $ 1 6 4 ,6 5 3 .2 0 - 5 0 ,0 0 0 .0 0 Interest on perm anent fin ancing 114,653.20 C on stru ction interest + 1,093.75 P o in ts -|- 1,000.00 $ 116,746.95 114,653.20 + 2 ,1 8 7 .5 0 + 1,000.00 $ 1 1 7 ,8 4 0 .7 0 E stim ated am ou n t financed: P rin cip al $50 ,0 0 0 .0 0 C on stru ction interest — 1,093.75 P o in ts — 1,000.00 $47,906.25 $5 0 ,0 0 0 .0 0 - 2,1 8 7 .5 0 - 1,000.00 $46 ,8 1 2 .5 0 N u m b er o f paym en ts P aym en t am ou n t $457.37 $457.37 F irst p aym en t period (5 -4- 2 ) + 1 3 | m on th s (5 - 2 ) + 1 3 | m on th s E stim ated A P R (A ctu a ria l) E stim ated A P R (V o lu m e I): 10.75% 11.03% 11,674,695 _ 2 4 3 .7 0 - F C /$ 1 0 0 4 7 ,9 0 6 .2 5 11,784,070 _ 251.73 - F C /$ 1 0 0 4 6 ,8 1 2 .5 0 F irst period adjustm ent = 3 m o ., 15 d ays = + 5 .0 F irst period ad justm ent = 3 m o., 15 d ays = + 5 .0 U sin g 365 p aym en t lin e, th e figure clo sest to 2 4 3 .7 0 is 247.00, w h ich corresp on d s to an A P R o f 11% U sin g 365 p aym en t lin e, th e figure closest to 251.73 is 253.93, w h ich corresp on d s to an A P R o f 11.25% Disclosures A m o u n t financed $49 ,0 0 0 .0 0 $4 9 ,0 0 0 .0 0 P repaid finance charge 1,000.00 1,000.00 F I N A N C E C H A R G E (estim a te) 116,746.95 117,840.70 A N N U A L P E R C E N T A G E R A T E (estim a te) 11% 11.25% R epaym ent: Interest on th e am ou n t o f credit ou tsta n d in g during the co n stru ctio n period w ill be paid m o n th ly , fo llo w ed by 360 m on th ly p aym en ts o f $45 7 .37, beginn ing 1- 12-81.
5 m o n th ly p aym en ts o f $437 .5 0 b e gin n in g 8-12-80, follow ed by 360 m o n th ly p aym en ts o f $457.37 b e gin n in g 1-12-81.
T o ta l o f paym en ts (estim a te) $ 1 65,746.95 $ 1 6 6 ,8 4 0 .7 0 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix F A PPEN D IX E— Rules for Card Issuers That Bill on a Transaction-by- Transaction Basis The following provisions of subpart B apply if credit cards are issued and (1) the card issuer and the seller are the same or related persons; (2) no finance charge is imposed; (3) con sumers are billed in full for each use of the card on a transaction-by-transaction basis, by means of an invoice or other statement reflect ing each use of the card; and (4) no cumula tive account is maintained which reflects the transactions by each consumer during a peri od of time, such as a month: Section 226.6(d), and, as applicable, section 226.6(b) and (c). The disclosure required by Section 226.6(b) shall be limited to those charges that are or may be imposed as a result of the deferral of payment by use of the card, such as late payment or delinquency charges. Section 226.7(b) and section 226.7(k). Cred itors may comply by placing the required dis closures on the invoice or statement sent to the consumer for each transaction. Section 226.9(a). Creditors may comply by mailing or delivering the statement required by section 226.6(d) (see appendix G-3) to each consumer receiving a transaction invoice during a one-month period chosen by the card issuer or by sending either the statement pre scribed by section 226.6(d) or an alternative billing error rights statement substantially similar to that in appendix G-4, with each in voice sent to a consumer.
Section 226.9(c).
Section 226.10.
Section 226.11. This section applies when a card issuer receives a payment or other credit that exceeds by more than $ 1 the amount due, as shown on the transaction invoice. The re quirement to credit amounts to an account may be complied with by other reasonable means, such as by a credit memorandum. Since no periodic statement is provided, a no tice of the credit balance shall be sent to the consumer within a reasonable period of time following its occurrence unless a refund of the credit balance is mailed or delivered to the consumer within seven business days of its re ceipt by the card issuer.
Section 226.12 including section 226.12(c) and (d), as applicable. Section 226.12(e) is inapplicable.
Section 226.13, as applicable. All references to “periodic statement” shall be read to indi cate the invoice or other statement for the rel evant transaction. All actions with regard to correcting and adjusting a consumer’s account may be taken by issuing a refund or a new invoice, or by other appropriate means con sistent with the purposes of the section. Section 226.15, as applicable. A PPEN D IX F—Annual Percentage Rate Computations for Certain Open- End Credit Plans In determining the denominator of the frac tion under section 226.14(c)(3), no amount will be used more than once when adding the sum of the balances1 subject to periodic rates to the sum of the amounts subject to specific transaction charges. In every case, the full amount of transactions subject to specific transaction charges shall be included in the denominator. Other balances or parts of bal ances shall be included according to the man ner of determining the balance subject to a periodic rate, as illustrated in the following examples of accounts on monthly billing cycles:
1. Previous balance—none.
A specific transaction of $100 occurs on the first day of the billing cycle. The average daily balance is $100. A specific transaction charge of 3 percent is applicable to the specific trans action. The periodic rate is 1^ percent applica ble to the average daily balance. The numera tor is the amount of the finance charge, which is $4.50. The denominator is the amount of the transaction (which is $100), plus the amount by which the balance subject to the periodic rate exceeds the amount of the specif ic transactions (such excess in this case is 0), totaling $100.
The annual percentage rate is the quotient (which is \ \ percent) multiplied by 12 (the number of months in a year), i.e., 54 percent. 'Where a portion of the finance charge is determined by application of one or more daily periodic rates, the phrase “sum of the balances” shall also mean the “average of daily balances.”
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Appendix F Regulation Z 2. Previous balance—$100.
A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. A specific transaction charge of 3 percent is applicable to the specific transaction. The periodic rate is 1^ percent applicable to the average daily balance. The numerator is the amount of the finance charge which is $5.25. The denominator is the amount of the transaction (which is $100), plus the amount by which the balance subject to the periodic rate exceeds the amount of the specific transaction (such excess in this case is $50), totaling $150. As explained in example 1, the annual percentage rate is 3|% X 12 = 42%.
3. If, in example 2, the periodic rate applies only to the previous balance, the numerator is $4.50 and the denominator is $200 (the amount of the transaction, $100, plus the bal ance subject only to the periodic rate, the $100 previous balance). As explained in ex ample 1, the annual percentage rate is 2\% X 12 = 27%.
4. If, in example 2, the periodic rate applies only to an adjusted balance (previous balance less payments and credits) and the consumer made a payment of $50 at the midpoint of the billing cycle, the numerator is $3.75 and the denominator is $150 (the amount of the trans action, $100, plus the balance subject to the periodic rate, the $50 adjusted balance). As explained in example 1, the annual percentage rate is 2^% X 12 = 30%.
5. Previous balance—$100.
A specific transaction (check) of $100 oc curs at the midpoint of the billing cycle. The average daily balance is $150. The specific transaction charge is $.25 per check. The peri odic rate is 1^ percent applied to the average daily balance. The numerator is the amount of the finance charge, which is $2.50 and in cludes the $.25 check charge and the $2.25 resulting from the application of the periodic rate. The denominator is the full amount of the specific transaction (which is $100) plus the amount by which the average daily bal ance exceeds the amount of the specific trans action (which in this case is $50), totaling $150. As explained in example 1, the annual percentage rate would be 1§% X 12 = 20%.
6. Previous balance—none.
A specific transaction of $100 occurs at the midpoint of the billing cycle. The average daily balance is $50. The specific transaction charge is 3 percent of the transaction amount or $3.00. The periodic rate is \\ percent per month applied to the average daily balance. The numerator is the amount of the finance charge, which is $3.75, including the $3.00 transaction charge and $.75 resulting from ap plication of the periodic rate. The denomina tor is the full amount of the specific transac tion ($100) plus the amount by which the balance subject to the periodic rate exceeds the amount of the transaction ($0). Where the specific transaction amount exceeds the balance subject to the periodic rate, the result ing number is considered to be zero rather than a negative number ($50 — $100 = — $50). The denominator, in this case, is $100. As explained in example 1, the annual percentage rate is 3|% X 12 = 45%. A PPEN D IX G—Open-End Model Forms and Clauses G -l Balance-Computation Methods Mod el Clauses (§§ 226.6 and 226.7) G-2 Liability for Unauthorized Use Model Clause (§ 226.12) G-3 Long-Form Billing-Error Rights Model Form (§§ 226.6 and 226.9) G-4 Alternative Billing-Error Rights Model Form (§ 226.9) G-5 Rescission Model Form (When Open ing an Account) (§ 226.15) G-6 Rescission Model Form (For Each Transaction) (§ 226.15) G-7 Rescission Model Form (When In creasing the Credit Limit) (§ 226.15) G-8 Rescission Model Form (When Add ing a Security Interest) (§ 226.15) G-9 Rescission Model Form (When In creasing the Security) (§ 226.15) G-10 (A )-(B) Applications and Solicitations Model Forms (Credit Cards) (§ 226.5a(b)) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z G-10(C) Applications and Solicitations Model Form (Charge Cards) (§ 226.5a(b)) G -ll Applications and Solicitations Made Available to General Public Model Clauses (§ 226.5a(e)) G-12 Charge Card Model Clause (When Access to Plan Offered by Another) (§ 226.5a(f)) G-13(A) Change in Insurance Provider Model Form (Combined Notice) (§ 2 2 6 .9 (f)) G-13(B) Change in Insurance Provider Model Form (§ 226.9(f)(2)) G-14A Home Equity Sample G-14B Home Equity Sample G-14C Home Equity Sample (Repay ment phase disclosed later) G-15 Home Equity Model Clauses G -l—Balance-Computation Methods Model Clauses (a) Adjusted-balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the “adjusted balance” of your account. We get the “adjusted balance” by taking the bal ance you owed at the end of the previous bill ing cycle and subtracting [any unpaid finance charges and] any payments and credits re ceived during the present billing cycle. (b) Previous-balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the beginning of each billing cycle [minus any unpaid finance charges]. We do not subtract any payments or credits received during the billing cycle. [The amount of payments and credits to your ac count this billing cycle was $________] (c) Average-daily-balance method (excluding current transactions) We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (excluding current transactions). To get the “average daily balance” we take the beginning balance of your account each day and subtract any payments or credits [and any unpaid fi nance charges]. We do not add in any new Appendix G-3 [purchases/advances/loans]. This gives us the daily balance. Then, we add all the daily balances for the billing cycle together and di vide the total by the number of days in the billing cycle. This gives us the “average daily balance.”
(d) Average-daily-balance method (including current transactions) We figure [a portion of] the finance charge on your account by applying the periodic rate to the “average daily balance” of your account (including current transactions). To get the “average daily balance” we take the beginning balance of your account each day, add any new [purchases/advances/loans], and sub tract any payments or credits, [and unpaid finance charges]. This gives us the daily bal ance. Then, we add up all the daily balances for the billing cycle and divide the total by the number of days in the billing cycle. This gives us the “average daily balance.” (e) Ending-balance method We figure [a portion of] the finance charge on your account by applying the periodic rate to the amount you owe at the end of each billing cycle (including new purchases and deducting payments and credits made during the billing cycle).
G-2—Liability for Unauthorized Use Model Clause You may be liable for the unauthorized use of your credit card [or other term that describes the credit card]. You will not be liable for unauthorized use that occurs after you notify [name of card issuer or its designee] at [ad dress], orally or in writing, of the loss, theft, or possible unauthorized use. In any case, your liability will not exceed [insert $50 or any lesser amount under agreement with the cardholder].
G-3—Long-Form Billing-Error Rights Model Form Y O U R B IL L IN G R IG H T S K E E P T H IS N O T IC E F O R F U T U R E U S E This notice contains important information about your rights and our responsibilities un der the Fair Credit Billing Act. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix G-3 Regulation Z Notify Us in Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [ad dress] [the address listed on your bill]. Write to us as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights. In your letter, give us the following information:
• Your name and account number. • The dollar amount of the suspected error. • Describe the error and explain, if you can, why you belive there is an error. If you need more information, describe the item you are not sure about.
If you have authorized us to pay your credit card bill automatically from your savings or checking account, you can stop the payment on any amount you think is wrong. To stop the payment your letter must reach us three business days before the automatic payment is scheduled to occur.
Your Rights and Our Responsibilities After We Receive Your Written Notice We must acknowledge your letter within 30 days, unless we have corrected the error by then. Within 90 days, we must either correct the error or explain why we believe the bill was correct.
After we receive your letter, we cannot try to collect any amount you question, or report you as delinquent. We can continue to bill you for the amount you question, including fi nance charges, and we can apply any unpaid amount against your credit limit. You do not have to pay any questioned amount while we are investigating, but you are still obligated to pay the parts of your bill that are not in question.
If we find that we made a mistake on your bill, you will not have to pay any finance charges related to any questioned amount. If we didn’t make a mistake, you may have to pay finance charges, and you will have to make up any missed payments on the ques tioned amount. In either case, we will send you a statement of the amount you owe and the date that it is due.
If you fail to pay the amount that we think you owe, we may report you as delinquent. However, if our explanation does not statisfy you and you write to us within ten days telling us that you still refuse to pay, we must tell anyone we report you to that you have a ques tion about your bill. And, we must tell you the name of anyone we reported you to. We must tell anyone we report you to that the matter has been settled between us when it finally is. If we don’t follow these rules, we can’t col lect the first $50 of the questioned amount, even if your bill was correct. Special Rule for Credit Card Purchases If you have a problem with the quality of property or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may have the right not to pay the remaining amount due on the property or services. There are two limitations on this right: (a) You must have made the purchase in your home state or, if not within your home state within 100 miles of your cur rent mailing address; and (b) The purchase price must have been more than $50.
These limitations do not apply if we own or operate the merchant, or if we mailed you the advertisement for the property or services. G-4— Alternative Billing-Error Rights Model Form B IL L IN G R IG H T S S U M M A R Y In Case of Errors or Questions About Your Bill If you think your bill is wrong, or if you need more information about a transaction on your bill, write us [on a separate sheet] at [ad dress] [the address shown on your bill] as soon as possible. We must hear from you no later than 60 days after we sent you the first bill on which the error or problem appeared. You can telephone us, but doing so will not preserve your rights.
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Regulation Z In your letter, give us the following informa tion:
• Your name and account number. • The dollar amount of the suspected error. • Describe the error and explain, if you can, why you believe there is an error. If you need more information, describe the item you are unsure about.
You do not have to pay any amount in question while we are investigating, but you are still obligated to pay the parts of your bill that are not in question. While we investigate your question, we cannot report you as delin quent or take any action to collect the amount you question.
Special Rule for Credit Card Purchases If you have a problem with the quality of goods or services that you purchased with a credit card, and you have tried in good faith to correct the problem with the merchant, you may not have to pay the remaining amount due on the goods or services. You have this protection only when the purchase price was more than $50 and the purchase was made in your home state or within 100 miles of your mailing address. (If we own or operate the merchant, or if we mailed you the advertise ment for the property or services, all purchas es are covered regardless of amount or loca tion of purchase.) G-5—Rescission Model Form (When Opening An Account) N O T IC E O F R IG H T T O C A N C E L 1. Your Right to Cancel We have agreed to establish an open-end cred it account for you, and you have agreed to give us a [mortgage/lien/security interest] [on/in] your home as security for the ac count. You have a legal right under federal law to cancel the account, without cost, with in three business days after the latest of the following events:
(1) the opening date of your account which is ______________________ ; or Appendix G-5 (2) the date you received your Truth-in- Lending disclosures; or (3) the date you received this notice of your right to cancel the account. If you cancel the account, the [mortgage/ lien/security interest] [on/in] your home is also cancelled. Within 20 days of receiving your notice, we must take the necessary steps to reflect the fact that the [mortgage/lien/se curity interest] [on/in] your home has been cancelled. We must return to you any money or property you have given to us or to anyone else in connection with the account. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel If you decide to cancel the account, you may do so by notifying us, in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us be cause it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I W IS H T O C A N C E L . Consumer’s Signature Date Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix G-6 Regulation Z G-6—Rescission Model Form (For Each Transaction) N O T IC E O F R IG H T T O C A N C E L 1. Your Right to Cancel We have extended credit to you under your open-end credit account. This extension of credit will increase the amount you owe on your account. We already have a [mortgage/ lien/security interest] [on/in] your home as security for your account. You have a legal right under federal law to cancel the extension of credit, without cost, within three business days after the latest of the following events: (1) the date of the additional extension of credit which is ----------------------------------;or (2) the date you received your Truth-in- Lending disclosures; or (3) the date you received this notice of your right to cancel the additional extension of credit.
If you cancel the additional extension of credit, your cancellation will only apply to the additional amount and to any increase in the [mortgage/lien/security interest] that result ed because of the additional amount. It will not affect the amount you presently owe, and it will not affect the [mortgage/lien/security interest] we already have [on/in] your home. Within 20 calendar days after we receive your notice of cancellation, we must take the neces sary steps to reflect the fact that any increase in the [mortgage/lien/security interest] [on/ in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connec tion with this extension of credit. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2.
How to Cancel If you decide to cancel the additional exten sion of credit, you may do so by notifying us, in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us be cause it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I W IS H T O C A N C E L Consumer’s Signature Date G-7—Rescission Model Form (When Increasing the Credit Limit) N O T IC E O F R IG H T T O C A N C E L 1. Your Right to Cancel We have agreed to increase the credit limit on your open-end credit account. We have a [mortgage/lien/security interest] [on/in] your home as security for your account. In creasing the credit limit will increase the amount of the [mortgage/lien/security inter est] [on/in] your home. You have a legal right under federal law to cancel the increase in your credit limit, without cost, within three business days after the latest of the following events:
(1) the date of the increase in your credit limit which is ______________________ ;or (2) the date you received your Truth-in- Lending disclosures; or (3) the date you received this notice of your Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-8 right to cancel the increase in your credit limit.
If you cancel, your cancellation will apply only to the increase in your credit limit and to the [mortgage/lien/security interest] that re sulted from the increase in your credit limit. It will not affect the amount you presently owe, and it will not affect the [mortgage/lien/secu rity interest] we already have [on/in] your home. Within 20 calendar days after we re ceive your notice of cancellation, we must take the necessary steps to reflect the fact that any increase in the [mortgage/lien/security interest] [on/in] your home has been can celled. We must also return to you any money or property you have given to us or to anyone else in connection with this increase. You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel If you decide to cancel the increase in your credit limit, you may do so by notifying us, in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us be cause it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I W IS H T O C A N C E L . Consumer’s Signature Date G-8—Rescission Model Form (When Adding a Security Interest) N O T IC E O F R IG H T T O C A N C E L 1. Your Right to Cancel You have agreed to give us a [mortgage/lien/ security interest] [on/in] your home as secu rity for your existing open-end credit account. You have a legal right under federal law to cancel the [mortgage/lien/security interest], without cost, within three business days after the latest of the following events: (1) the date of the [mortgage/lien/security interest] which is ______________________________ ;or (2) the date you received your Truth-in- Lending disclosures; or (3) the date you received this notice of your right to cancel the [mortgage/lien/secu rity interest].
If you cancel the [mortgage/lien/security interest], your cancellation will apply only to the [mortgage/lien/security interest]. It will not affect the amount you owe on your ac count. Within 20 calendar days after we re ceive your notice of cancellation, we must take the necessary steps to reflect that any [mortgage/lien/security interest] [on/in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connection with this increase.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may make the offer at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation.
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Appendix G-8 Regulation Z 2.
How to Cancel If you decide to cancel the [mortgage/iien/security interest], you may do so by notifying us, in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us be cause it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I W IS H T O C A N C E L . Consumer’s Signature Date G-9—Rescission Model Form (When Increasing the Security) N O T IC E O F R IG H T T O C A N C E L 1. Your Right to Cancel You have agreed to increase the amount of the [mortgage/lien/security interest] [on/in] your home that we hold as security for your open-end credit account. You have a legal right under federal law to cancel the increase, without cost, within three business days after the latest of the following events: (1) the date of the increase in the security which is ___________________________ ;or (2) the date you received your Truth-in- Lending disclosures; or (3) the date you received this notice of your right to cancel the increase in the security.
If you cancel the increase in the security, your cancellation will apply only to the increase in the amount of the [mortgage/lien/ security interest]. It will not affect the amount you presently owe on your account, and it will not affect the [mortgage/lien/security inter est] we already have [on/in] your home. Within 20 calendar days after we receive your notice of cancellation, we must take the neces sary steps to reflect the fact that any increase in the [mortgage/lien/security interest] [on/ in] your home has been cancelled. We must also return to you any money or property you have given to us or to anyone else in connec tion with this increase.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be returned to the address shown below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. 2. How to Cancel If you decide to cancel the increase in securi ty, you may do so by notifying us, in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice no matter how you notify us be cause it contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I W IS H T O C A N C E L . Consumer’s Signature Date Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-10(B) G -10(A )—Applications and Solicitations Model Form (Credit Cards) Annual percentage rate for purchases % Variable-rate information Your annual pecentage rate may vary. The rate is determined by (explanation). Grace period for repayment of balances for purchases You have [ davs] [until [ [not less than davs] [between and days] [__days on average] to repay your balance [for purchases] before a finance charge will be imposed.] [You have no grace period in which to repay your balance for purchases before a finance charge will be imposed.] Method of computing the balance for purchases Annual fees [Annuall rMembershiD] fee:
$ Der vear] \(tvDe of fee):
$ Der vear] \ltvDe of fee):
$ Minimum finance charge S Transaction fee for purchases [$ ] [ % of ] Transaction fee for cash advances, and fees for paying late or exceeding the credit limit Transaction fee for cash advances: f$ ][ % of ] Late-Davment fee:
TS 1 [ % of ] Over-the-credit-limit fee:
$ G -10(B )—Applications and Solicitations Model Form (Credit Cards) Annual percentage rate for purchases Variable-rate information Grace period for repayment of the balance for purchases Method of computing the balance for purchases Annual fees Minimum finance charge Transaction fee for purchases % Your annual percentage rate may vary.
The rate is determined by (explanation).
[___ days] [Until ] [Annual fee:
$ per year] $ f$ ] [Not less than ___ days] [Between___ and___ days] [___ days on average] [None] [Membership fee: $___per year] [(type of fee):
$___per year] [(type of fee):
$---- ] [__% of___] Transaction fee for cash advances: [$____ ] [___ % o f_____ ] Late-payment fee: [$_____] [ ____% o f_____ ] Over-the-credit-limit fee: $____ Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix G-10(C) Regulation Z G -10(C )—Applications and Solicitations Model Form (Charge Cards) Annual fees Transaction fee for purchases Transaction fee for cash advances, and fees for paying late or exceeding the credit limit [Annual fee: $ ___ per year] [Membership fee: $ ___ per year] [(type of fee): $ ___ per year] [(type of fee): $ ___ ] [$------1 [ % of ] Transaction fee for cash advances:
[S ] [ % of ] Late-pavment fee: [$ ] [ % of ] Over-the-creditlim it fee:
S All charges made on this charge card are due and payable when you receive your periodic statement. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-13(B) G -l 1—Applications and Solicitations Made Available to General Public Model Clauses (a) Disclosure of required credit information The information about the costs of the card described in this [application] [solicitation] is accurate as of {month/year). This informa tion may have changed after that date. To find out what may have changed, [call us at {tele phone number)] [write to us at {address) ]. (b) Disclosure with account opening statement To find out about changes in the information in this [application] [solicitation], [call us at {telephone number)] [write to us at {address)].
(c) No disclosure of credit information There are costs associated with the use of this card. To obtain information about these costs, call us at {telephone number) or write to us at {address).
G -l2—Charge Card Model Clause (When Access to Plan Offered by Another) This charge card may allow you to access credit offered by another creditor. Our deci sion about issuing you a charge card will be independent of the other creditor’s decision about allowing you access to a line of credit. Therefore, approval by us to issue you a card does not constitute approval by the other creditor to grant you credit privileges. If we issue you a charge card, you may receive it before the other creditor decides whether or not to grant you credit privileges. G -l3(A )—Change in Insurance Provider Model Form (Combined Notice) The credit card account you have with us is insured. This is to notify you that we plan to replace your current coverage with insurance coverage from a different insurer. If we obtain insurance for your account from a different insurer, you may cancel the insurance.
[Your premium rate will increase to $____ per------ ] [Your coverage will be affected by the following:
Q The elimination of a type of coverage pre viously provided to you. [{explanation)] [See ___ of the attached policy for details. ] | | A lowering of the age at which your cover age will terminate or will become more re strictive. [{explanation)] [See___ of the attached policy or certificate for details.] A decrease in your maximum insurable loan balance, maximum periodic benefit payment, maximum number of payments, or any other decrease in the dollar amount of your coverage or benefits, [{explana tion)] [See____of the attached policy or certificate for details.] A restriction on the eligibility for benefits for you or others, [{explanation)] [See ___ of the attached policy or certificate for details.] A restriction in the definition of “disabili ty” or other key term of coverage. [(ex planation) ] [See____of the attached pol icy or certificate for details.] □ The addition of exclusions or limitations that are broader or other than those under the current coverage.
[ {explanation)] [See____of the attached policy or certifi cate for details.] Q An increase in the elimination (waiting) period or a change to nonretroactive cov erage. [{explanation)] [See ___ of the attached policy or certificate for details).] [The name and mailing address of the new insurer providing the coverage for your ac count is {name and address).] G -l3(B )—Change in Insurance Provider Model Form We have changed the insurer providing the coverage for your account. The new insurer’s name and address are {name and address). A copy of the new policy or certificate is attached.
You may cancel the insurance for your account.
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G-14A Regulation Z G-14A—Home Equity Sample IMPORTANT TERMS OF OUR HOME EQUITY LINE OF CREDIT This disclosure contains important informa tion about our home equity line of credit. You should read it carefully and keep a copy for your records.
Availability of terms: To obtain the terms de scribed below, you must submit your applica tion before January 1, 1990. If these terms change (other than the annu al percentage rate) and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees that you have paid to us or anyone else in connection with your application.
Security interest: We will take a mortgage on your home. You could lose your home if you do not meet the obligations in your agreement with us.
Possible actions: Under certain circumstances, we can (1) terminate your line, require you to pay us the entire outstanding balance in one payment, and charge you certain fees; (2) re fuse to make additional extensions of credit; and (3) reduce your credit limit. If you ask, we will give you more specific information concerning when we can take these actions.
Minimum-payment requirements: You can ob tain advances of credit for 10 years (the “draw period”). During the draw period, pay ments will be due monthly. Your minimum monthly payment will equal the greater of $100 or l/360th of the outstanding balance plus the finance charges that have accrued on the outstanding balance.
After the draw period ends, you will no longer be able to obtain credit advances and must pay the outstanding balance over 5 years (the “repayment period”). During the repay ment period, payments will be due monthly. Your minimum monthly payment will equal l/60th of the balance that was outstanding at the end of the draw period plus the finance charges that have accrued on the remaining balance.
Minimum-payment example: If you made only the minimum monthly payments and took no other credit advances, it would take 15 years to pay off a credit advance of $10,000 at an ANNUAL PERCENTAGE RATE of 12%. During that period, you would make 120 monthly payments varying between $127.78 and $100.00 followed by 60 monthly payments varying between $187.06 and $118.08.
Fees and charges: To open and maintain a line of credit, you must pay the following fees to us: • Application fee: $150 (due at application) • Points: 1% of credit limit (due when ac count opened) • Annual maintenance fee: $75 (due each year) You also must pay certain fees to third par ties to open a line. These fees generally total between $500 and $900. If you ask, we will give you an itemization of the fees you will have to pay to third parties. Minimum draw and balance requirements: The minimum credit advance you can receive is $500. You must maintain an outstanding balance of at least $100.
Tax deductibility: You should consult a tax advisor regarding the deductibility of interest and charges for the line.
Variable-rate information: The line has a vari able-rate feature, and the annual percentage rate (corresponding to the periodic rate) and the minimum payment can change as a result. The annual percentage rate includes only interest and not other costs. The annual percentage rate is based on the value of an index. The index is the monthly average prime rate charged by banks and is published in the Federal Reserve Bulletin. To determine the annual percentage rate that will apply to your line, we add a margin to the value of the index.
Ask us for the current index value, margin and annual percentage rate. After you open a credit line, rate information will be provided on periodic statements that we will send you. Rate changes: The annual percentage rate can change each month. The maximum ANNU AL PERCENTAGE RATE that can apply is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-14B 18%. Except for this 18% “cap,” there is no limit on the amount by which the rate can change during any one-year period. Maximum-rate and payment examples: If you had an outstanding balance of $10,000 during the draw period, the minimum monthly pay ment at the maximum ANNUAL PER CENTAGE RATE of 18% would be $177.78. This annual percentage rate could be reached during the first month of the draw period. If you had an outstanding balance of $10,000 at the beginning of the repayment pe riod, the minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of 18% would be $316.67. This annual percentage rate could be reached during the first month of the repayment period. Historical example: The following table shows how the annual percentage rate and the mini mum monthly payments for a single $10,000 credit advance would have changed based on changes in the index over the past 15 years. The index values are from September of each year. While only one payment amount per year is shown, payments would have varied during each year.
The table assumes that no additional credit advances were taken, that only the minimum payments were made each month, and that the rate remained constant during each year. It does not necessarily indicate how the index or your payments will change in the future. Year Index (% ) Margin * (% ) ANNUAL PERCENTAGE RATE (% ) Minimum Monthly Payment ($) 12.00 14.00 144.44 7.88 9.88 106.50 7.00 9.00 100.00 7.13 9.13 100.00 Draw 9.41 11.41 105.47 Period 12.90 14.90 126.16 12.23 14.23 117.53 20.08 18.00** 138.07 13.50 15.50 117.89 11.00 13.00 100.00 12.97 14.97 203.81 Repayment 9.50 11.50 170.18 Period 7.50 9.50 149.78 8.70 10.70 141.50 10.00 12.00 130.55 * This is a margin we have used recently. ** This rate reflects the 18% rate cap. G-14B—Home Equity Sample IMPORTANT TERMS OF OUR HOME EQUITY LINE OF CREDIT This disclosure contains important informa tion about our home equity line of credit. You should read it carefully and keep a copy for your records.
Availability of terms: All of the terms de scribed below are subject to change. If these terms change (other than the annu al percentage rate) and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees you paid to us or anyone else in connection with your application.
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Appendix G-14B Regulation Z Security interest: We will take a mortgage on your home. You could lose your home if you do not meet the obligations in your agreement with us.
Possible actions: We can terminate your line, require you to pay us the entire outstanding balance in one payment, and charge you cer tain fees if:
• You engage in fraud or material misrepre sentation in connection with the line. • You do not meet the repayment terms. • Your action or inaction adversely affects the collateral or our rights in the collateral.
We can refuse to make additional extensions of credit or reduce your credit limit if: • The value of the dwelling securing the line declines significantly below its appraised value for purposes of the line. • We reasonably believe you will not be able to meet the repayment requirements due to a material change in your financial circumstances.
• You are in default of a material obligation in the agreement.
• Government action prevents us from im posing the annual percentage rate provid ed for or impairs our security interest such that the value of the interest is less than 120 percent of the credit line. • A regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice. • The maximum annual percentage rate is reached.
The initial agreement permits us to make certain changes to the terms of the agreement at specified times or upon the occurrence of specified events.
Minimum-payment requirements: You can ob tain advances of credit for 10 years (the “draw period”). You can choose one of three payment options for the draw period: • • Monthly interest-only payments. Under this option, your payments will be due monthly and will equal the finance charges that accrued on the outstanding balance during the preceding month. • Quarterly interest-only payments. Under this option, your payments will be due quarterly and will equal the finance charges that accrued on the outstanding balance during the preceding quarter. • 2% of the balance. Under this option, your payments will be due monthly and will equal 2% of the outstanding balance on your line plus finance charges that accrued on the outstanding balance during the pre ceding month.
If the payment determined under any op tion is less than $50, the minimum payment will equal $50 or the outstanding balance on your line, whichever is less. Under both the monthly and quarterly in terest-only payment options, the minimum payment will not reduce the principal that is outstanding on your line. After the draw period ends, you will no longer be able to obtain credit advances and must repay the outstanding balance (the “re payment period”). The length of the re payment period will depend on the balance outstanding at the beginning of it. During the repayment period, payments will be due monthly and will equal 3% of the outstanding balance on your line plus finance charges that accrued on the outstanding balance or $50, whichever is greater.
Minimum-payment examples: If you took a single $10,000 advance and the ANNUAL PERCENTAGE RATE was 9.52%: • Under the monthly interest-only payment option, it would take 18 years and 1 month to pay off the advance if you made only the minimum payments. During that peri od, you would make 120 payments of $79.33, followed by 96 payments varying between $379.33 and $50 and one final payment of $10.75.
• Under the 2%-of-the-balance payment op tion, it would take 10 years and 8 months to pay off the advance if you made only the minimum payments. During that peri od, you would make 120 payments varying between $279.33 and $50, followed by 7 payments of $50 and 1 final payment of $21.53.
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Regulation Z Appendix G-14B Fees and charges: To open and maintain a line of credit, you must pay us the following fees: • Application fee: $100 (due at application) • Points: 1% of credit limit (due when ac count opened) • Annual maintenance fee: $50 during the first 3 years, $75 thereafter (due each year) You also must pay certain fees to third par ties to open a line. These fees generally total between $500 and $900. If you ask, we will give you an itemization of the fees you will have to pay to third parties. Minimum-draw requirement: The minimum credit advance that you can receive is $200. Tax deductibility: You should consult a tax advisor regarding the deductibility of interest and charges for the line.
Variable-rate feature: The line has a variablerate feature, and the annual percentage rate (corresponding to the periodic rate) and the minimum monthly payment can change as a result.
The annual percentage rate includes only interest and not other costs. The annual percentage rate is based on the value of an index. During the draw period, the index is the monthly average prime rate charged by banks. During the repayment peri od, the index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year. Information on these in dices is published in the Federal Reserve Bul letin. To determine the annual percentage rate that will apply to your line, we add a margin to the value of the index.
The initial annual percentage rate is “dis counted”—it is not based on the index and margin used for later rate adjustments. The initial rate will be in effect for the first year your credit line is open.
Ask us for the current index values, margin, discount and annual percentage rate. After you open a credit line, rate information will be provided on periodic statements that we send you.
Rate changes: The annual percentage rate can change monthly. The maximum ANNUAL PERCENTAGE RATE that can apply is 18%. Apart from this rate “cap,” there is no limit on the amount by which the rate can change during any one-year period. Maximum-rate and payment examples: If the ANNUAL PERCENTAGE RATE during the draw period equaled the 18% maximum and you had an outstanding balance of $ 10,000:
• Under the monthly interest-only payment option, the minimum monthly payment would be $150.
• Under the 2%-of-the-balance payment op tion, the minimum monthly payment would be $350.
This annual percentage rate could be reached during the first month of the draw period.
If you had an outstanding balance of $10,000 during the repayment period, the minimum monthly payment at the maximum ANNUAL PERCENTAGE RATE of 18% would be $450. This annual percentage rate could be reached during the first month of the repayment period.
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Appendix G-14B Regulation Z Historical Example: The following table shows how the annual percentage rate and the monthly payments for a single $10,000 credit advance would have changed based on changes in the indices over the past 15 years. For the draw period, the index values for the prime rate are from September of each year. For the repayment period, the index values for the yield on U.S. Treasury securities are from the first week ending in July. While only one payment amount per year is shown, payments under the 2%-of-the-balance payment option and during the repay ment period would have varied during each year. The table assumes that no additional credit advances were taken, that only the minimum payments were made, and that the rate remained constant during each year. It does not neces sarily indicate how the indices or your payments will change in the future. Year Index % Margin * % ANNUAL PERCENTAGE RATE % Monthly Interest- Only Payments ($) Monthly 2% of Balance Payments ($) 12.00 10.00** 83.33 283.33 7.88 9.88 82.33 221.55 7.00 9.00 75.00 169.34 7.13 9.13 76.08 133.41 Draw 9.41 11.41 95.08 111.89 Period 12.90 14.90 124.17 96.46 12.23 14.23 118.58 74.39 20.08 18.00*** 150.00 64.13 13.50 15.50 129.17 50.00 11.00 13.00 108.33 50.00 12.17 14.17 418.08 50.00 Repayment 7.66 9.66 264.01 Period 6.36 8.36 177.96 6.71 8.71 124.45 7.52 9.52 87.92 * This is a margin we have used recently. ** This rate reflects a 4% “discount” we have used recently. *** This rate reflects the 18% rate cap. G-14C—Home Equity Sample (Repayment phase disclosed later) IMPORTANT TERMS OF OUR HOME EQUITY PLAN This disclosure contains important information about our home equity plan. You should read it carefully and keep a copy for your records. Security interest: We have a mortgage on your home. You could lose your home if you do not meet the obligations in your agreement with us.
Possible actions: We can terminate your line, require you to pay us the entire outstanding balance in one payment, and charge you cer tain fees if:
• You engage in fraud or material misrepre sentation in connection with the plan. • You do not meet the repayment terms. • Your action or inaction adversely affects the collateral or our rights in the collateral. Minimum-payment requirements: You must pay the balance on your account over 5 years. During that period, your payments will be due monthly. Your minimum monthly payment will equal l/60th of the original outstanding balance on your line plus finance charges that have accrued on the remaining balance. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-14C Minimum-payment example: It would take 5 years to pay off a balance of $10,000 at an ANNUAL PERCENTAGE RATE of 12.5%. During that period, you would make 60 monthly payments varying between $270.83 and $168.40.
Fees: You must pay us an initial fee of $100 at the beginning of the repayment period. Tax deductibility: You should consult a tax advisor regarding the deductibility of interest and charges for the plan.
Variable-rate information: The plan has a vari able-rate feature, and the annual percentage rate (corresponding to the periodic rate) and the minimum payment can change as a result. The annual percentage rate includes only interest and not other costs. The annual percentage rate is based on the value of an index. The index is the highest prime rate published in the Wall Street Jour nal “Money Rates” table. To determine the annual percentage rate that will apply, we add a margin to the value of the index. Ask us for the current index value, margin and annual percentage rate. Rate changes: The annual percentage rate can change each month. The maximum ANNU AL PERCENTAGE RATE that can apply is 18%. Except for this 18% “cap,” there is no limit on the amount by which the rate can change during any one-year period. Maximum-rate and payment example: If you had an initial balance of $10,000, the mini mum monthly payment at the maximum AN NUAL PERCENTAGE RATE of 18% would be $316.67. This annual percentage rate could be reached during the first month. Historical example: The following table shows how the annual percentage rate and the mini mum monthly payments for a starting balance of $10,000 would have changed based on chang es in the index over the past 15 years. The index values are from the last business day in January of each year. While only one payment amount per year is shown, payments would have varied during each year. This table does not necessarily indicate how the index or your payments will change in the future.
Year Index (% ) Margin * (% ) ANNUAL PER CENT A GE RA TE (% ) Minimum Payment ($) 9.50 11.50 262.50 6.75 8.75 225.00 6.25 8.25 207.92 8.00 10.00 200.00 11.75 13.75 189.58 15.25 17.25 20.00 18.00** 15.75 17.75 11.00 13.00 11.00 13.00 10.50 12.50 9.50 11.50 7.50 9.50 8.75 10.75 10.50 12.50 * This is a margin we have used recently. ** This rate reflects the 18% rate cap. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix G-15 Regulation Z G-15—Home Equity Model Clauses (a) Retention of information: This disclosure contains important information about our home equity line of credit. You should read it carefully and keep a copy for your records. (b) Availability of terms: To obtain the terms described below, you must submit your appli cation before {date). However, the (descrip tion of terms) are subject to change. [or All of the terms described below are subject to change.
If these terms change [ (other than the an nual percentage rate)] and you decide, as a result, not to enter into an agreement with us, you are entitled to a refund of any fees you paid to us or anyone else in connection with your application.
(c) Security interest: We will take a [security interest in/mortgage on] your home. You could lose your home if you do not meet the obligations in your agreement with us. (d) Possible actions: Under certain circum stances, we can (1) terminate your line, re quire you to pay us the entire outstanding bal ance in one payment [, and charge you certain fees]; (2) refuse to make additional exten sions of credit; (3) reduce your credit limit [; and (4) make specific changes that are set forth in your agreement with us]. If you ask, we will give you more specific information about when we can take these actions.
[or Possible actions: We can terminate your ac count, require you to pay us the entire out standing balance in one payment [, and charge you certain fees] if:
• You engage in fraud or material misrepre sentation in connection with the line. • You do not meet the repayment terms. • Your action or inaction adversely affects the collateral or our rights in the collateral.
We can refuse to make additional exten sions of credit or reduce yor credit limit if: • The value of the dwelling securing the line declines significantly below its appraised value for purposes of the line. • We reasonably believe you will not be able to meet the repayment requirements due to a material change in your financial circumstances.
• You are in default of a material obligation in the agreement.
• Government action prevents us from im posing the annual percentage rate provid ed for or impairs our security interest such that the value of the interest is less than 120 percent of the credit line. • A regulatory agency has notified us that continued advances would constitute an unsafe and unsound practice. • The maximum annual percentage rate is reached.
[The initial agreement permits us to make certain changes to the terms of the agreement at specified times or upon the occurrence of specified events.] (e) Minimum-payment requirements:
The length of the [draw period/repayment peri od] is (length). Payments will be due (fre quency). Your minimum payment will equal (how payment determined).
[The minimum payment will not reduce the principal that is outstanding on your line./The minimum payment will not fully re pay the principal that is outstanding on your line.] You will then be required to pay the entire balance in a single “balloon” payment. (f) Minimum-payment example: If you made only the minimum payments and took no oth er credit advances, it would take (length of time) to pay off a credit advance of $10,000 at an ANNUAL PERCENTAGE RATE of (re cent rate). During that period, you would make (number) (frequency) payments of $____ (g) Fees and charges: To open and maintain a line of credit, you must pay the following fees to us:
(Description o f fee) [$___/___ % of ___ ] ( When payable) (Description o f fee) [$___/ ___ % of ___ ] ( When payable) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix G-15 You also must pay certain fees to third par ties. These fees generally total [$____/___ % o f ____/between $___ and $____]. If you ask, we will give you an itemization of the fees you will have to pay to third parties. (h) Minimum draw and balance require ments: The minimum credit advance you can receive is $____You must maintain an out standing balance of at least $____ (i) Negative amortization: Under some cir cumstances, your payments will not cover the finance charges that accrue and “negative am ortization” will occur. Negative amortization will increase the amount that you owe us and reduce your equity in your home. (j) Tax deductibility: You should consult a tax advisor regarding the deductibility of in terest and charges for the line. (k) Other products: If you ask, we will pro vide you with information on our other avail able home equity lines.
(/) Variable-rate feature: The plan has a vari able-rate feature and the annual percentage rate (corresponding to the periodic rate) and the [minimum payment/term of the line] can change as a result.
The annual percentage rate includes only interest and not other costs. The annual percentage rate is based on the value of an index. The index is the (identifica tion of index) and is [published in/available from] (source of information). To determine the annual percentage rate that will apply to your line, we add a margin to the value of the index.
[The initial annual percentage rate is “dis counted”—it is not based on the index and margin used for later rate adjustments. The initial rate will be in effect for {period).] Ask us for the current index value, margin, [discount,] and annual percentage rate. After you open a credit line, rate information will be provided on periodic statements that we send you.
(m) Rate changes: The annual percentage rate can change {frequency). [The rate can not increase by more than __ percentage points in any one-year period./There is no limit on the amount by which the rate can change in any one-year period.] [The maxi mum ANNUAL PERCENTAGE RATE that can apply is ____%./The ANNUAL PERCENTAGE RATE cannot increase by more th an___ percentage points above the initial rate.] [Ask us for the specific rate limi tations that will apply to your credit line.] (n) Maximum-rate and payment examples: If you had an outstanding balance of $10,000, the minimum payment at the maximum AN NUAL PERCENTAGE RATE of ____% would be $____This annual percentage rate could be reached {when maximum rate could be reached).
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Appendix G-15 Regulation Z (o) Historical example: The following table shows how the annual percentage rate and the minimum payments for a single $10,000 credit advance would have changed based on changes in the index over the past 15 years. The index values are from (when values are measured). [While only one payment amount per year is shown, payments would have varied during each year. ] The table assumes that no additional credit advances were taken, that only the minimum payments were made, and that the rate remained constant during each year. It does not neces sarily indicate how the index or your payments will change in the future. Year Index Margin (%) (%) ANNUAL Minimum PERCENTAGE RA TE Payment (%) ($) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H APPENDIX H—Closed-End Model Forms and Clauses H -l Credit Sale Model Form (§ 226.18) H-2 Loan Model Form (§ 226.18) H-3 Amount Financed Itemization Model Form (§ 226.18(c)) H-4(A) Variable-Rate Model Clauses (§ 226.18(f)(1)) H-4(B) Variable-Rate Model Clauses (§ 226.18(0(2)) H^t(C) Variable-Rate Model Clauses (§ 226.19(b)) H-4(D) Variable-Rate Model Clauses (§ 226.20(c)) H-5 Demand Feature Model Clauses (§ 226.18(i)) H-6 Assumption Policy Model Clause (§ 226.18(q)) H-7 Required Deposit Model Clause (§ 226.18(0) H-8 Rescission Model Form (General) (§ 226.23) H-9 Rescission Model Form (Refinancing) (§ 226.23) H-10 Credit Sale Sample H -l 1 Installment Loan Sample H -l2 Refinancing Sample H -l3 Mortgage with Demand Feature Sample H -l4 Variable-Rate Mortgage Sample (§ 226.19(b)) H -15 Graduated-Payment Mortgage Sample Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H -l Regulation Z H - l— Credit Sale Model Form A N N U A L P E R C E N T A G E R A T E T he cost o f y o u r c re d it as a ye a rly rate.
F IN A N C E C H A R G E T he d o lla r a m o u n t th e c re d it w ill cost yo u .
A m o u n t Financed T he a m o u n t o f c re d it p ro v id e d to y o u o r on y o u r b e ha lf.
T o ta l o f Paym ents T he a m o u n t y o u w ill have pa id a fte r y o u have m ade all paym ents as scheduled.
T o ta l Sale Price T he to ta l cost o f y o u r p u r chase on c re d it, in c lu d in g y o u r d o w n p a y m e n t o f $ % $ $ $ $ You have the right to receive at this time an itemization of the Amount Financed. □ I want an itemization. □ I do not want an itemization. Your payment schedule will be: N um be r o f Paym ents A m o u n t o f Paym ents W hen Paym ents A re D ue Insurance Credit life insurance and credit disability insurance are not required to obtain credit, and will not be provided unless you sign and agree to pay the additional cost. T yp e Prem ium Signature Credit Life 1 want credit life insurance.
S ig na ture Credit Disability 1 want credit disability insurance.
S ignature Credit Life and Disability 1 want credit life and disability insurance.
S ignature You may obtain property insurance from anyone you want that is acceptable to (c re d ito r).
If you get the insurance from (c re d ito r), you w ill pay S________________ Security: You are giving a security interest in: □ the goods or property being purchased. □ (b rie f d e scrip tio n o f o th e r p ro p e rty ). Filing fees $ ____________ Non-filing insurance $ ____________ Late Charge: If a payment is late, you will be charged $ ____________ /__________ % of the payment. Prepayment: If you pay off early, you □ may □ w ill not have to pay a penalty.
□ may □ w ill not be entitled to a refund of part of the finance charge. See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H-2 H-2—Loan Model Form A N N U A L F IN A N C E A m o u n t T o ta l o f P E R C E N T A G E C H A R G E Financed P aym ents R A T E T h e d o lla r a m o u n t T h e a m o u n t o f c re d it T he a m o u n t y o u w ill T he cost o f y o u r c re d it th e c re d it w ill cost p ro v id e d to y o u o r on have p a id a fte r y o u as a y e a rly rate.
yo u .
y o u r b e ha lf.
have m ade a ll pa ym en ts as scheduled.
% $ $ $ You have the right to receive at this time an itemization of the Amount Financed. □ I want an itemization. □ I do not want an itemization. Your payment schedule w ill be: N u m b e r o f Paym ents A m o u n t o f Paym ents W hen P aym ents A re Due Insurance Credit life insurance and credit disability insurance are not required to obtain credit, and w ill not be provided unless you sign and agree to pay the additional cost. T yp e Prem ium Signature Credit Life 1 want credit life insurance.
S ignature Credit Disability I want credit disability insurance.
S ignature Credit Life and Disability 1 want credit life and disability insurance.
s ig n a tu re You may obtain property insurance from anyone you want that is acceptable to (c re d ito r).
If you get the insurance from (c re d ito r), you will pay $ ________________ Security: You are giving a security interest in: □ the goods or property being purchased. I*"! (brief description of other property). Filing fees $ ____________ Non-filing insurance $ ____________ Late Charge: If a payment is late, you w ill be charged $ ____________ /__________ % of the payment. Prepayment: If you pay off early, you □ may □ w ill not have to pay a penalty.
□ may □ w ill not be entitled to a refund of part of the finance charge. See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-3 Regulation Z H -3—Amount Financed Itemization Model Form Itemization of the Amount Financed of $____ $_____________Amount given to you directly $_____________Amount paid on your account Amount paid to others on your behalf $_____________to [public officials] [cred it bureau] [appraiser] [insurance company] $_____________ to (name of another creditor) $_____________ to (other) $_____________ Prepaid finance charge H -4 (A )— Variable-Rate Model Clauses The annual percentage rate may increase dur ing the term of this transaction if: [the prime interest rate of (creditor) increases.] [the balance in your deposit account falls below $ __________________________] [you terminate your employment with (employer) .] [The interest rate will not increase above _________________________ %.] [The maximum interest rate increase at one time will be _____________________ %.] [The rate will not increase more than once every (time period) .] Any increase will take the form of: [higher payment amounts.] [more payments of the same amount.] [a larger amount due at maturity.] Example based on the specific transaction [If the interest rate increases by ______% in (time period), [your regular payments will increase to $------ ] [you will have to make_______ addition al payments.] [your final payment will increase to $------ ]] Example based on a typical transaction [If your loan were for $________ at ________% for (term) and the rate increased to _______ % in (time period), [your regular payments would increase by $----------------------------------------------------- ] [you would have to make_____ addition al payments.] [your final payment would increase by $------ ]] H-^-(B)—Variable-Rate Model Clauses Your loan contains a variable-rate feature. Disclosures about the variable-rate feature have been provided to you earlier. H ^l(C)—Variable-Rate Model Clauses This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. How Your Interest Rate and Payment Are Determined • Your interest rate will be based on [an in dex plus a margin] [a formula]. • Your payment will be based on the interest rate, loan balance, and loan term. —[The interest rate will be based on (identification of index) plus our mar gin. Ask for our current interest rate and margin.] — [The interest rate will be based on (identification of formula). Ask us for our current interest rate.] —Information about the index [formula for rate adjustments] is published [can be found]__________ — [The initial interest rate is not based on the (index) (formula) used to make lat er adjustments. Ask us for the amount of current interest rate discounts.] How Your Interest Rate Can Change • Your interest rate can change (frequency).
• [Your interest rate cannot increase or de crease more than_____percentage points at each adjustment.] • Your interest rate cannot increase [or de crease] more than _____ percentage points over the term of the loan. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H-4(C) How Your Payment Can Change • Your payment can change (frequency) based on changes in the interest rate. • [Your payment cannot increase more than (amount or percentage) at each adjustment.] • You will be notified in writing_____days before the due date of a payment at a new level. This notice will contain information about your interest rates, payment amount, and loan balance.
• [You will be notified once each year dur ing which interest rate adjusments, but no payment adjustments, have been made to your loan. This notice will contain infor mation about your interest rates, payment amount, and loan balance.] • For example, on a $10,000 [term] loan with an initial interest rate o f_____ (the rate shown in the interest rate column be low for the year 19__ ), the maximum amount that the interest rate can rise un der this program is _____ percentage points, to ___ %, and the monthly pay ment can rise from a first-year payment of $_______ to a maximum of $_________in th e_____year.
Example The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1977 to 1991. This does not necessarily indicate how your index will change in the future. The example is based on the following assumptions: Amount of loan...................... $ 10,000 T erm ...................................... .................... Change d a te .......................... .................... Payment adjustment.............. (frequency) Interest adjustment................ (frequency) [Margin]*.............................. .................... Caps ________ [periodic interest rate cap] ________ lifetime interest rate cap _______ [payment cap] [Interest rate carryover] [Negative amoritization] [Interest rate discount] ** Index................ (identification of index or formula) Interest Monthly Remaining Index Margin Rate Payment Balance Year (%) (percentage points) (%) ($) ($) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-4(C) Regulation Z To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payments by that amount. (For example, in 1991 the monthly payment for a mortgage amount of $60,000 taken out in 1977 would be: $60,000 -r- $10,000 = 6; 6 X _______ = $_______ per month.) * This is a margin we have used recently, your margin may be different. ** This is the amount of a discount we have provided recently; your loan may be discounted by a different amount. H -4(D )—Variable-Rate Model Clauses Your new interest rate will be_____%, which is based on an index value o f_____%. Your previous interest rate was _____%, which was based on an index value of ____ %.
[The new interest rate does not reflect a change of _ _ _ _ _ percentage point in the in dex value which was not added because of ---------------- ] [The new payment will be $________ ] [Your new loan balance is $________ ] [Your (new) (existing) payment will not be sufficient to cover the interest due and the dif ference will be added to the loan amount. The payment amount needed to pay your loan in full by the end of the term at the new interest rate is $________] [The following interest rate adjustments have been implemented this year without changing your payment:________These interest rates were based on the following index values: ------------ ] H-5—Demand Feature Model Clauses This obligation [is payable on demand.] [has a demand feature.] [All disclosures are based on an assumed ma turity of one year.] H-6—Assumption Policy Model Clause Assumption: Someone buying your house [may, subject to conditions, be allowed to] [cannot] assume the remainder of the mort gage on the original terms. H-7—Required Deposit Model Clause The annual percentage rate does not take into account your required deposit. H-8—Rescission Model Form (General) NOTICE OF RIGHT TO CANCEL Your Right to Cancel You are entering into a transaction that will result in a [mortgage/lien/security interest] [on/in] your home. You have a legal right under federal law to cancel this transaction, without cost, within three business days from whichever of the following events occurs last: (1) the date of the transaction, which is
; or (2) the date you received your Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel.
If you cancel the transaction, the [mort gage/lien/security interest] is also cancelled. Within 20 calendar days after we receive your notice, we must take the steps necessary to reflect the fact that the [mortgage/lien/secu rity interest] [on/in] your home has been cancelled, and we must return to you any money or property you have given to us or to anyone else in connection with this transaction.
You may keep any money or property we have given you until we have done the things mentioned above, but you must then offer to return the money or property. If it is impracti cal or unfair for you to return the property, you must offer its reasonable value. You may offer to return the property at your home or at the location of the property. Money must be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H-9 returned to the address below. If we do not take possession of the money or property within 20 calendar days of your offer, you may keep it without further obligation. How to Cancel If you decide to cancel this transaction, you may do so by notifying us in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important in formation about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL Consumer’s Signature Date H-9—Rescission Model Form (Refinancing) NOTICE OF RIGHT TO CANCEL Your Right to Cancel You are entering into a new transaction to increase the amount of credit provided to you. We acquired a [mortgage/lien/security inter est] [on/in] your home under the original transaction and will retain that [mortgage/ lien/security interest] in the new transaction. You have a legal right under federal law to cancel the new transaction, without cost, within three business days from whichever of the following events occurs last: (1) the date of the new transaction, which is
; or (2) the date you received your new Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel.
If you cancel the new transaction, your can cellation will apply only to the increase in the amount of credit. It will not affect the amount that you presently owe or the [mortgage/ lien/security interest] we already have [on/ in] your home. If you cancel, the [mortgage/ lien/security interest] as it applies to the in creased amount is also cancelled. Within 20 calendar days after we receive your notice of cancellation of the new transaction, we must take the steps necessary to reflect the fact that our [mortgage/lien/security interest] [on/ in] your home no longer applies to the in crease of credit. We must also return any money you have given to us or anyone else in connection with the new transaction. You may keep any money we have given you in the new transaction until we have done the things mentioned above, but you must then offer to return the money at the address below. If we do not take possession of the money within 20 calendar days of your offer, you may keep it without further obligation. How to Cancel If you decide to cancel the new transaction, you may do so by notifying us in writing, at (creditor’s name and business address). You may use any written statement that is signed and dated by you and states your inten tion to cancel, or you may use this notice by dating and signing below. Keep one copy of this notice because it contains important in formation about your rights. If you cancel by mail or telegram, you must send the notice no later than midnight of (date) (or midnight of the third business day follow ing the latest of the three events listed above). If you send or deliver your written notice to cancel some other way, it must be delivered to the above address no later than that time. I WISH TO CANCEL Consumer’s Signature Date Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-10 Regulation Z H -10— Credit Sale Sample Big Wheel Auto Alice Green A N N U A L P E R C E N T A G E R A T E T he cost o f y o u r cre d it as a yea rly rate.
F IN A N C E C H A R G E T he d o lla r am o un t th e c re d it w ill cost you .
A m o u n t Financed T he a m o u n t o f c re d it p ro v id e d to y o u o r on y o u r beha lf.
T o ta l o f P aym ents T he a m o u n t y o u w ill have pa id a fte r yo u have m ade all paym ents as scheduled.
T o ta l Sale Price T he to ta l cost o f y o u r p u r chase on c re d it, in c lu d in g y o u r d o w n p a y m e n t o f . /5 0 0 - 14«4% $I4%.S0 $klo7.50 $76o4- 30 $4 o .q .3 o You have the right to receive at this time an itemization of the Amount Financed. □ I want an itemization.
I do not want an itemization. Your payment schedule will be: N um be r o f Paym ents A m o u n t o f Paym ents W hen P aym ents A re Due 3ff Mon+hlu b£Q\r\n\f\q (o-l-ffl J j Insurance Credit life insurance and credit disability insurance are not required to obtain credit, and will not be provided unless you sign and agree to pay the additional cost._______________________________________________________________________________ T ype P rem ium S ignature________________________ / f c # .
i J. .. .
.
Credit Life ?ia o - I want credit life / 1 / 1 . 0 0 , M M J
insurance.
S ignature Credit Disability 1 want credit disability insurance.
S ignature Credit Life and Disability 1 want credit life and disability insurance.
S ig na ture Security: You are giving a security interest in: the goods being purchased.
Filing fees $ la.so Non-filing insurance $ Late Charge: If a payment is late, you will be charged $10. Prepayment: If you pay off early, you nay □ will not have to pay a penalty.
pay □ will not be entitled to a refund of part of the finance charge. □ ma i f f \ a See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. I have received a copy of.tlys statement. Signature Date e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H -l 1 H -l 1— Installment Loan Sample Friendly Bank & Trust Co.
7 0 0 E a st Street Little Creek, U S A Lisa Stone 22-4859-22 300 Maple Avenue Little Creek, USA A N N U A L F IN A N C E A m o u n t T o ta l o f P E R C E N T A G E C H A R G E Financed P aym ents R A T E T he d o lla r am o un t T he a m o u n t o f c re d it T he a m o u n t yo u w ill T he cost o f y o u r cre d it th e c re d it w ill cost p ro v id e d to yo u o r on have pa id a fte r y o u as a ye a rly rate.
you .
y o u r be ha lf.
have m ade all paym ents as scheduled.
IZ % 1675.5/ $ 5000 - $5675.3/ You have the right to receive at this time an itemization of the Amount Financed. □ I want an itemization.
□ I do not want an itemization. Your payment schedule will be: N um be r o f Paym ents A m o u n t o f Paym ents W hen Paym ents A re Due / *262,. <?3 c bills/ Z3 *2.33.36 Merx'UuUf depute*m eet 7 /l/%f Late Charge: If a payment is late, you will be charged $5 or 10% of the payment, whichever is less. Prepayment: If you pay off early, you ■ may □ will not have to pay a penalty.
Required Deposit: The annual percentage rate does not take into account your required deposit. See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-12 Regulation Z H -12—Refinancing Sample Everyone’s Credit Union 1 ,1 1 8 1 A N N U A L F IN A N C E A m o u n t T o ta l o f P E R C E N T A G E C H A R G E Financed P aym ents R A T E The d o lla r am o un t T he a m o u n t o f c re d it T he a m o u n t y o u w ill T he cost o f y o u r cre d it th e c re d it w ill cost p ro v id e d to y o u o r on have pa id a fte r yo u as a yea rly rate.
yo u .
y o u r b e ha lf.
have m ade all pa ym en ts as scheduled.
% $IZ85<X, SSI77.73 1 6 ^ . 7 Your payment schedule w ill be: N um be r o f Paym ents A m o u n t o f Paym ents W hen Paym ents A re D ue S'/'G / / Insu ranee Credit life insurance and credit disability insurance are not required to obtain credit, and will not be provided unless you sign and agree to pay the additional cost. T ype P rem ium S ignature Credit Life 1 want credit life insurance.
S t a t u r e Credit Disability *177.73 1 want credit disability insurance.
Yq&m ^ ig n a t u r f Security: You are giving a security interest in: □ the goods or property being purchased. ^ your automobile.
Late Charge: If a payment is late, you will be charged 20% of the interest due with a minimum charge of $.05. Prepayment: If you pay off early, you will not have to pay a penalty. See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Itemization of the Amount Financed of S 5/77.73 $ I Q O O 1 Amount given to you directly $ 3 O O P ' Amount paid on your account Amount paid to others on your behalf to public officials puouc OTTICIdlS , CxxpCredtt Uu‘Oh Co.
Pan'Galactic. Ins. Co.
for credit report $ Prepaid finance charge Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H-13 H-13—Mortgage with Demand Feature Sample Mortgage Savings and Loan Assoc. Date: April 15, 1981 Glenn Jones 700 Oak Drive Little Creek, USA A N N U A L F IN A N C E A m o u n t T o ta l o f P E R C E N T A G E C H A R G E Financed Paym ents R A T E T he d o lla r am o un t T he a m o u n t o f c re d it T he a m o u n t y o u w ill The cost o f y o u r cre d it th e c re d it w ill cost p ro v id e d to y o u o r on have pa id a fte r you as a ye a rly rate.
y o u .
y o u r b e ha lf.
have m ade all paym ents as scheduled.
14.85 % $l5fc,5SI.54 $ 44% 605.66 $20l, 157.20 Your payment schedule will be: N um be r o f Paym ents A m o u n t o f Paym ents W hen P aym ents A re Due *558.77 M o n th ly be^ UnfH*\Cl 6/l/gf This obligation has a demand feature. You may obtain property insurance from anyone you want that is acceptable to Mortgage Savings and Loan Assoc.. If you get the insurance from Mortgage Savings and Loan Assoc, you will pay $ i S b ' / y a r Security: You are giving a security interest in: the goods or property being purchased. □_____________________ Late Charge: If a payment is late, you w ill be charged $ Nyk Prepayment: If you pay off early, you may have to pay a penalty. /___5 % of the payment.
Assumption: Someone buying your house may, subject to conditions, be allowed to assume the remainder of the mortgage on the original terms.
See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-14 Regulation Z H-14— Variable-Rate Mortgage Sample This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. How Your Interest Rate and Payment Are Determined • Your interest rate will be based on an in dex rate plus a margin.
• Your payment will be based on the interest rate, loan balance, and loan term. —The interest rate will be based on the weekly average yield on United States Treasury securities adjusted to a con stant maturity of 1 year (your index), plus our margin. Ask us for our current interest rate and margin. —Information about the index rate is pub lished weekly in the Wall Street Journal. • Your interest rate will equal the index rate plus our margin unless your interest rate “caps” limit the amount of change in the interest rate.
How Your Interest Rate Can Change • Your interest rate can change yearly. • Your interest rate cannot increase or de crease more than 2 percentage points per year.
• Your interest rate cannot increase or de crease more than 5 percentage points over the term of the loan.
How Your Monthly Payment Can Change • Your monthly payment can change yearly based on changes in the interest rate. • For example, on a $10,000, 30-year loan with an initial interest rate of 9.71 percent (the rate shown in the interest rate column below for the year 1987), the maximum amount that the interest rate can rise un der this program is 5 percentage points, to 14.71 percent, and the monthly payment can rise from a first-year payment of $85.62 to a maximum of $123.31 in the fourth year.
• You will be notified in writing 25 days be fore the annual payment adjustment may be made. This notice will contain informa tion about your interest rates, payment amount, and loan balance. Example The example below shows how your payments would have changed under this ARM program based on actual changes in the index from 1977 to 1987. This does not necessarily indicate how your index will change in the future. The example is based on the following assumptions. Amount ...................... $10,000 C ap s.......... 2 percentage points annual Term ............................ 30 years interest rate 1 year .......... 5 percentage points lifetime 1 year interest rate Payment adjustment Interest adjustment .
M argin........................ 3 percentage points Index.......... Weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix H-14 Year Index Margin Interest Rate Monthly Payment Remaining Balance (as of 1st week ending in July) (%) (percentage points) (%) ($) ($) 5.72 8.72 78.46 9,927.64 8.34 10.72** 92.89 9,874.67 9.44 12.44 105.67 9,832.70 8.51 11.51 98.79 9,776.04 14.94 13.51** 113.51 9,731.98 14.41 13.72*** 115.07 9,683.39 9.78 12.78 108.25 9,618.21 12.17 13.72*** 114.96 9,554.39 7.66 11.72** 101.08 9,456.03 6.36 9.72** 88.13 9,311.25 6.71 9.71 88.07 9,151.55 To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1987 the monthly payment for a mortgage amount of $60,000 taken out in 1977 would be: $60,000 -f- $10,000 = 6; 6 x $88.07 = $528.42.) •This is a margin we have used recently; your margin may be different. ••This interest rate reflects a 2 percentage point annual interest rate cap. •••This interest rate reflects a 5 percentage point lifetime interest rate cap. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix H-15 Regulation Z H-15—Graduated-Payment Mortgage Sample Convenient Savings and Loan Account number: 4862-88 Michael Jones 500 Walnut Court, Little Creek USA A N N U A L F IN A N C E A m o u n t T o ta l o f P E R C E N T A G E C H A R G E Finan ced P aym ents R A T E T he d o lla r am o un t T he a m o u n t o f c re d it T he a m o u n t y o u w ill T he cost o f y o u r cre d it th e c re d it w ill cost p ro v id e d to y o u o r on have pa id a fte r yo u as a ye a rly rate.
yo u .
y o u r b e ha lf.
have m ade all paym ents as scheduled.
15.37 % $ 177^70.44 $ 43,777 $Z2.I,54«.44 Your payment schedule will be:
N um be r o f Paym ents A m o u n t o f Paym ents W hen Paym ents A re Due 12.
S44 fc.fct.
MortthlM (oll/SI * 474. b7 (J A * 11_______ » G///8 2 12.
* 515. (I '• "
fc/i/N 12.
* SS3. 13 _______ M______6>/l/fr4 a f 5*13. V _______ "
fc/l/gs 3oo l "
'* 6>/1/ 03 / » I0D lw »fc2-7. 37 Security: You are giving a security interest in the property being purchased. Late Charge: If a payment is late, you will be charged 5% of the payment. Prepayment: If you pay off early, you & may □ w ill not have to pay a penalty.
^ may □ w ill not be entitled to a refund of part of the finance charge. Assumption: Someone buying your home cannot assume the remainder of the mortgage on the original terms. See your contract documents for any additional information about nonpayment, default, any required repayment in full before the scheduled date, and prepayment refunds and penalties. e means an estimate Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix J APPENDIX I—Federal Enforcement Agencies The following list indicates which federal agency enforces Regulation Z for particular classes of businesses. Any questions concern ing compliance by a particular business should be directed to the appropriate enforce ment agency.
National Banks Office of Customer and Community Programs Comptroller of the Currency Washington, D.C. 20219 State Member Banks Federal Reserve Bank serving the District in which the state member bank is located. Nonmember Insured Banks Federal Deposit Insurance Corporation re gional director for the region in which the nonmember insured bank is located. Savings Institutions Insured by the FSLIC and Members of the FHLB System (except for sav ings banks insured by FDIC) The Federal Home Loan Bank Board supervi sory agent in the district in which the institu tion is located.
Federal Credit Unions Regional office of the National Credit Union Administration serving the area in which the federal credit union is located. Air Carriers Assistant General Counsel for Aviation En forcement and Proceedings Department of Transportation 400 Seventh Street, S.W.
Washington, D.C. 20590 Creditors Subject to Packers and Stockyards Act Nearest Packers and Stockyards Administra tion area supervisor.
Federal Land Banks, Federal Land Bank As sociations, Federal Intermediate Credit Banks and Production Credit Associations Farm Credit Administration 490 L’Enfant Plaza, S.W.
Washington, D.C. 20578 Retail, Department Stores, Consumer Finance Companies, All Other Creditors, and All Non bank Credit Card Issuers (Creditors operating on a local or regional basis should use the ad dress of the FTC Regional Office in which they operate.) Division of Credit Practices Bureau of Consumer Protection Federal Trade Commission Washington, D.C. 20580 APPENDIX J—Annual Percentage Rate Computations for Closed-End Credit Transactions (a) Introduction. (1) Section 226.22(a) of Regulation Z provides that the annual per centage rate for other than open-end credit transactions shall be determined in accord ance with either the actuarial method or the United States Rule method. This appendix contains an explanation of the actuarial method as well as equations, instructions and examples of how this method applies to single-advance and multiple-advance transactions.
(2) Under the actuarial method, at the end of each unit period (or fractional unit peri od) the unpaid balance of the amount fi nanced is increased by the finance charge earned during that period and is decreased by the total payment (if any) made at the end of that period. The determination of unit periods and fractional unit periods shall be consistent with the definitions and rules in paragraphs (b)(3), (4) and (5) of this section and the general equation in par agraph (b)(8) of this section. (3) In contrast, under the United States Rule method, at the end of each payment period, the unpaid balance of the amount financed is increased by the finance charge earned during that payment period and is decreased by the payment made at the end Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix J Regulation Z of that payment period. If the payment is less than the finance charge earned, the ad justment of the unpaid balance of the amount financed is postponed until the end of the next payment period. If at that time the sum of the two payments is still less than the total earned finance charge for the two payment periods, the adjustment of the unpaid balance of the amount financed is postponed still another payment period, and so forth.
(b) Instructions and equations for the actuari al method. (1) General rule. The annual percentage rate shall be the nominal annual percentage rate determined by multiplying the unit-period rate by the number of unit periods in a year.
(2) Term of the transaction. The term of the transaction begins on the date of its consummation, except that if the finance charge or any portion of it is earned begin ning on a later date, the term begins on the later date. The term ends on the date the last payment is due, except that if an ad vance is scheduled after that date, the term ends on the later date. For computation purposes, the length of the term shall be equal to the time interval between any point in time on the beginning date to the same point in time on the ending date. (3) Definitions of time intervals, (i) A pe riod is the interval of time between ad vances or between payments and includes the interval of time between the date the finance charge begins to be earned and the date of the first advance thereafter or the date of the first payment thereafter, as applicable.
(ii) A common period is any period that occurs more than once in a transaction. (iii) A standard interval of time is a day, week, semimonth, month, or a multiple of a week or a month up to, but not ex ceeding, one year.
(iv) All months shall be considered equal. Full months shall be measured from any point in time on a given date of a given month to the same point in time on the same date of another month. If a series of payments (or advances) is scheduled for the last day of each month, months shall be measured from the last day of the given month to the last day of another month. If payments (or ad vances) are scheduled for the 29th or 30th of each month, the last day of Feb ruary shall be used when applicable. (4) Unit period, (i) In all transactions other than a single-advance, single-pay ment transaction, the unit period shall be that common period, not to exceed one year, that occurs most frequently in the transaction, except that— (A) If two or more common periods occur with equal frequency, the small er of such common periods shall be the unit period; or (B) If there is no common period in the transaction, the unit period shall be that period which is the average of all periods rounded to the nearest whole standard interval of time. If the aver age is equally near two standard inter vals of time, the lower shall be the unit period.
(ii) In a single-advance, single-payment transaction, the unit period shall be the term of the transaction, but shall not ex ceed one year.
(5) Number of unit periods between two given dates, (i) The number of days be tween two dates shall be the number of 24-hour intervals between any point in time on the first date to the same point in time on the second date.
(ii) If the unit period is a month, the number of full unit periods between two dates shall be the number of months mea sured back from the later date. The re maining fraction of a unit period shall be the number of days measured forward from the earlier date to the beginning of the first full unit period, divided by 30. If the unit period is a month, there are 12 unit periods per year.
(iii) If the unit period is a semimonth or a multiple of a month not exceeding 11 months, the number of days between two dates shall be 30 times the number of full months measured back from the later date, plus the number of remaining days. The number of full unit periods and the remaining fraction of a unit period shall Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix J be determined by dividing such number of days by 15 in the case of a semimonth ly unit period or by the appropriate mul tiple of 30 in the case of a multimonthly unit period. If the unit period is a semi month, the number of unit periods per year shall be 24. If the number of unit periods is a multiple of a month, the number of unit periods per year shall be 12 divided by the number of months per unit period.
(iv) If the unit period is a day, a week, or a multiple of a week, the number of full unit periods and the remaining frac tions of a unit period shall be determined by dividing the number of days between the two given dates by the number of days per unit period. If the unit period is a day, the number of unit periods per year shall be 365. If the unit period is a week or a multiple of a week, the number of unit periods per year shall be 52 divid ed by the number of weeks per unit period.
(v) If the unit period is a year, the num ber of full unit periods between two dates shall be the number of full years (each equal to 12 months) measured back from the later date. The remaining fraction of a unit period shall be— (A) The remaining number of months divided by 12 if the remaining interval is equal to a whole number of months, or (B) The remaining number of days divided by 365 if the remaining inter val is not equal to a whole number of months.
(vi) In a single-advance, single-payment transaction in which the term is less than a year and is equal to a whole number of months, the number of unit periods in the term shall be one, and the number of unit periods per year shall be 12 divided by the number of months in the term or 365 divided by the number of days in the term.
(vii) In a single-advance, single-pay ment transaction in which the term is less than a year and is not equal to a whole number of months, the number of unit periods in the term shall be one, and the number of unit periods per year shall be 365 divided by the number of days in the term.
(6) Percentage rate for a fraction of a unit period. The percentage rate of finance charge for a fraction (less than one) of a unit period shall be equal to such fraction multiplied by the percentage rate of finance charge per unit period.
(7) Symbols. The symbols used to express the terms of a transaction in the equation set forth in paragraph (b)(8) of this sec tion are defined as follows: Ak = The amount of the kth advance. qk = The number of full unit periods from the beginning of the term of the transaction to the kth advance. ek = The fraction of a unit period in the time interval from the beginning of the term of the transaction to the kth advance.
m = The number of advances. Pj = The amount of the jth payment, tj = The number of full unit periods from the beginning of the term of the transaction to the jth payment. fj = The fraction of a unit period in the time interval from the beginning of the term of the transaction to the jth payment.
n = The number of payments, i = The percentage rate of finance charge per unit period, expressed as a decimal equivalent.
Symbols used in the examples shown in this appendix are defined as follows: a ^ The present value of 1 per unit period for x unit periods, first payment due immediately.
= 1 + —-----— + t------+ ( 1 + 0 O + O2 .....
(1 + i)x_1 w = The number of unit periods per year. I = wi X 100 = The nominal annual percentage rate.
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Appendix J Regulation Z (8) General equation. The following equa tion sets forth the relationship among the terms of a transaction:
_____ Aj______ (1 H-eii) (1 -hi)qi + A 2____ (l+ e 2i)( 1+092 + ... + --------- --------- —— (l+ e mi)(l+ i)9 m Pi_______ + ( l+ f 1i)(l+ i)ti ( l+ f 2i) ( l+ i) t2 + . . . + (1+ fni) ( l+ i) tn (9) Solution of general equation by itera tion process, (i) The general equation in paragraph (b)(8) of this section, when applied to a simple transaction in which a loan of $1000 is repaid by 36 monthly payments of $33.61 each, takes the spe cial form:
A = 33.61 a “> d+0 Step 1:
Let 0 = estimated annual percentage rate = 12.50% Evaluate expression for A, letting i = V(100w) = .010416667 Result (referred to as A') = 1004.674391 Step 2:
Let I2 = 0 + .1 = 12.60% Evaluate expression for A, letting i = I2/(100w) = .010500000 Result (referred to as A”) = 1003.235366 Step 4:
First iteration, let Ij = 12.82483042% and repeat Steps 1, 2, and 3 obtaining a new I = 12.82557859% Second iteration, let 0 = 12.82557859% and repeat Steps 1, 2, and 3 obtaining a new I = 12.82557529% In this case, no further iterations are re quired to obtain the annual percentage rate correct to two decimal places, 12.83%.
(ii) When the iteration approach is used, it is expected that calculators or computers will be programmed to carry all available decimals throughout the cal culation and that enough iterations will be performed to make virtually certain that the annual percentage rate obtained, when rounded to two decimals, is cor rect. Annual percentage rates in the ex amples below were obtained by using a 10-digit programmable calculator and the iteration procedure described above. (c) Examples for the actuarial method. (1) Single-advance transaction, with or without an odd first period, and otherwise regular. The general equation in paragraph (b)(8) of this section can be put in the following special form for this type of transaction: A = (l+ fiK i+ i). ( P +l) Example (i): Monthly payments (regular first period) Step 3:
Interpolate for I (annual percentage rate):
—
= 12-50 + x r (1000.000000 - 1004.674391) ] [ (1003.235366 - 1004.674391) J = 12.82483042% Amount advanced (A) = $5000. Payment (P) - $230.
Number of payments (n) = 24. Unit period = 1 month. Unit periods per year (w) = 12.
Advance, 1-10-78. First payment, 2-10-78. From 1-10-78 through 2-10-78 = 1 unit pe riod. (t = 1; f = 0) Annual percentage rate (I) = wi = .0969 = 9.69% Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix J Example (ii): Monthly payments (long first period) Amount advanced (A) = $6000. Payment (P) = $200.
Number of payments (n) = 36. Unit period = 1 month. Unit periods per year (w) = 12.
Advance, 2-10-78. First payment, 4-1-78. From 3-1-78 through 4-1-78 = 1 unit peri od. (t = 1) From 2-10-78 through 3-1-78 = 19 days. (f = 19/30) Annual percentage rate (I) = wi = .1182 = 11.82% Example (Hi):
Semimonthly payments (short first period) Amount advanced (A) = $5000. Payment (P) = $219.17.
Number of payments (n) = 24. Unit period = \ month. Unit periods per year (w) = 24.
Advance, 2-23-78. First payment, 3-1-78. Payments made on 1st and 16th of each month.
From 2-23-78 through 3-1-78 = 6 days. (t = 0; f = 6/15) Annual percentage rate (I) = wi = .1034 = 10.34% Example (iv): Quarterly payments (long first period) Amount advanced (A) = $10,000. Pay ment (P) = $385.
Number of payments (n) = 40. Unit period = 3 months. Unit periods per year (w) = 4.
Advance, 5-23-78. First payment, 10-1-78. From 7-1-78 through 10-1-78 = 1 unit pe riod. (t = 1) From 6-1-78 through 7-1-78 = 1 month = 30 days. From 5-23-78 through 6-1-78 = 9 days, (f = 39/90) Annual percentage rate (I) = wi = .0897 = 8.97% Example (v): Weekly payments (long first period) Amount advanced (A) = $500. Payment (P) = $17.60.
Number of payments (n) = 30. Unit period = 1 week. Unit periods per year (w) = 52.
Advance, 3-20-78. First payment, 4-21-78. From 3-24-78 through 4-21-78 = 4 unit pe riods. (t = 4) From 3-20-78 through 3-24-78 = 4 days, (f = 4/7) Annual percentage rate (I) = wi = .1496 = 14.96% (2) Single-advance transaction, with an odd first payment, with or without an odd first period, and otherwise regular. The gen eral equation in paragraph (b)(8) of this section can be put in the following special form for this type of transaction: a = r Pl + pst n i (l+ fiH i+ o t [ 1T d + i ) j Example (i): Monthly payments (regu lar first period and irregular first payment) Amount advanced (A) — $5000. First payment (Pi) = $250.
Regular payment (P) = $230. Number of payments (n) = 24.
Unit period = 1 month. Unit periods per year (w) = 12.
Advance, 1-10-78. First payment, 2-10- 78.
From 1-10-78 through 2-10-78 = 1 unit period, (t = 1; f = 0) Annual percentage rate (I) = wi = .1008 = 10.08% Example (ii): Payments every four weeks (long first period and irregular first payment) Amount advanced (A) = $400. First payment (Pi) = $39.50.
Regular payment (P) = $38.31. Num ber of payments (n) = 12. Unit period = 4 weeks. Unit periods per year (w) = 52/4 =13.
Advance, 3-18-78. First payment, 4-20- 78.
From 3-23-78 through 4-20-78 = 1 unit period, (t = 1) 8 1 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix J Regulation Z From 3-18-78 through 3-23-78 = 5 days, (f = 5/28) Annual percentage rate (I) = wi = .2850 = 28.50%. (3) Single-advance transaction, with an odd final payment, with or without an odd first period, and otherwise regular. The gen eral equation in paragraph (b)(8) of this section can be put in the following special form for this type of transaction: A = ( , + f,)1( i +1)I[ p ^ + - L I (l-h i)n -ij Example (i): Monthly payments (regu lar first period and irregular final payment) Amount advanced (A) = $5000. Regu lar payment (P) = $230. Final payment (Pn) = $280. Number of payments (n) =24.
Unit period = 1 month. Unit periods per year (w) = 12.
Advance, 1-10-78. First payment, 2-10- 78.
From 1-10-78 through 2-10-78 = 1 unit period, (t = 1; f = 0) Annual percentage rate (I) = wi = .1050 = 10.50% Example (ii): Payments every two weeks (short first period and irregular final payment) Amount advanced (A) = $200. Regular payment (P) = $9.50.
Final payment (Pn) = $30. Number of payments (n) =20.
Unit period = 2 weeks. Unit periods per year (w) = 52/2 = 26.
Advance, 4-3-78. First payment, 4-11-78. From 4-3-78 through 4-11-78 = 8 days. (t = 0; f = 8/14) Annual percentage rate (I) = wi = .1222 = 12.22% (4) Single-advance transaction, with an odd first payment, odd final payment, with or without an odd first period, and otherwise regular. The general equation in paragraph (b)(8) of this section can be put in the fol lowing special form for this type of transaction:
A = ( l+ fi)(l+ i)t Pi + P a__ + _ j F 3 (1 + 0 ___Pn_ d + i) “-J Example (i): Monthly payments (regu lar first period, irregular first payment, and irregular final payment) Amount advanced (A) = $5000. First payment (Pi) = $250.
Regular payment (P) = $230. Final payment (Pn) = $280.
Number of payments (n) = 24. Unit pe riod = 1 month.
Unit periods per year (w) = 12. Advance, 1-10-78. First payment, 2-10- 78.
From 1-10-78 through 2-10-78 = 1 unit period, (t = 1; f = 0) Annual percentage rate (I) = wi = .1090 = 10.90% Example (ii):
Payments every two months (short first period, irregular first payment, and irregular final payment) Amount advanced (A) = $8000. First payment (Pi) = $449.36. Regular payment (P) = $465. Final payment (Pn) = $200.
Number of payments (n) = 20. Unit pe riod = 2 months.
Unit periods per year (w) = 12/2 = 6. Advance, 1-10-78. First payment, 3-1-78. From 2-1-78 through 3-1-78 = 1 month. From 1-10-78 through 2-1-78 = 22 days, (t = 0; f = 52/60) Annual percentage rate (I) = wi = .0730 = 7.30% (5) Single-advance, single-payment trans action. The general equation in paragraph (b)(8) of this section can be put in the spe- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix J cial forms below for single advance, single payment transactions. Forms 1 through 3 are for the direct determination of the an nual percentage rate under special condi tions. Form 4 requires the use of the itera tion procedure of paragraph (b) (9) of this section and can be used for all single-ad vance, single-payment transactions regard less of term.
Form 1— Term less than one year: i - 1) Form 2— Term more than one year but less than two years:
I= = Y | [ (1 + 0 2 + 4 f ( p - i) ] ,/2 - ( , + f ) j Form 3— Term equal to exactly a year or exact multiple of a year: 1 - 100 [ ( f ) >A- i] Form 4—Special form for iteration proce dure (no restriction on term): (1 +f i ) ( l + i ) t Example (i): Single-advance, single-pay ment (term of less than one year, mea sured in days) Amount advanced (A) = $1000. Pay ment (P) = $1080.
Unit period = 255 days. Unit periods per year (w) = 365/255.
Advance, 1-3-78. Payment, 9-15-78. From 1-3-78 through 9-15-78 = 255 days, (t = 1; f = 0) Annual percentage rate (I) = wi = .1145 = 11.45%. (Use form 1 or 4.) Example (ii): Single-advance, single-pay ment (term of less than one year, mea sured in exact calendar months) Amount advanced (A) = $1000. Pay ment (P) = $1044.
Unit period = 6 months. Unit periods per year (w) = 2.
Advance, 7-15-78. Payment, 1-15-79. From 7-15-78 through 1-15-79 = 6 mos. (t = 1; f = 0) Annual percentage rate (I) = wi = .0880 = 8.80%. (Use form 1 or 4.) Example (Hi): Single-advance, single-pay ment (term of more than one year but less than two years, fraction measured in exact months) Amount advanced (A) = $1000. Pay ment (P) - $1135.19.
Unit period = 1 year. Unit periods per year (w) = 1.
Advance, 7-17-78. Payment, 1-17-80. From 1-17-79 through 1-17-80 = 1 unit period, (t = 1) From 7-17-78 through 1-17-79 = 6 mos. (f = 6/12) Annual percentage rate (I) = wi = .0876 = 8.76%. (Use form 2 or 4.) Example (iv): Single-advance, single-pay ment (term of exactly two years) Amount advanced (A) = $1000. Pay ment (P) = $1240.
Unit period = 1 year. Unit periods per year (w) = 1.
Advance, 1-3-78. Payment, 1-3-80. From 1-3-78 through 1-3-79 = 1 unit pe riod. (t = 2; f = 0) Annual percentage rate (I) = wi = .1136 = 11.36%. (Use form 3 or 4.) (6) Complex single-advance transaction. Example (i):
Skipped-payment loan (payments every four weeks) A loan of $2135 is advanced on 1-25-78. It is to be repaid by 24 payments of $100 each. Payments are due every I = lOOw Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix J Regulation Z four weeks beginning 2-20-78. However, in those months in which two payments would be due, only the first of the two payments is made and the following payment is delayed by two weeks to place it in the next month. Unit period = 4 weeks. Unit periods per year (w) = 52/4 = 13.
First series of payments begins 26 days after 1-25-78. (tt = 0; fj = 26/28) Second series of payments begins nine unit periods plus two weeks after start of first series. (t2 = 10; f2 = 12/28) Third series of payments begins six unit periods plus two weeks after start of second series. (t3 = 16; f3 = 26/28) Last series of payments begins six unit periods plus two weeks after start of third series. (t4 = 23; f4 = 12/28) The general equation in paragraph (b)(8) of this section can be written in the special form:
100 a 2135 = ________3 ------ l (1 + (26/28)i) (l + (12/28)i)(l+i)io + 100 a _______5____+ (1 + (26/28)i)(l+i) 16 100 a ___________ H (1 + (12/28)i)(l + i)23 Annual percentage rate (I) = wi = .1200 = 12.00% Example (ii): Skipped-payment loan plus single payments A loan of $7350 on 3-3-78 is to be repaid by three monthly payments of $1000 each beginning 9-15-78, plus a single payment of $2000 on 3-15-79, plus three more monthly payments of $750 each beginning 9-15-79, plus a final payment of $1000 on 2-1-80. Unit period = 1 month. Unit periods per year (w) - 12.
First series of payments begins six unit periods plus 12 days after 3-3-78. (tl = 6; fj = 12/30) Second series of payments (single pay ment) occurs 12 unit periods plus 12 days after 3-3-78. (t2 = 12; fj — 12/ 30) Third series of payments begins 18 unit periods plus 12 days after 3-3-78. (t3 = 18; f3 = 12/30) Final payment occurs 22 unit periods plus 29 days after 3-3-78. (t4 = 22; f4 = 29/30) The general equation in paragraph (b)(8) of this section can be written in the special form:
1000 a 7350 = ------------------------------ b (1 + (12/30)i) (l+i)6 ______ 2000_______ (l + (12/30)i)(l+i)l2 + 750 a __________ *_____ + (l + ( 1 2 /3 0 )i)(l+ 0 18 ______ 1000______ (1 + (29/30)i)(l+i)22 Annual percentage rate (I) = wi = .1022 = 10.22% Example (iii): Mortgage with varying payments A loan of $39,688.56 (net) on 4-10-78 is to be repaid by 360 monthly payments beginning 6-1-78. Payments are the same for 12 months at a time as follows: Year Monthly payment Year Monthly payment $291.81 $383.67 300.18 383.13 308.78 382.54 317.61 3 8 1.90 326.65 3 8 1.20 335.92 380.43 345.42 3 7 9.60 355.15 378.68 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Regulation Z Appendix J Year Monthly payment Year Monthly payment 3 65.12 377.69 375.33 3 7 6.60 38 5 .7 6 375.42 385.42 374.13 3 85.03 372.72 384.62 371.18 384.17 3 6 9.50 Unit period = 1 month. Unit periods per year (w) = 12.
From 5-1-78 through 6-1-78 = 1 unit pe riod. (t = 1) From 4-10-78 through 5-1-78 = 21 days, (f = 21/30) The general equation in paragraph (b)(8) of this section can be written in the special form:
39,688.56 T291.81 a =______ nj_____ (l + (21/30)i)(l+i) 300.18 308.78 + (1 +i)12 + (1 + i) 24 + 369.50 1 (l+i)348j Annual percentage rate (I) = wi = .0980 = 9.80% (7) Multiple-advance transactions. Example (i): Construction loan Three advances of $20,000 each are made on 4-10-79, 6-12-79, and 9-18-79. Re payment is by 240 monthly payments of $612.36 each beginning 12-10-79. Unit period = 1 month. Unit periods per year (w) — 12.
From 4-10-79 through 6-12-79 = (2 + 2/30) unit periods. From 4-10-79 through 9-18-79 = (5 + 8/30) unit periods. From 4-10-79 through 12-10-79 = (8) unit periods.
The general equation in paragraph (b)(8) of this section is changed to the single-advance mode by treating the sec ond and third advances as negative payments:
20,000 612.36a _____ ZTOj (1 + i)« 20,000 (l + (2/30)i)(l+ i)2 ______20000_____ (1 + (8 /3 0 )i)(l + i)5 Annual percentage rate (I) = wi = .1025 = 10.25% Example (77): Student loan A student loan consists of eight advances: $1800 on 9-5-78, 9-5-79, 9-5-80, and 9- 5-81; plus $1000 on 1-5-79, 1-5-80, 1-5- 81, and 1-5-82. The borrower is to make 50 monthly payments of $240 each beginning 7-1-78 (prior to first advance).
Unit period = 1 month. Unit periods per year (w) = 12.
Zero point is date of first payment since it precedes first advance. From 7-1-78 to 9-5-78 = (2 + 4/30) unit periods.
From 7-1-78 to 9-5-79 = (14 + 4/30) unit periods.
From 7-1-78 to 9-5-80 = (26 + 4/30) unit periods.
From 7-1-78 to 9-5-81 = (38 + 4/30) unit periods.
From 7-1-78 to 1-5-79 = (6 + 4/30) unit periods.
From 7-1-78 to 1-5-80 = (18 + 4/30) unit periods.
From 7-1-78 to 1-5-81 = (30 + 4/30) unit periods.
From 7-1-78 to 1-5-82 = (42 + 4/30) unit periods.
Since the zero point is date of first pay- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Appendix J Regulation Z ment, the general equation in paragraph (b)(8) of this section is written in the single-advance form below by treating the first payment as a negative advance and the eight advances as negative payments:
240 a _ 240 = * (1+ i) (1 + (4/30)i) r - .j— + + - L(1 + i ) 2 (1 + i ) 14 (1 + i ) 26 ] + (1 + i)38 J (l + (4/30)i) [---- 1---- + -------1— + I (1 + i)6 (1 + i)18 (l+ i)3 0 + (l+i)42 Annual percentage rate (I) = wi = .3204 = 32.04% Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act 15 USC 1601 et seq.; 82 Stat. 146; Pub. L. 90-321 (May 29, 1968) Public Law 90-321 (as amended), Title I (Chapters 1 through 4) CHAPTER 1—GENERAL PROVISIONS Section Short title 102 Findings and declaration of purpose Definitions and rules of construction 104 Exempted transactions Regulations 106 Determination of finance charge Determination of annual percentage rate Administrative enforcement 109 Views of other agencies [Repealed] Effect on other laws 112 Criminal liability for willful and knowing violation Effect on governmental agencies 114 Reports by Board and Attorney General [Repealed] SECTION 101—Short Title This title may be cited as the Truth in Lend ing Act.
[15 USC 1601 note.] SECTION 102—Findings and Declaration of Purpose (a) The Congress finds that economic stabili zation would be enhanced and the competi tion among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this title to assure a meaningful disclosure of cred it terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.
(b) The Congress also finds that there has been a recent trend toward leasing automo biles and other durable goods for consumer use as an alternative to instalment credit sales and that these leases have been offered without adequate cost disclosures. It is the purpose of this title to assure a meaningful disclosure of the terms of leases of personal property for personal, family, or household purposes so as to enable the lessee to compare more readily the various lease terms available to him, limit balloon payments in consumer leasing, enable comparison of lease terms with credit terms where appropriate, and to assure meaningful and accurate disclosures of lease terms in advertisements.
[15 USC 1601. As amended by acts of Oct. 28, 1974 (88 Stat. 1511); March 23, 1976 (90 Stat. 257); and Dec. 26, 1981 (95 Stat. 1515).] SECTION 103—Definitions and Rules of Construction (a) The definitions and rules of construction set forth in this section are applicable for the purposes of this title.
(b) The term “Board” refers to the Board of Governors of the Federal Reserve System. (c) The term “organization ” means a corpo ration, government or governmental subdivi sion or agency, trust, estate, partnership, co operative, or association.
(d) The term “person” means a natural per son or an organization.
(e) The term “credit” means the right grant ed by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment. (f) The term “creditor” refers only to a per son who both (1) regularly extends, whether in connection with loans, sales of property or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 103 Truth in Lending Act services, or otherwise, consumer credit which is payable by agreement in more than four in stallments or for which the payment of a fi nance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially pay able on the face of the evidence of indebted ness or, if there is no such evidence of indebt edness, by agreement. Notwithstanding the preceding sentence, in the case of an open-end credit plan involving a credit card, the card issuer and any person who honors the credit card and offers a discount which is a finance charge are creditors. For the purposes of the requirements imposed under chapter 4 and sections 127(a)(5), 127(a)(6), 127(a)(7), 127(b)(1), 127(b) (2), 127(b)(3), 127(b) (8), and 127(b) (10) of chapter 2 of this title, the term “creditor” shall also include card is suers whether or not the amount due is pay able by agreement in more than four install ments or the payment of a finance charge is or may be required, and the Board shall, by regu lation, apply these requirements to such card issuers, to the extent appropriate, even though the requirements are by their terms applicable only to creditors offering open-end credit plans.
(g) The term “credit sale” refers to any sale in which the seller is a creditor. The term in cludes any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate val ue of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the prop erty upon full compliance with his obligations under the contract.
(h) The adjective “consumer”, used with ref erence to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, or household purposes.
(i) The term “open end credit plan ” means a plan under which the creditor reasonably contemplates repeated transactions, which pre scribes the terms of such transactions, and which provides for a finance charge which may be computed from time to time on the outstanding unpaid balance. A credit plan which is an open end credit plan within the meaning of the preceding sentence is an open end credit plan even if credit information is verified from time to time.
(j) The term “adequate notice”, as used in section 133, means a printed notice to a card holder which sets forth the pertinent facts clearly and conspicuously so that a person against whom it is to operate could reasonably be expected to have noticed it and understood its meaning. Such notice may be given to a cardholder by printing the notice on any cred it card, or on each periodic statement of ac count, issued to the cardholder, or by any oth er means reasonably assuring the receipt thereof by the cardholder.
(k) The term “credit card” means any card, plate, coupon book or other credit device ex isting for the purpose of obtaining money, property, labor, or services on credit. (/) The term “<accepted credit card” means any credit card which the cardholder has re quested and received or has signed or has used, or authorized another to use, for the purpose of obtaining money, property, labor, or services on credit.
(m) The term “cardholder” means any per son to whom a credit card is issued or any person who has agreed with the card issuer to pay obligations arising from the issuance of a credit card to another person. (n) The term “card issuer” means any person who issues a credit card, or the agent of such person with respect to such card. (o) The term “unauthorized use”, as used in section 133, means a use of a credit card by a person other than the cardholder who does not have actual, implied, or apparent authori ty for such use and from which the cardholder receives no benefit.
(p) The term “discount” as used in section 167 means a reduction made from the regular Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §104 price. The term “discount” as used in section 167 shall not mean a surcharge. (q) The term “surcharge” as used in section 103 and section 167 means any means of in creasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means. (r) The term “State” refers to any State, the Commonwealth of Puerto Rico, the District of Columbia, and any territory or possession of the United States.
(s) The term “agricultural purposes” in cludes the production, harvest, exhibition, marketing, transportation, processing, or manufacture of agricultural products by a nat ural person who cultivates, plants, propagates, or nurtures those agricultural products, in cluding but not limited to the acquisition of farmland, real property with a farm residence, and personal property and services used pri marily in farming.
(t) The term “agriculturalproducts” includes agricultural, horticultural, viticultural, and dairy products, livestock, wildlife, poultry, bees, forest products, fish and shellfish, and any products thereof, including processed and manufactured products, and any and all prod ucts raised or produced on farms and any pro cessed or manufactured products thereof. (u) The term “material disclosures” means the disclosure, as required by this title, of the annual percentage rate, the method of deter mining the finance charge and the balance upon which a finance charge will be imposed, the amount of the finance charge, the amount to be financed, the total of payments, the number and amount of payments, and the due dates or periods of payments scheduled to re pay the indebtedness.
(v) The term “dwelling” means a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives. (w) The term “residential mortgage transac tion ” means a transaction in which a mortage, deed of trust, purchase money security inter est arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling to finance the acquisition or initial construction of such dwelling. (x) As used in this section and section 167, the term “regular price” means the tag or posted price charged for the property or serv ice if a single price is tagged or posted, or the price charged for the property or service when payment is made by use of an open-end credit plan or a credit card if either (1) no price is tagged or posted, or (2) two prices are tagged or posted, one of which is charged when pay ment is made by use of an open-end credit plan or a credit card and the other when pay ment is made by use of cash, check, or similar means. For purposes of this definition, pay ment by check, draft, or other negotiable in strument which may result in the debiting of an open-end credit plan or a credit cardhold er’s open-end account shall not be considered payment made by use of the plan or the account.
(y) Any reference to any requirement im posed under this title or any provision thereof includes reference to the regulations of the Board under this title or the provision thereof in question.
(z) The disclosure of an amount or percent age which is greater than the amount or per centage required to be disclosed under this ti tle does not in itself constitute a violation of this title.
[15 USC 1602. As amended by acts of Oct. 26, 1970 (84 Stat. 1126); Oct. 28, 1974 (88 Stat. 1511); Feb. 27, 1976 (90 Stat. 197); July 27, 1981 (95 Stat. 144); and Oct. 15, 1982 (96 Stat. 1538).] SECTION 104— Exempted Transactions This title does not apply to the following: (1) Credit transactions involving exten sions of credit primarily for business, com mercial, or agricultural purposes, or to gov ernment or governmental agencies or instrumentalities, or to organizations. (2) Transactions in securities or commodi ties accounts by a broker-dealer registered with the Securities and Exchange Commission.
(3) Credit transactions, other than those Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 104 Truth in Lending Act in which a security interest is or will be ac quired in real property, or in personal prop erty used or expected to be used as the prin cipal dwelling of the consumer, in which the total amount financed exceeds $25,000. (4) Transactions under public utility tar iffs, if the Board determines that a State regulatory body regulates the charges for the public utility services involved, the charges for delayed payment, and any dis count allowed for early payment. (5) Loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.).
[15 USC 1603. As amended by acts of Oct. 28, 1974 (88 Stat. 1517); March 31, 1980 (94 Stat. 169); Dec. 26, 1981 (95 Stat. 1515); and Oct. 15, 1982 (96 Stat. 1538). Section 701 (b) and (c) of the Gam-St Germain Deposi tory Institutions Act of 1982 (12 USC 1099 and 15 USC 1603 note) provides:
(b) Loans made, insured, or guaranteed pursuant to a program authorized by title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.) shall not be subject to any disclosure requirements of any State law. (c) The amendment made by subsection (a) and sub section (b) shall be effective with respect to loans made prior to, on, and after the date of enactment of this Act [October 15, 1982].
Subsection (a) added paragraph (5) to section 104 of the Truth in Lending Act.] SECTION 105—Regulations (a) The Board shall prescribe regulations to carry out the purposes of this title. These reg ulations may contain such classifications, dif ferentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judg ment of the Board are necessary or proper to effectuate the purposes of this title, to prevent circumvention or evasion thereof, or to facili tate compliance therewith.
(b) The Board shall publish model disclosure forms and clauses for common transactions to facilitate compliance with the disclosure re quirements of this title and to aid the borrow er or lessee in understanding the transaction by utilizing readily understandable language to simplify the technical nature of the disclosures. In devising such forms, the Board shall consider the use by creditors or lessors of data processing or similar automated equipment. Nothing in this title may be construed to re quire a creditor or lessor to use any such mod el form or clause prescribed by the Board un der this section. A creditor or lessor shall be deemed to be in compliance with the disclo sure provisions of this title with respect to other than numerical disclosures if the credi tor or lessor (1) uses any appropriate model form or clause as published by the Board, or (2) uses any such model form or clause and changes it by (A) deleting any information which is not required by this title, or (B) rear ranging the format, if in making such deletion or rearranging the format, the creditor or les sor does not affect the substance, clarity, or meaningful sequence of the disclosure. (c) Model disclosure forms and clauses shall be adopted by the Board after notice duly giv en in the Federal Register and an opportunity for public comment in accordance with sec tion 553 of title 5, United States Code. (d) Any regulation of the Board, or any amendment or interpretation thereof, requir ing any disclosure which differs from the dis closures previously required by this chapter, chapter 4, or chapter 5, or by any regulation of the Board promulgated thereunder shall have an effective date of that October 1 which follows by at least six months the date of promulgation, except that the Board may at its discretion take interim action by regula tion, amendment, or interpretation to length en the period of time permitted for creditors or lessors to adjust their forms to accommo date new requirements or shorten the length of time for creditors or lessors to make such adjustments when it makes a specific finding that such action is necessary to comply with the findings of a court or to prevent unfair or deceptive disclosure practices. Notwithstand ing the previous sentence, any creditor or les sor may comply with any such newly promul gated disclosure requirements prior to the effective date of the requirements. [15 USC 1604. As amended by acts of March 31, 1980 (94 Stat. 170) and Dec. 26, 1981 (95 Stat. 1515).] Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §107 SECTION 106—Determination of Finance Charge (a) Except as otherwise provided in this sec tion, the amount of the finance charge in con nection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed di rectly or indirectly by the creditor as an inci dent to the extension of credit. The finance charge does not include charges of a type pay able in a comparable cash transaction. Exam ples of charges which are included in the fi nance charge include any of the following types of charges which are applicable. (1) Interest, time price differential, and any amount payable under a point, dis count, or other system of additional charges.
(2) Service or carrying charge. (3) Loan fee, finder’s fee, or similar charge.
(4) Fee for an investigation or credit report.
(5) Premium or other charge for any guar antee or insurance protecting the creditor against the obligor’s default or other credit loss.
(b) Charges or premiums for credit life, acci dent, or health insurance written in connec tion with any consumer credit transaction shall be included in the finance charge unless (1) the coverage of the debtor by the insur ance is not a factor in the approval by the creditor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the exten sion of credit; and (2) in order to obtain the insurance in con nection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so after written disclo sure to him of the cost thereof. (c) Charges or premiums for insurance, writ ten in connection with any consumer credit transaction, against loss of or damage to prop erty or against liability arising out of the own ership or use of property, shall be included in the finance charge unless a clear and specific statement in writing is furnished by the credi tor to the person to whom the credit is extend ed, setting forth the cost of the insurance if obtained from or through the creditor, and stating that the person to whom the credit is extended may choose the person through which the insurance is to be obtained. (d) If any of the following items is itemized and disclosed in accordance with the regula tions of the Board in connection with any transaction, then the creditor need not include that item in the computation of the finance charge with respect to that transaction: (1) Fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction. (2) The premium payable for any insur ance in lieu of perfecting any security inter est otherwise required by the creditor in connection with the transaction, if the pre mium does not exceed the fees and charges described in paragraph (1) which would otherwise be payable.
(e) The following items, when charged in connection with any extension of credit se cured by an interest in real property, shall not be included in the computation of the finance charge with respect to that transaction: (1) Fees or premiums for title examina tion, title insurance, or similar purposes. (2) Fees for preparation of a deed, settle ment statement, or other documents. (3) Escrows for future payments of taxes and insurance.
(4) Fees for notarizing deeds and other documents.
(5) Appraisal fees.
(6) Credit reports.
[15 USC 1605. As amended by acts of March 31, 1980 (94 Stat. 170) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 107—Determination of Annual Percentage Rate (a) The annual percentage rate applicable to any extension of consumer credit shall be de termined, in accordance with the regulations of the Board, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§107 Truth in Lending Act (1) in the case of any extension of credit other than under an open end credit plan, as (A) that nominal annual percentage rate which will yield a sum equal to the amount of the finance charge when it is applied to the unpaid balances of the amount financed, calculated according to the actuarial method of allocating pay ments made on a debt between the amount financed and the amount of the finance charge, pursuant to which a pay ment is applied first to the accumulated finance charge and the balance is applied to the unpaid amount financed; or (B) the rate determined by any method prescribed by the Board as a method which materially simplifies computation while retaining reasonable accuracy as compared with the rate determined un der subparagraph (A).
(2) in the case of any extension of credit under an open end credit plan, as the quo tient (expressed as a percentage) of the to tal finance charge for the period to which it relates divided by the amount upon which the finance charge for that period is based, multiplied by the number of such periods in a year.
(b) Where a creditor imposes the same fi nance charge for balances within a specified range, the annual percentage rate shall be computed on the median balance within the range, except that if the Board determines that a rate so computed would not be mean ingful, or would be materially misleading, the annual percentage rate shall be computed on such other basis as the Board may by regula tion require.
(c) The disclosure of an annual percentage rate is accurate for the purpose of this title if the rate disclosed is within a tolerance not greater than one-eighth of 1 per centum more or less than the actual rate or rounded to the nearest one-fourth of 1 per centum. The Board may allow a greater tolerance to simpli fy compliance where irregular payments are involved.
(d) The Board may authorize the use of rate tables or charts which may provide for the disclosure of annual percentage rates which vary from the rate determined in accordance with subsection (a)(1)(A ) by not more than such tolerances as the Board may allow. The Board may not allow a tolerance greater than 8 per centum of that rate except to simplify compliance where irregular payments are involved.
(e) In the case of creditors determining the annual percentage rate in a manner other than as described in subsection (d), the Board may authorize other reasonable tolerances. [15 USC 1606. As amended by acts of March 31, 1980 (94 Stat. 170) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 108—Administrative Enforcement (a) Compliance with the requirements im posed under this title shall be enforced under (1) section 8 of the Federal Deposit Insur ance Act, in the case of (A) national banks, by the Comptroller of the Currency.
(B) member banks of the Federal Re serve System (other than national banks), by the Board.
(C) banks insured by the Federal Depo sit Insurance Corporation (other than members of the Federal Reserve Sys tem), by the Board of Directors of the Federal Deposit Insurance Corporation. (2) section 5(d) of the Home Owners’ Loan Act of 1933, section 407 of the Na tional Housing Act, and sections 6(i) and 17 of the Federal Home Loan Bank Act, by the Federal Home Loan Bank Board (act ing directly or through the Federal Savings and Loan Insurance Corporation), in the case of any institution subject to any of those provisions.
(3) the Federal Credit Union Act, by the Administrator of the National Credit Un ion Administration with respect to any Federal credit union.
(4) the Federal Aviation Act of 1958, by the Civil Aeronautics Board with respect to any air carrier or foreign air carrier subject to that Act.
(5) the Packers and Stockyards Act, 1921 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 108 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act. (6) the Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal land bank association, Federal intermediate credit bank, or production credit association. (b) For the purpose of the exercise by any agency referred to in subsection (a) of its powers under any Act referred to in that sub section, a violation of any requirement im posed under this title shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any pro vision of law specifically referred to in subsec tion (a), each of the agencies referred to in that subsection may exercise, for the purpose of enforcing compliance with any requirement imposed under this title, any other authority conferred on it by law.
(c) Except to the extent that enforcement of the requirements imposed under this title is specifically committed to some other Govern ment agency under subsection (a), the Feder al Trade Commission shall enforce such re quirements. For the purpose of the exercise by the Federal Trade Commission of its func tions and powers under the Federal Trade Commission Act, a violation of any require ment imposed under this title shall be deemed a violation of a requirement imposed under that Act. All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed un der this title, irrespective of whether that per son is engaged in commerce or meets any oth er jurisdictional tests in the Federal Trade Commission Act.
(d) The authority of the Board to issue regu lations under this title does not impair the au thority of any other agency designated in this section to make rules respecting its own pro cedures in enforcing compliance with require ments imposed under this title. (e) (1) In carrying out its enforcement activi ties under this section, each agency referred to in subsection (a) or (c), in cases where an annual percentage rate or finance charge was inaccurately disclosed, shall notify the creditor of such disclosure error and is au thorized in accordance with the provisions of this subsection to require the creditor to make an adjustment to the account of the person to whom credit was extended, to as sure that such person will not be required to pay a finance charge in excess of the fi nance charge actually disclosed or the dol lar equivalent of the annual percentage rate actually disclosed, whichever is lower. For the purposes of this subsection, except where such disclosure error resulted from a willful violation which was intended to mislead the person to whom credit was ex tended, in determining whether a disclosure error has occurred and in calculating any adjustment, (A) each agency shall apply (1) with respect to the annual percentage rate, a tolerance of one-quarter of 1 percent more or less than the actual rate, deter mined without regard to section 107(c) of this title, and (ii) with respect to the fi nance charge, a corresponding numerical tolerance as generated by the tolerance pro vided under this subsection for the annual percentage rate; except that (B) with re spect to transactions consummated after two years following the effective date of sec tion 608 of the Truth in Lending Simplifica tion and Reform Act, each agency shall apply (i) for transactions that have a sched uled amortization of ten years or less, with respect to the annual percentage rate, a tol erance not to exceed one-quarter of 1 per cent more or less than the actual rate, deter mined without regard to section 107(c) of this title, but in no event a tolerance of less than the tolerances allowed under section 107(c), (ii) for transactions that have a scheduled amortization of more than ten years, with respect to the annual percentage rate, only such tolerances as are allowed un der section 107(c) of this title, and (iii) for all transactions, with respect to the finance charge, a corresponding numerical toler ance as generated by the tolerances provid ed under this subsection for the annual per centage rate.
(2) Each agency shall require such an ad justment when it determines that such dis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 108 Truth in Lending Act closure error resulted from (A) a clear and consistent pattern or practice of violations, (B) gross negligence, or (C) a willful viola tion which was intended to mislead the per son to whom the credit was extended. Not withstanding the preceding sentence, except where such disclosure error resulted from a willful violation which was intended to mis lead the person to whom credit was extend ed, an agency need not require such an adjustment if it determines that such disclosure error— (A) resulted from an error involving the disclosure of a fee or charge that would otherwise be excludable in computing the finance charge, including but not limited to violations involving the disclosures de scribed in sections 106(b), (c) and (d) of this title, in which event the agency may require such remedial action as it determines to be equitable, except that for transactions consummated after two years after the effective date of section 608 of the Truth in Lending Simplifica tion and Reform Act, such an adjustment shall be ordered for violations of section 106(b);
(B) involved a disclosed amount which was 10 per centum or less of the amount that should have been disclosed and (i) in cases where the error involved a dis closed finance charge, the annual per centage rate was disclosed correctly, and (ii) in cases where the error involved a disclosed annual percentage rate, the fi nance charge was disclosed correctly; in which event the agency may require such adjustment as it determines to be equitable;
(C) involved a total failure to disclose either the annual percentage rate or the finance charge, in which event the agency may require such adjustment as it deter mines to be equitable; or (D) resulted from any other unique cir cumstance involving clearly technical and nonsubstantive disclosure violations that do not adversely affect information provided to the consumer and that have not misled or otherwise deceived the consumer.
In the case of other such disclosure errors, each agency may require such an adjustment.
(3) Notwithstanding paragraph (2), no adjustment shall be ordered (A) if it would have a significantly adverse impact upon the safety or soundness of the creditor, but in any such case, the agency may require a partial adjustment in an amount which does not have such an impact except that with respect to any transaction consummated af ter the effective date of section 608 of the Truth in Lending Simplification and Re form Act, the agency shall require the full adjustment, but permit the creditor to make the required adjustment in partial payments over an extended period of time which the agency considers to be reasonable, (B) if the amount of the adjustment would be less than $1, except that if more than one year has elapsed since the date of the violation, the agency may require that such amount be paid into the Treasury of the United States, or (C) except where such disclosure error resulted from a willful violation which was intended to mislead the person to whom credit was extended, in the case of an open-end credit plan, more than two years after the violation, or in the case of any oth er extension of credit, as follows: (i) with respect to creditors that are subject to examination by the agencies referred to in paragraphs (1) through (3) of section 108(a) of this title, except in connection with violations arising from practices identified in the current examination and only in con nection with transactions that are con summated after the date of the imme diately preceding examination, except that where practices giving rise to vio lations identified in earlier examina tions have not been corrected, adjust ments for those violations shall be required in connection with transac tions consummated after the date of the examination in which such prac tices were first identified; (ii) with respect to creditors that are not subject to examination by such agencies, except in connection with transactions that are consummated af ter May 10, 1978; and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act (iii) in no event after the later of (I) the expiration of the life of the credit extension, or (II) two years after the agreement to extend credit was consummated.
(4) (A) Notwithstanding any other provi sion of this section, an adjustment under this subsection may be required by an agency referred to in subsection (a) or (c) only by an order issued in accord ance with cease and desist procedures provided by the provision of law referred to in such subsections.
(B) In the case of an agency which is not authorized to conduct cease and de sist proceedings, such an order may be issued after an agency hearing on the rec ord conducted at least thirty but not more than sixty days after notice of the alleged violation is served on the creditor. Such a hearing shall be deemed to be a hearing which is subject to the provisions of section 8(h) of the Federal Deposit Insurance Act and shall be subject to ju dicial review as provided therein. (5) Except as otherwise specifically pro vided in this subsection and notwithstand ing any provision of law referred to in sub section (a) or (c), no agency referred to in subsection (a) or (c) may require a credi tor to make dollar adjustments for errors in any requirements under this title, except with regard to the requirements of section 165.
(6) A creditor shall not be subject to an order to make an adjustment, if within sixty days after discovering a disclosure error, whether pursuant to a final written exami nation report or through the creditor’s own procedures, the creditor notifies the person concerned of the error and adjusts the ac count so as to assure that such person will not be required to pay a finance charge in excess of the finance charge actually dis closed or the dollar equivalent of the annual percentage rate actually disclosed, whichev er is lower.
(7) Notwithstanding the second sentence of subsection (e)(1), subsection (e)(3) (C)(i), and subsection (e)(3)(C )(ii), each agency referred to in subsection (a) or (c) shall require an adjustment for an an- § H I nual percentage rate disclosure error that exceeds a tolerance of one quarter of one percent less than the actual rate, deter mined without regard to section 107(c) of this title, with respect to any transaction consummated between January 1, 1977, and the effective date of section 608 of the Truth in Lending Simplification and Re form Act.
[15 USC 1607. As amended by acts of March 10, 1970 (84 Stat. 49); Oct. 28, 1974 (88 Stat. 1517); March 31, 1980 (94 Stat. 171, 173); and Oct. 4, 1984 (98 Stat. 1708).] SECTION 109—Views of Other Agencies In the exercise of its functions under this title, the Board may obtain upon request the views of any other Federal agency which, in the judgment of the Board, exercises regulatory or supervisory functions with respect to any class of creditors subject to this title. [15 USC 1608. As amended by act of Oct. 3, 1984 (98 Stat. 1708).] SECTION 110— [Repealed] SECTION 111—Effect on Other Laws (a)(1) Except as provided in subsection (e), chapters 1, 2, and 3 do not annul, alter, or affect the laws of any State relating to the disclosure of information in connection with credit transactions, except to the ex tent that those laws are inconsistent with the provisions of this title, and then only to the extent of the inconsistency. Upon its own motion or upon the request of any creditor, State, or other interested party which is submitted in accordance with pro cedures prescribed in regulations of the Board, the Board shall determine whether any such inconsistency exists. If the Board determines that a State-required disclosure is inconsistent, creditors located in that State may not make disclosures using the inconsistent term or form, and shall incur no liability under the law of that State for failure to use such term or form, notwith Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 1 1 1 Truth in Lending Act standing that such determination is subse quently amended, rescinded, or determined by judicial or other authority to be invalid for any reason.
(2) Upon its own motion or upon the re quest of any creditor, State, or other interested party which is submitted in accordance with procedures prescribed in regulations of the Board, the Board shall determine whether any disclosure required under the law of any State is substantially the same in meaning as a disclosure re quired under this title. If the Board deter mines that a State-required disclosure is substantially the same in meaning as a dis closure required by this title, then creditors located in that State may make such disclo sure in compliance with such State law in lieu of the disclosure required by this title, except that the annual percentage rate and finance charge shall be disclosed as required by section 122.
(b) This title does not otherwise annul, alter or affect in any manner the meaning, scope or applicability of the laws of any State, includ ing, but not limited to, laws relating to the types, amounts or rates of charges, or any ele ment or elements of charges, permissible un der such laws in connection with the exten sion or use of credit, nor does this title extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply.
(c) In any action or proceeding in any court involving a consumer credit sale, the disclo sure of the annual percentage rate as required under this title in connection with that sale may not be received as evidence that the sale was a loan or any type of transaction other than a credit sale.
(d) Except as specified in sections 125, 130, and 166, this title and the regulations issued thereunder do not affect the validity or en forceability of any contract or obligation un der State or Federal law.
(e) The provisions of subsection (c) of sec tion 122 and subsections (c), (d), (e), and (f) of section 127 shall supersede any provi sion of the law of any State relating to the disclosure of information in any credit or charge card application or solicitation which is subject to the requirements of section 127(c) or any renewal notice which is subject to the requirements of section 127(d), except that any State may employ or establish State laws for the purpose of enforcing the require ments of such sections.
[15 USC 1610. As amended by acts of Oct. 28, 1974 (88 Stat. 1516); March 31, 1980 (94 Stat. 173); Dec. 26, 1981 (95 Stat. 1515); and Nov. 3, 1988 (102 Stat. 2967).] SECTION 112—Criminal Liability for Willful and Knowing Violation Whoever willfully and knowingly (1) gives false or inaccurate information or fails to provide information which he is re quired to disclose under the provisions of this title or any regulation issued there under, (2) uses any chart or table authorized by the Board under section 107 in such a man ner as to consistently understate the annual percentage rate determined under section 107(a)(1)(A), or (3) otherwise fails to comply with any re quirement imposed under this title, shall be fined not more than $5,000 or imprisoned not more than one year, or both. [15 USC 1611.] SECTION 113—Effect on Governmental Agencies (a) Any department or agency of the United States which administers a credit program in which it extends, insures, or guarantees con sumer credit and in which it provides instru ments to a creditor which contain any disclo sures required by this title shall, prior to the issuance or continued use of such instruments, consult with the Board to assure that such in struments comply with this title. (b) No civil or criminal penalty provided un der this title for any violation thereof may be imposed upon the United States or any de partment or agency thereof, or upon any State or political subdivision thereof, or any agency of any State or political subdivision. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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in Lending Act § 121 ^c) A creditor participating in a credit pro gram administered, insured, or guaranteed by any department or agency of the United States shall not be held liable for a civil or criminal penalty under this title in any case in which the violation results from the use of an instru ment required by any such department or agency.
(d) A creditor participating in a credit pro gram administered, insured, or guaranteed by any department or agency of the United States shall not be held liable for a civil or criminal penalty under the laws of any State (other than laws determined under section 111 to be inconsistent with this title) for any technical or procedural failure, such as a failure to use a specific form, to make information available at a specific place on an instrument, or to use a specific typeface, as required by State law, which is caused by the use of an instrument required to be used by such department or agency.
[15 USC 1612. As amended by acts of March 31, 1980 (94 Stat. 184) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 114— Reports by Board and Attorney General Each year the Board shall make a report to the Congress concerning the administration of its functions under this title, including such recommendations as the Board deems neces sary or appropriate. In addition, each report of the Board shall include its assessment of the extent to which compliance with the re quirements imposed under this title is being achieved.
[15 USC 1613. As amended by acts of March 31, 1980 (94 Stat. 174); Dec. 26, 1981 (95 Stat. 1515); and Dec. 21, 1982 (96 Stat. 1825).] SECTION 115— [Repealed] CHAPTER 2—CREDIT TRANSACTIONS Section General requirement of disclosure Form of disclosure; additional information Exemption for State-regulated transactions Effect of subsequent occurrence Right of rescission as to certain transactions [Repealed] Open end consumer credit plans 127A Disclosure requirements for open end consumer credit plans secured by the consumer’s principal dwelling Consumer credit not under open end credit plans [Repealed] Civil liability Liability of assignees Issuance of credit cards Liability of holder of credit card Fraudulent use of credit card Business credit cards Dissemination of annual percentage rates Home equity plans SECTION 121—General Requirement of Disclosure (a) Subject to subsection (b), a creditor or lessor shall disclose to the person who is obli gated on a consumer lease or a consumer credit transaction the information required under this title. In a transaction involving more than one obligor, a creditor or lessor, except in a transaction under section 125, need not disclose to more than one of such obligors if the obligor given disclosure is a pri mary obligor.
(b) If a transaction involves one creditor as defined in section 103(f), or one lessor as de fined in section 181(3), such creditor or lessor shall make the disclosures. If a transaction in volves more than one creditor or lessor, only one creditor or lessor shall be required to make the disclosures. The Board shall by reg ulation specify which creditor or lessor shall make the disclosures.
(c) The Board may provide by regulation that any portion of the information required to be disclosed by this title may be given in the form of estimates where the provider of such information is not in a position to know exact information.
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§ 1 2 1 Truth in Lending Act (d) The Board shall determine whether toler ances for numerical disclosures other than the annual percentage rate are necessary to facili tate compliance with this title, and if it deter mines that such tolerances are necessary to facilitate compliance, it shall by regulation permit disclosures within such tolerances. The Board shall exercise its authority to permit tolerances for numerical disclosures other than the annual percentage rate so that such tolerances are narrow enough to prevent such tolerances from resulting in misleading disclo sures or disclosures that circumvent the pur poses of this title.
[15 USC 1631. As amended by acts of Oct. 28, 1974 (88 Stat. 1516); Jan. 2, 1976 (89 Stat. 1159); March 31, 1980 (94 Stat. 174); and Dec. 26, 1981 (95 Stat. 1515).] SECTION 122—Form of Disclosure; Additional Information (a) Information required by this title shall be disclosed clearly and conspicuously, in ac cordance with regulations of the Board. The terms ‘annual percentage rate’ and ‘finance charge’ shall be disclosed more conspicuously than other terms, data, or information provid ed in connection with a transaction, except in formation relating to the identity of the credi tor. Except as provided in subsection (c), regulations of the Board need not require that disclosures pursuant to this title be made in the order set forth in this title and, except as otherwise provided, may permit the use of ter minology different from that employed in this title if it conveys substantially the same meaning.
(b) Any creditor or lessor may supply additional information or explanation with any disclosures required under chapters 4 and 5 and, except as provided in sections 127A(b)(3) and 128(b)(1), under this chapter.
(c) (1) The information described in para graphs (1)(A), (3) (B) (i) (I), (4)(A), and (4)(C )(i)(I) of section 127(c) shall be— (A) disclosed in the form and manner which the Board shall prescribe by regu lations; and (B) placed in a conspicuous and promi nent location on or with any written ap plication, solicitation, or other document or paper with respect to which such dis closure is required.
(2) (A) In the regulations prescribed un der paragraph (1)(A) of this subsection, the Board shall require that the disclo sure of such information shall, to the ex tent the Board determines to be practica ble and appropriate, be in the form of a table which— (i) contains clear and concise head ings for each item of such information; and (ii) provides a clear and concise form for stating each item of information re quired to be disclosed under each heading.
(B) In prescribing the form of the table under subparagraph (A), the Board may— (i) list the items required to be includ ed in the table in a different order than the order in which such items are set forth in paragraph (1)(A ) or (4) (A) of section 127(c); and (ii) subject to subparagraph (C), em ploy terminology which is different than the terminology which is em ployed in section 127(c) if such termi nology conveys substantially the same meaning.
(C) Either the heading or the statement under the heading which relates to the time period referred to in section 127(c)(1) (A) (iii) shall contain the term “grace period”.
[15 USC 1632. As amended by acts of Oct. 28, 1974 (88 Stat. 1516); March 31, 1980 (94 Stat. 174); Dec. 26, 1981 (95 Stat. 1515); Nov. 3, 1988 (102 Stat. 2966); and Nov. 23, 1988 (102 Stat. 4731).] SECTION 123—Exemption for State- Regulated Transactions The Board shall by regulation exempt from the requirements of this chapter any class of credit transactions within any State if it deter mines that under the law of that State that class of transactions is subject to requirements Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 125 substantially similar to those imposed under this chapter, and that there is adequate provi sion for enforcement.
[15 USC 1633.] SECTION 124— Effect of Subsequent Occurrence If information disclosed in accordance with this chapter is subsequently rendered inaccu rate as the result of any act, occurrence, or agreement subsequent to the delivery of the required disclosures, the inaccuracy resulting therefrom does not constitute a violation of this chapter.
[15 USC 1634.] SECTION 125—Right of Rescission as to Certain Transactions (a) Except as otherwise provided in this sec tion, in the case of any consumer credit trans action (including opening or increasing the credit limit for an open end credit plan) in which a security interest, including any such interest arising by operation of law, is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended, the obligor shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material dis closures required under this title, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so. The creditor shall clearly and con spicuously disclose, in accordance with regu lations of the Board, to any obligor in a trans action subject to this section the rights of the obligor under this section. The creditor shall also provide, in accordance with regulations of the Board, appropriate forms for the obli gor to exercise his right to rescind any trans action subject to this section. (b) When an obligor exercises his right to re scind under subsection (a), he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, be comes void upon such a rescission. Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpay ment, or otherwise, and shall take any action necessary or appropriate to reflect the termi nation of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obli gation on his part to pay for it. The proce dures prescribed by this subsection shall apply except when otherwise ordered by a court. (c) Notwithstanding any rule of evidence, written acknowledgment of receipt of any dis closures required under this title by a person to whom information, forms, and a statement is required to be given pursuant to this section does no more than create a rebuttable pre sumption of delivery thereof. (d) The Board may, if it finds that such ac tion is necessary in order to permit homeown ers to meet bona fide personal financial emer gencies, prescribe regulations authorizing the modification or waiver of any rights created under this section to the extent and under the circumstances set forth in those regulations. (e) This section does not apply to— (1) a residential mortgage transaction as defined in section 103 (w);
(2) a transaction which constitutes a refi nancing or consolidation (with no new ad vances) of the principal balance then due and any accrued and unpaid finance charges of an existing extension of credit by Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 125 Truth in Lending Act the same creditor secured by an interest in the same property;
(3) a transaction in which an agency of a State is the creditor; or (4) advances under a preexisting open end credit plan if a security interest has already been retained or acquired and such ad vances are in accordance with a previously established credit limit for such plan. (f) An obligor’s right of rescission shall ex pire three years after the date of consumma tion of the transaction or upon the sale of the property, whichever occurs first, notwith standing the fact that the information and forms required under this section or any other disclosures required under this chapter have not been delivered to the obligor, except that if (1) any agency empowered to enforce the provisions of this title institutes a proceeding to enforce the provisions of this section within three years after the date of consummation of the transaction, (2) such agency finds a viola tion of section 125, and (3) the obligor’s right to rescind is based in whole or in part on any matter involved in such proceeding, then the obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the earlier sale of the property, or upon the expiration of one year following the conclusion of the proceeding, or any judicial review or period for judicial re view thereof, whichever is later. (g) In any action in which it is determined that a creditor has violated this section, in ad dition to rescission the court may award relief under section 130 for violations of this title not relating to the right to rescind. [15 USC 1635. As amended by acts of Oct. 28, 1974 (88 Stat. 1517, 1519); March 31, 1980 (94 Stat. 175); Dec. 26, 1981 (95 Stat. 1515); and Oct. 17, 1984 (98 Stat. 2234).] SECTION 126— [Repealed] SECTION 127—Open End Consumer Credit Plans (a) Before opening any account under an open end consumer credit plan, the creditor shall disclose to the person to whom credit is to be extended each of the following items, to the extent applicable:
(1) The conditions under which a finance charge may be imposed, including the time period (if any) within which any credit ex tended may be repaid without incurring a finance charge, except that the creditor may, at his election and without disclosure, impose no such finance charge if payment is received after the termination of such time period. If no such time period is provided, the creditor shall disclose such fact. (2) The method of determining the bal ance upon which a finance charge will be imposed.
(3) The method of determining the amount of the finance charge, including any minimum or fixed amount imposed as a fi nance charge.
(4) Where one or more periodic rates may be used to compute the finance charge, each such rate, the range of balances to which it is applicable, and the corresponding nomi nal annual percentage rate determined by multiplying the periodic rate by the number of periods in a year.
(5) Identification of other charges which may be imposed as part of the plan, and their method of computation, in accordance with regulations of the Board. (6) In cases where the credit is or will be secured, a statement that a security interest has been or will be taken in (A) the proper ty purchased as part of the credit transac tion, or (B) property not purchased as part of the credit transaction identified by item or type.
(7) A statement, in a form prescribed by regulations of the Board of the protection provided by sections 161 and 170 to an obli gor and the creditor’s responsibilities under sections 162 and 170. With respect to one billing cycle per calendar year, at intervals of not less than six months or more than eighteen months, the creditor shall transmit such statement to each obligor to whom the creditor is required to transmit a statement pursuant to section 127(b) for such billing cycle.
(8) In the case of any account under an open end consumer credit plan which pro vides for any extension of credit which is Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §127 secured by the consumer’s principal dwell ing, any information which— (A) is required to be disclosed under section 127A(a); and (B) the Board determines is not de scribed in any other paragraph of this subsection.
(b) The creditor of any account under an open end consumer credit plan shall transmit to the obligor, for each billing cycle at the end of which there is an outstanding balance in that account or with respect to which a fi nance charge is imposed, a statement setting forth each of the following items to the extent applicable:
(1) The outstanding balance in the ac count at the beginning of the statement period.
(2) The amount and date of each extension of credit during the period, and a brief iden tification, on or accompanying the state ment of each extension of credit in a form prescribed by the Board sufficient to enable the obligor either to identify the transaction or to relate it to copies of sales vouchers or similar instruments previously furnished, except that a creditor’s failure to disclose such information in accordance with this paragraph shall not be deemed a failure to comply with this chapter or this title if (A) the creditor maintains procedures reason ably adapted to procure and provide such information, and (B) the creditor responds to and treats any inquiry for clarification or documentation as a billing error and an er roneously billed amount under section 161. In lieu of complying with the requirements of the previous sentence, in the case of any transaction in which the creditor and seller are the same person, as defined by the Board, and such person’s open end credit plan has fewer than 15,000 accounts, the creditor may elect to provide only the amount and date of each extension of credit during the period and the seller’s name and location where the transaction took place if (A) a brief identification of the transaction has been previously furnished, and (B) the creditor responds to and treats any inquiry for clarification or documentation as a bill ing error and an erroneously billed amount under section 161.
(3) The total amount credited to the ac count during the period.
(4) The amoi'V of any finance charge add ed to the account during the period, item ized to show the amounts, if any, due to the application of percentage rates and the amount, if any, imposed as a minimum or fixed charge.
(5) Where one or more periodic rates may be used to compute the finance charge, each such rate, the range of balances to which it is applicable, and, unless the annual per centage rate (determined under section 107(a)(2)) is required to be disclosed pur suant to paragraph (6), the corresponding nominal annual percentage rate determined by multiplying the periodic rate by the number of periods in a year. (6) Where the total finance charge exceeds 50 cents for a monthly or longer billing cy cle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, the total finance charge expressed as an annual per centage rate (determined under section 107(a)(2)), except that if the finance charge is the sum of two or more products of a rate times a portion of the balance, the creditor may, in lieu of disclosing a single rate for the total charge, disclose each such rate expressed as an annual percentage rate, and the part of the balance to which it is applicable.
(7) The balance on which the finance charge was computed and a statement of how the balance was determined. If the bal ance is determined without first deducting all credits during the period, that fact and the amount of such payments shall also be disclosed.
(8) The outstanding balance in the ac count at the end of the period. (9) The date by which or the period (if any) within which payment must be made to avoid additional finance charges, except that the creditor may, at his election and without disclosure, impose no such addi tional finance charge if payment is received after such date or the termination of such period.
(10) The address to be used by the creditor Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 127 for the purpose of receiving billing inquiries from the obligor.
(c)(1)(A ) Any application to open a credit card account for any person under an open end consumer credit plan, or a so licitation to open such an account with out requiring an application, that is mailed to consumers shall disclose the following information, subject to subsec tion (e) and section 122(c): (i) (I) Each annual percentage rate applicable to extensions of credit un der such credit plan.
(II) Where an extension of credit is subject to a variable rate, the fact that the rate is variable, the annual percentage rate in effect at the time of the mailing, and how the rate is determined.
(III) Where more than one rate ap plies, the range of balances to which each rate applies.
(ii) (I) Any annual fee, other periodic fee, or membership fee imposed for the issuance or availability of a cred it card, including any account main tenance fee or other charge imposed based on activity or inactivity for the account during the billing cycle. (II) Any minimum finance charge imposed for each period during which any extension of credit which is subject to a finance charge is outstanding.
(III) Any transaction charge im posed in connection with use of the card to purchase goods or services. (iii) (I) The date by which or the peri od within which any credit extended under such credit plan for purchases of goods or services must be repaid to avoid incurring a finance charge, and, if no such period is offered, such fact shall be clearly stated. (II) If the length of such “grace pe riod” varies, the card issuer may dis close the range of days in the grace period, the minimum number of days in the grace period, or the aver age number of days in the grace pe riod, if the disclosure is identified as such.
(iv)(I) The name of the balance cal culation method used in determining the balance on which the finance charge is computed if the method used has been defined by the Board, or a detailed explanation of the bal ance calculation method used if the method has not been so defined. (II) In prescribing regulations to carry out this clause, the Board shall define and name not more than the 5 balance calculation methods deter mined by the Board to be the most commonly used methods.
(B) In addition to the information re quired to be disclosed under subpara graph (A), each application or solicita tion to which such subparagraph applies shall disclose clearly and conspicuously the following information, subject to sub sections (e) and (f):
(i) Any fee imposed for an extension of credit in the form of cash. (ii) Any fee imposed for a late payment.
(iii) Any fee imposed in connection with an extension of credit in excess of the amount of credit authorized to be extended with respect to such account. (2) (A) In any telephone solicitation to open a credit card account for any person under an open end consumer credit plan, the person making the solicitation shall orally disclose the information described in paragraph (1)(A).
(B) Subparagraph (A) shall not apply to any telephone solicitation if— (i) the credit card issuer— (I) does not impose any fee de scribed in paragraph (1) (A )(ii)(I); or (II) does not impose any fee in con nection with telephone solicitations unless the consumer signifies accept ance by using the card; (ii) the card issuer discloses clearly and conspicuously in writing the infor mation described in paragraph (1) within 30 days after the consumer re quests the card, but in no event later 1 0 2 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 127 than the date of delivery of the card; and (iii) the card issuer discloses clearly and conspicuously that the consumer is not obligated to accept the card or account and the consumer will not be obligated to pay any of the fees or charges disclosed unless the consumer elects to accept the card or account by using the card.
(3) (A) Any application to open a credit card account for any person under an open end consumer credit plan, and any solicitation to open such an account without requiring an application, that is made available to the public or contained in catalogs, magazines, or other publica tions shall meet the disclosure require ments of subparagraph (B), (C), or (D).
(B) An application or solicitation de scribed in subparagraph (A) meets the requirement of this subparagraph if such application or solicitation contains— (i) the information— (I) described in paragraph (1)(A) in the form required under section 122(c) of this chapter, subject to subsection (e), and (II) described in paragraph (1) (B) in a clear and conspicuous form, subject to subsections (e) and (f); (ii) a statement, in a conspicuous and prominent location on the application or solicitation, that— (I) the information is accurate as of the date the application or solicita tion was printed;
(II) the information contained in the application or solicitation is sub ject to change after such date; and (III) the applicant should contact the creditor for information on any change in the information contained in the application or solicitation since it was printed;
(iii) a clear and conspicuous disclo sure of the date the application or so licitation was printed; and (iv) a disclosure, in a conspicuous and prominent location on the applica tion or solicitation, of a toll free tele phone number or a mailing address at which the applicant may contact the creditor to obtain any change in the information provided in the applica tion or solicitation since it was printed. (C) An application or solicitation de scribed in subparagraph (A) meets the requirement of this subparagraph if such application or solicitation— (i) contains a statement, in a conspic uous and prominent location on the application or solicitation, that— (I) there are costs associated with the use of credit cards; and (II) the applicant may contact the creditor to request disclosure of spe cific information of such costs by calling a toll free telephone number or by writing to an address, specified in the application;
(ii) contains a disclosure, in a con spicuous and prominent location on the application or solicitation, of a toll free telephone number and a mailing address at which the applicant may contact the creditor to obtain such in formation; and (iii) does not contain any of the items described in paragraph (1). (D) An application or solicitation meets the requirement of this subparagraph if it contains, or is accompanied by— (i) the disclosures required by para graphs (1) through (6) of subsection (a);
(ii) the disclosures required by subparagraphs (A) and (B) of paragraph (1) of this subsection included clearly and conspicuously (except that the provisions of section 122(c) shall not apply); and (iii) a toll free telephone number or a mailing address at which the applicant may contact the creditor to obtain any change in the information provided. (E) Upon receipt of a request for any of the information referred to in subpara graph (B), (C), or (D), the card issuer or the agent of such issuer shall promptly disclose all of the information described in paragraph (1).
(4) (A) Any application or solicitation to Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 127 Truth in Lending Act open a charge card account shall disclose clearly and conspicuously the following information in the form required by sec tion 122(c) of this chapter, subject to subsection (e):
(i) Any annual fee, other periodic fee, or membership fee imposed for the is suance or availability of the charge card, including any account mainte nance fee or other charge imposed based on activity or inactivity for the account during the billing cycle. (ii) Any transaction charge imposed in connection with use of the card to purchase goods or services. (iii) A statement that charges in curred by use of the charge card are due and payable upon receipt of a peri odic statement rendered for such charge card account.
(B) In addition to the information re quired to be disclosed under subpara graph (A), each written application or solicitation to which such subparagraph applies shall disclose clearly and conspic uously the following information, subject to subsections (e) and (f): (i) Any fee imposed for an extension of credit in the form of cash. (ii) Any fee imposed for a late payment.
(iii) Any fee imposed in connection with an extension of credit in excess of the amount of credit authorized to be extended with respect to such account. (C) Any application to open a charge card account, and any solicitation to open such an account without requiring an application, that is made available to the public or contained in catalogs, mag azines, or other publications shall con tain— (i) the information— (I) described in subparagraph (A) in the form required under section 122(c) of this chapter, subject to subsection (e), and (II) described in subparagraph (B) in a clear and conspicuous form, subject to subsections (e) and (f); (ii) a statement, in a conspicuous and prominent location on the application or solicitation, that— (I) the information is accurate as of the date the application or solicita tion was printed;
(II) the information contained in the application or solicitation is sub ject to change after such date; and (III) the applicant should contact the creditor for information on any change in the information contained in the application or solicitation since it was printed;
(iii) a clear and conspicuous disclo sure of the date the application or so licitation was printed; and (iv) a disclosure, in a conspicuous and prominent location on the applica tion or solicitation, of a toll free tele phone number or a mailing address at which the applicant may contact the creditor to obtain any change in the information provided in the applica tion or solicitation since it was printed. (D) If a charge card permits the card holder to receive an extension of credit under an open end consumer credit plan, which is not maintained by the charge card issuer, the charge card issuer may provide the information described in subparagraphs (A) and (B) in the form re quired by such subparagraphs in lieu of the information required to be provided under paragraph (1), (2), or (3) with respect to any credit extended under such plan, if the charge card issuer discloses clearly and conspicuously to the consum er in the application or solicitation that— (i) the charge card issuer will make an independent decision as to whether to issue the card;
(ii) the charge card may arrive before the decision is made with respect to an extension of credit under an open end consumer credit plan; and (iii) approval by the charge card is suer does not constitute approval by the issuer of the extension of credit. The information required to be disclosed under paragraph (1) shall be provided to the charge card holder by the creditor which maintains such open end consum- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 127 er credit plan before the first extension of credit under such plan.
(E) For the purposes of this subsection, the term “charge card” means a card, plate, or other single credit device that may be used from time to time to obtain credit which is not subject to a finance charge.
(5) The Board may, by regulation, require the disclosure of information in addition to that otherwise required by this subsection or subsection (d), and modify any disclo sure of information required by this subsec tion or subsection (d), in any application to open a credit card account for any person under an open end consumer credit plan or any application to open a charge card ac count for any person, or a solicitation to open any such account without requiring an application, if the Board determines that such action is necessary to carry out the purposes of, or prevent evasions of, any par agraph of this subsection. (d)(1) Except as provided in paragraph (2), a card issuer that imposes any fee described in subsection (c)(l)(A )(ii)(I) or (c)(4) (A)(i) shall transmit to a consumer at least 30 days prior to the scheduled renewal date of the consumer’s credit or charge card account a clear and conspicuous disclosure of— (A) the date by which, the month by which, or the billing period at the close of which, the account will expire if not renewed;
(B) the information described in subsec tion (c)(1)(A ) or (c)(4)(A ) that would apply if the account were renewed, subject to subsection (e); and (C) the method by which the consumer may terminate continued credit availabil ity under the account.
(2) (A) The disclosures required by this subsection may be provided— (i) prior to posting a fee described in subsection (c)(l)(A )(ii)(I) or (c) (4) (A) (i) to the account, or (ii) with the periodic billing statement first disclosing that the fee has been posted to the account.
(B) Disclosures may be provided under subparagraph (A) only if— (i) the consumer is given a 30-day pe riod to avoid payment of the fee or to have the fee recredited to the account in any case where the consumer does not wish to continue the availability of the credit; and (ii) the consumer is permitted to use the card during such period without incurring an obligation to pay such fee. (3) The Board may by regulation provide for fewer disclosures than are required by paragraph (1) in the case of an account which is renewable for a period of less than 6 months.
(e) (1) If the amount of any fee required to be disclosed under subsection (c) or (d) is determined on the basis of a percentage of another amount, the percentage used in making such determination and the identifi cation of the amount against which such percentage is applied shall be disclosed in lieu of the amount of such fee. (2) If a credit or charge card issuer does not impose any fee required to be disclosed under any provision of subsection (c) or (d), such provision shall not apply with re spect to such issuer.
(f) If the amount of any fee required to be disclosed by a credit or charge card issuer un der paragraph (1)(B), (3) (B) (i) (II), (4)(B), or (4)(C )(i)(II) of subsection (c) varies from State to State, the card issuer may disclose the range of such fees for purposes of subsection (c) in lieu of the amount for each applicable State, if such disclosure includes a statement that the amount of such fee varies from State to State.
(g) (1) Whenever a card issuer that offers any guarantee or insurance for repayment of all or part of the outstanding balance of an open end credit card plan proposes to change the person providing that guarantee or insurance, the card issuer shall send each insured consumer written notice of the pro posed change not less than 30 days prior to the change, including notice of any increase in the rate or substantial decrease in cover age or service which will result from such Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 127 change. Such notice may be included on or with the monthly statement provided to the consumer prior to the month in which the proposed change would take effect. (2) In any case in which a proposed change described in paragraph (1) occurs, the insured consumer shall be given the name and address of the new guarantor or insurer and a copy of the policy or group certificate containing the basic terms and conditions, including the premium rate to be charged.
(3) The notices required under paragraphs (1) and (2) shall each include a statement that the consumer has the option to discon tinue the insurance or guarantee. (4) No provision of this subsection shall be construed as superseding any provision of State law which is applicable to the regula tion of insurance.
(5) The Board shall define, in regulations, what constitutes a “substantial decrease in coverage or service” for purposes of para graph (1).
[15 USC 1637. As amended by acts of Oct. 28, 1974 (88 Stat. 1511, 1519, 1521); March 31, 1980 (94 Stat. 176); Dec. 26, 1981 (95 Stat. 1515); Nov. 3, 1988 (102 Stat. 2960, 2968; and Nov. 23, 1988 (102 Stat. 4729).] SECTION 127 A—Disclosure Requirements for Open End Consumer Credit Plans Secured by the Consumer’s Principal Dwelling (a) In the case of any open end consumer credit plan which provides for any extension of credit which is secured by the consumer’s principal dwelling, the creditor shall make the following disclosures in accordance with sub section (b):
(1) Each annual percentage rate imposed in connection with extensions of credit un der the plan and a statement that such rate does not include costs other than interest. (2) In the case of a plan which provides for variable rates of interest on credit ex tended under the plan— (A) a description of the manner in which such rate will be computed and a statement that such rate does not include costs other than interest; (B) a description of the manner in which any changes in the annual percent age rate will be made, including— (i) any negative amortization and in terest rate carryover;
(ii) the timing of any such changes; (iii) any index or margin to which such changes in the rate are related; and (iv) a source of information about any such index;
(C) if an initial annual percentage rate is offered which is not based on an index— (i) a statement of such rate and the period of time such initial rate will be in effect; and (ii) a statement that such rate does not include costs other than interest; (D) a statement that the consumer should ask about the current index value and interest rate;
(E) a statement of the maximum amount by which the annual percentage rate may change in any 1-year period or a statement that no such limit exists; (F) a statement of the maximum annual percentage rate that may be imposed at any time under the plan;
(G) subject to subsection (b)(3), a ta ble, based on a $10,000 extension of cred it, showing how the annual percentage rate and the minimum periodic payment amount under each repayment option of the plan would have been affected during the preceding 15-year period by changes in any index used to compute such rate; (H) a statement of— (i) the maximum annual percentage rate which may be imposed under each repayment option of the plan; (ii) the minimum amount of any peri odic payment which may be required, based on a $10,000 outstanding bal ance, under each such option when such maximum annual percentage rate is in effect; and (iii) the earliest date by which such maximum annual interest rate may be imposed; and (I) a statement that interest rate infor mation will be provided on or with each periodic statement.
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Truth in Lending Act § 127A (3) An itemization of any fees imposed by the creditor in connection with the avail ability or use of credit under such plan, in cluding annual fees, application fees, trans action fees, and closing costs (including costs commonly described as “points”), and the time when such fees are payable. (4) (A) An estimate, based on the credi tor’s experience with such plans and stat ed as a single amount or as a reasonable range, of the aggregate amount of addi tional fees that may be imposed by third parties (such as governmental authori ties, appraisers, and attorneys) in con nection with opening an account under the plan.
(B) A statement that the consumer may ask the creditor for a good faith estimate by the creditor of the fees that may be imposed by third parties. (5) A statement that— (A) any extension of credit under the plan is secured by the consumer’s dwell ing; and (B) in the event of any default, the con sumer risks the loss of the dwelling. (6) (A) A clear and conspicuous state ment— (i) of the time by which an applica tion must be submitted to obtain the terms disclosed; or (ii) if applicable, that the terms are subject to change.
(B) A statement that— (i) the consumer may elect not to en ter into an agreement to open an account under the plan if any term changes (other than a change contem plated by a variable feature of the plan) before any such agreement is fi nal; and (ii) if the consumer makes an election described in clause (i), the consumer is entitled to a refund of all fees paid in connection with the application. (C) A statement that the consumer should make or otherwise retain a copy of information disclosed under this subparagraph.
(7) A statement that— (A) under certain conditions, the credi tor may terminate any account under the plan and require immediate repayment of any outstanding balance, prohibit any ad ditional extension of credit to the ac count, or reduce the credit limit applica ble to the account; and (B) the consumer may receive, upon re quest, more specific information about the conditions under which the creditor may take any action described in subpar agraph (A).
(8) The repayment options under the plan, including— (A) if applicable, any differences in re payment options with regard to— (i) any period during which addition al extensions of credit may be ob tained; and (ii) any period during which repay ment is required to be made and no additional extensions of credit may be obtained;
(B) the length of any repayment period, including any differences in the length of any repayment period with regard to the periods described in clauses (i) and (ii) of subparagraph (A); and (C) an explanation of how the amount of any minimum monthly or periodic payment will be determined under each such option, including any differences in the determination of any such amount with regard to the periods described in clauses (i) and (ii) of subparagraph (A).
(9) An example, based on a $10,000 out standing balance and the interest rate (oth er than a rate not based on the index under the plan) which is, or was recently, in effect under such plan, showing the minimum monthly or periodic payment, and the time it would take to repay the entire $10,000 if the consumer paid only the minimum peri odic payments and obtained no additional extensions of credit.
(10) If, under any repayment option of the plan, the payment of not more than the minimum periodic payments required un der such option over the length of the re payment period— (A) would not repay any of the princi pal balance; or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 127A Truth in Lending Act (B) would repay less than the outstand ing balance by the end of such period, as the case may be, a statement of such fact, including an explicit statement that at the end of such repayment period a balloon payment (as defined in section 147(f)) would result which would be required to be paid in full at that time. (11) If applicable, a statement that— (A) any limitation in the plan on the amount of any increase in the minimum payments may result in negative amortization;
(B) negative amortization increases the outstanding principal balance of the ac count; and (C) negative amortization reduces the consumer’s equity in the consumer’s dwelling.
(12) (A) Any limitation contained in the plan on the number of extensions of cred it and the amount of credit which may be obtained during any month or other de fined time period.
(B) Any requirement which establishes a minimum amount for— (i) the initial extension of credit to an account under the plan;
(ii) any subsequent extension of credit to an account under the plan; or (iii) any outstanding balance of an ac count under the plan.
(13) A statement that the consumer should consult a tax advisor regarding the deductibility of interest and charges under the plan.
(14) Any other term which the Board re quires, in regulations, to be disclosed. (b)(1)(A ) The disclosures required under subsection (a) with respect to any open end consumer credit plan which provides for any extension of credit which is se cured by the consumer’s principal dwell ing and the pamphlet required under sub section (e) shall be provided to any consumer at the time the creditor distrib utes an application to establish an ac count under such plan to such consumer. (B) In the case of telephone applica tions, applications contained in maga zines or other publications, or applica tions provided by a third party, the disclosures required under subsection (a) and the pamphlet required under subsec tion (e) shall be provided by the creditor before the end of the 3-day period begin ning on the date the creditor receives a completed application from a consumer. (2) (A) Except as provided in paragraph (1)(B), the disclosures required under subsection (a) shall be provided on or with any application to establish an ac count under an open end consumer credit plan which provides for any extension of credit which is secured by the consumer’s principal dwelling.
(B) The disclosures required under sub section (a) shall be conspicuously segre gated from all other terms, data, or additional information provided in con nection with the application, either by grouping the disclosures separately on the application form or by providing the disclosures on a separate form, in accord ance with regulations of the Board. (C) The disclosures required by para graphs (5), (6), and (7) of subsection (a) shall precede all of the other required disclosures.
(D) Whether or not the disclosures re quired under subsection (a) are provided on the application form, the variable rate information described in subsection (a)(2) may be provided separately from the other information required to be disclosed.
(3) In preparing the table required under subsection (a)(2)(G ), the creditor shall consistently select one rate of interest for each year and the manner of selecting the rate from year to year shall be consistent with the plan.
(c) In the case of an application to open an account under any open end consumer credit plan described in subsection (a) which is pro vided to a consumer by any person other than the creditor— (1) such person shall provide such con sumer with— (A) the disclosures required under sub section (a) with respect to such plan, in accordance with subsection (b); and Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §128 (B) the pamphlet required under sub section (e); or (2) if such person cannot provide specific terms about the plan because specific infor mation about the plan terms is not avail able, no nonrefundable fee may be imposed in connection with such application before the end of the 3-day period beginning on the date the consumer receives the disclo sures required under subsection (a) with respect to the application. (d) For purposes of this section and sections 137 and 147, the term “principal dwelling” includes any second or vacation home of the consumer.
(e) In addition to the disclosures required under subsection (a) with respect to an appli cation to open an account under any open end consumer credit plan described in such sub section, the creditor or other person providing such disclosures to the consumer shall pro vide— (1) a pamphlet published by the Board pursuant to section 4 of the Home Equity Consumer Protection Act of 1988; or (2) any pamphlet which provides substan tially similar information to the information described in such section, as determined by the Board.
[15 USC 1637a. As added by act of Nov. 23, 1988 (102 Stat. 4725).] SECTION 128—Consumer Credit Not Under Open End Credit Plans (a) For each consumer credit transaction other than under an open end credit plan, the creditor shall disclose each of the following items, to the extent applicable: (1) The identity of the creditor required to make disclosure.
(2) (A) The “amount financed”, using that term, which shall be the amount of credit of which the consumer has actual use. This amount shall be computed as fol lows, but the computations need not be disclosed and shall not be disclosed with the disclosures conspicuously segregated in accordance with subsection (b)(1): (i) take the principal amount of the loan or the cash price less downpay ment and trade-in;
(ii) add any charges which are not part of the finance charge or of the principal amount of the loan and which are financed by the consumer, including the cost of any items exclud ed from the finance charge pursuant to section 106; and (iii) subtract any charges which are part of the finance charge but which will be paid by the consumer before or at the time of the consummation of the transaction, or have been withheld from the proceeds of the credit. (B) In conjunction with the disclosure of the amount financed, a creditor shall provide a statement of the consumer’s right to obtain, upon a written request, a written itemization of the amount fi nanced. The statement shall include spaces for a “yes” and “no” indication to be initialed by the consumer to indicate whether the consumer wants a written itemization of the amount financed. Upon receiving an affirmative indication, the creditor shall provide, at the time other disclosures are required to be fur nished, a written itemization of the amount financed. For the purposes of this subparagraph, ‘itemization of the amount financed’ means a disclosure of the following items, to the extent applicable:
(i) the amount that is or will be paid directly to the consumer; (ii) the amount that is or will be cred ited to the consumer’s account to dis charge obligations owed to the creditor;
(iii) each amount that is or will be paid to third persons by the creditor on the consumer’s behalf, together with an identification of or reference to the third person; and (iv) the total amount of any charges described in the preceding subpara graph (A) (iii).
(3) The “finance charge”, not itemized, using that term.
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§ 128 Truth in Lending Act This shall not be required if the amount fi nanced does not exceed $75 and the finance charge does not exceed $5, or if the amount financed exceeds $75 and the finance charge does not exceed $7.50.
(5) The sum of the amount financed and the finance charge, which shall be termed the “total of payments”.
(6) The number, amount, and due dates or period of payments scheduled to repay the total of payments.
(7) In a sale of property or services in which the seller is the creditor required to disclose pursuant to section 121(b), the “total sale price”, using that term, which shall be the total of the cash price of the property or services, additional charges, and the finance charge.
(8) Descriptive explanations of the terms “amount financed”, “finance charge”, “an nual percentage rate”, “total of payments”, and “total sale price” as specified by the Board. The descriptive explanation of “to tal sale price” shall include reference to the amount of the downpayment.
(9) Where the credit is secured, a state ment that a security interest has been taken in (A) the property which is purchased as part of the credit transaction, or (B) prop erty not purchased as part of the credit transaction identified by item or type. (10) Any dollar charge or percentage amount which may be imposed by a credi tor solely on account of a late payment, other than a deferral or extension charge. (11) A statement indicating whether or not the consumer is entitled to a rebate of any finance charge upon refinancing or pre payment in full pursuant to acceleration or otherwise, if the obligation involves a pre computed finance charge. A statement indi cating whether or not a penalty will be im posed in those same circumstances if the obligation involves a finance charge com puted from time to time by application of a rate to the unpaid principal balance. (12) A statement that the consumer should refer to the appropriate contract document for any information such docu ment provides about nonpayment, default, the right to accelerate the maturity of the debt, and prepayment rebates and penalties. (13) In any residential mortgage transac tion, a statement indicating whether a sub sequent purchaser or assignee of the con sumer may assume the debt obligation on its original terms and conditions. (b) (1) Except as otherwise provided in this chapter, the disclosures required under sub section (a) shall be made before the credit is extended. Except for the disclosures re quired by subsection (a)(1) of this section, all disclosures required under subsection (a) and any disclosure provided for in sub section (b), (c), or (d) of section 106 shall be conspicuously segregated from all other terms, data, or information provided in connection with a transaction, including any computations or itemization. (2) In the case of a residential mortgage transaction, as defined in section 103(w), which is also subject to the Real Estate Set tlement Procedures Act, good faith esti mates of the disclosures required under sub section (a) shall be made in accordance with regulations of the Board under section 121(c) before the credit is extended, or shall be delivered or placed in the mail not later than three business days after the creditor receives the consumer’s written ap plication, whichever is earlier. If the disclo sure statement furnished within three days of the written application contains an annu al percentage rate which is subsequently rendered inaccurate within the meaning of section 107(c), the creditor shall furnish another statement at the time of settlement or consummation.
(c) (1) If a creditor receives a purchase order by mail or telephone without personal solic itation, and the cash price and the total sale price and the terms of financing, including the annual percentage rate, are set forth in the creditor’s catalog or other printed mate rial distributed to the public, then the dis closures required under subsection (a) may be made at any time not later than the date the first payment is due.
(2) If a creditor receives a request for a loan by mail or telephone without personal solicitation and the terms of financing, in cluding the annual percentage rate for rep resentative amounts of credit, are set forth Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §130 in the creditor’s printed material distribut ed to the public, or in the contract of loan or other printed material delivered to the obligor, then the disclosures required under subsection (a) may be made at any time not later than the date the first payment is due.
(d) If a consumer credit sale is one of a series of consumer credit sales transactions made pursuant to an agreement providing for the addition of the deferred payment price of that sale to an existing outstanding balance, and the person to whom the credit is extended has approved in writing both the annual percent age rate or rates and the method of computing the finance charge or charges, and the creditor retains no security interest in any property as to which he has received payments aggregat ing the amount of the sales price including any finance charges attributable thereto, then the disclosure required under subsection (a) for the particular sale may be made at any time not later than the date the first payment for that sale is due. For the purposes of this subsection, in the case of items purchased on different dates, the first purchased shall be deemed first paid for, and in the case of items purchased on the same date, the lowest priced shall be deemed first paid for. [15 USC 1638. As amended by acts of March 31, 1980 (94 Stat. 178) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 129— [Repealed] SECTION 130—Civil Liability* (a) Except as otherwise provided in this sec tion, any creditor who fails to comply with any requirement imposed under this chapter, including any requirement under section 125, or chapter 4 or 5 of this title with respect to any person is liable to such person in an amount equal to the sum of— (1) any actual damage sustained by such person as a result of the failure; * Creditors choosing to comply with the amended statute and implementing regulations prior to October 1, 1982 are subject to the amended civil liability provisions. (Pub. L. 97-25 § 301).
(2) (A) (i) in the case of an individual ac tion twice the amount of any finance charge in connection with the transac tion, or (ii) in the case of an individual action relating to a consumer lease under chapter 5 of this title, 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000; or (B) in the case of a class action, such amount as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery under this subparagraph in any class action or series of class actions arising out of the same fail ure to comply by the same creditor shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the creditor; and (3) in the case of any successful action to enforce the foregoing liability or in any ac tion in which a person is determined to have a right of rescission under section 125, the costs of the action, together with a rea sonable attorney’s fee as determined by the court. In determining the amount of award in any class action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the fre quency and persistence of failures of com pliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the credi tor’s failure of compliance was intentional. In connection with the disclosures referred to in subsections (a) and (b) of section 127, a creditor shall have a liability deter mined under paragraph (2) only for failing to comply with the requirements of section 125, section 127(a), or of paragraph (4), (5), (6), (7), (8), (9), or (10) of section 127(b) or for failing to comply with disclo sure requirements under State law for any term or item which the Board has deter mined to be substantially the same in mean ing under section 111(a)(2) as any of the terms or items referred to in section 127(a) or any of those paragraphs of section 127(b). In connection with the disclosures referred to in subsection (c) or (d) of sec Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§130 Truth in Lending Act tion 127, a card issuer shall have a liability under this section only to a cardholder who pays a fee described in section 127(c) (1) (A) (ii) (I) or section 127(c)(4)(A) (1) or who uses the credit card or charge card. In connection with the disclosures re ferred to in section 128, a creditor shall have a liability determined under paragraph (2) only for failing to comply with the re quirements of section 125 or of paragraph (2) (insofar as it requires a disclosure of the ‘amount financed’), (3), (4), (5), (6), or (9) of section 128(a), or for failing to comply with disclosure requirements under State law for any term which the Board has determined to be substantially the same in meaning under section 111(a) (2) as any of the terms referred to in any of those para graphs of section 128(a). With respect to any failure to make disclosures required un der this chapter or chapter 4 or 5 of this title, liability shall be imposed only upon the creditor required to make disclosure, except as provided in section 131. (b) A creditor or assignee has no liability un der this section or section 108 or section 112 for any failure to comply with any require ment imposed under this chapter or chapter 5, if within sixty days after discovering an error, whether pursuant to a final written examina tion report or notice issued under section 108(e)(1) or through the creditor’s or assign ee’s own procedures, and prior to the institu tion of an action under this section or the re ceipt of written notice of the error from the obligor, the creditor or assignee notifies the person concerned of the error and makes whatever adjustments in the appropriate ac count are necessary to assure that the person will not be required to pay an amount in ex cess of the charge actually disclosed, or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower. (c) A creditor or assignee may not be held liable in any action brought under this section or section 125 for a violation of this title if the creditor or assignee shows by a preponderance of evidence that the violation was not inten tional and resulted from a bona fide error not withstanding the maintenance of procedures reasonably adapted to avoid any such error. Examples of a bona fide error include, but are not limited to, clerical, calculation, computer malfunction and programing, and printing er rors, except that an error of legal judgment with respect to a person’s obligations under this title is not a bona fide error. (d) When there are multiple obligors in a consumer credit transaction or consumer lease, there shall be no more than one recov ery of damages under subsection (a)(2) for a violation of this title.
(e) Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occur rence of the violation. This subsection does not bar a person from asserting a violation of this title in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action, except as otherwise provided by State law.
(0 No provision of this section, section 108(b), section 108(c), section 108(e), or section 112 imposing any liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or inter pretation thereof by the Board or in conformi ty with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe there for, notwithstanding that after such act or omission has occurred, such rule, regulation, interpretation, or approval is amended, re scinded, or determined by judicial or other au thority to be invalid for any reason. (g) The multiple failure to disclose to any person any information required under this chapter or chapter 4 or 5 of this title to be disclosed in connection with a single account under an open end consumer credit plan, oth er single consumer credit sale, consumer loan, consumer lease, or other extension of consum er credit, shall entitle the person to a single recovery under this section but continued failure to disclose after a recovery has been granted shall give rise to rights to additional Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 133 recoveries. This subsection does not bar any remedy permitted by section 125. (h) A person may not take any action to off set any amount for which a creditor or assign ee is potentially liable to such person under subsection (a)(2) against any amount owed by such person, unless the amount of the cred itor’s or assignee’s liability under this title has been determined by judgment of a court of competent jurisdiction in an action of which such person was a party. This subsection does not bar a consumer then in default on the ob ligation from asserting a violation of this title as an original action, or as a defense or coun terclaim to an action to collect amounts owed by the consumer brought by a person liable under this title.
[15 USC 1640. As amended by acts of Oct. 28, 1974 (88 Stat. 1518); Feb. 27, 1976 (90 Stat. 197); March 23, 1976 (90 Stat. 260); and Nov. 3, 1988 (102 Stat. 2966).] SECTION 131—Liability of Assignees* (a) Except as otherwise specifically provided in this title, any civil action for a violation of this title or proceeding under section 108 which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, except where the assignment was involuntary. For the purpose of this section, a violation appar ent on the face of the disclosure statement in cludes, but is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure which does not use the terms required to be used by this title. (b) Except as provided in section 125(c), in any action or proceeding by or against any subsequent assignee of the original creditor without knowledge to the contrary by the as signee when he acquires the obligation, writ ten acknowledgement of receipt by a person to * Assignees of creditors choosing to comply with the amended statute and implementing regulations prior to Oc tober 1, 1982 are subject to the amended civil liability pro visions (Pub. L. 97-25 § 301). whom a statement is required to be given pur suant to this title shall be conclusive proof of the delivery thereof and, except as provided in subsection (a), of compliance with this chap ter. This section does not affect the rights of the obligor in any action against the original creditor.
(c) Any consumer who has the right to re scind a transaction under section 125 may re scind the transaction as against any assignee of the obligation.
[15 USC 1641. As amended by acts of March 31, 1980 (94 Stat. 182) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 132—Issuance of Credit Cards No credit card shall be issued except in re sponse to a request or application therefor. This prohibition does not apply to the issu ance of a credit card in renewal of, or in sub stitution for, an accepted credit card. [15 USC 1641. As amended by act of Oct. 26, 1970 (84 Stat. 1126).] SECTION 133—Liability of Holder of Credit Card (a)(1) A cardholder shall be liable for the unauthorized use of a credit card only if— (A) the card is an accepted credit card; (B) the liability is not in excess of $50; (C) the card issuer gives adequate notice to the cardholder of the potential liability;
(D) the card issuer has provided the cardholder with a description of a means by which the card issuer may be notified of loss or theft of the card, which descrip tion may be provided on the face or re verse side of the statement required by section 127(b) or on a separate notice ac companying such statement;
(E) the unauthorized use occurs before the card issuer has been notified that an unauthorized use of the credit card has occurred or may occur as the result of loss, theft, or otherwise; and (F) the card issuer has provided a meth od whereby the user of such card can be Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§133 Truth in Lending Act identified as the person authorized to use it.
(2) For purposes of this section, a card is suer has been notified when such steps as may be reasonably required in the ordinary course of business to provide the card issuer with the pertinent information have been taken, whether or not any particular officer, employee, or agent of the card issuer does in fact receive such information. (b) In any action by a card issuer to enforce liability for the use of a credit card, the bur den of proof is upon the card issuer to show that the use was authorized or, if the use was unauthorized, then the burden of proof is upon the card issuer to show that the condi tions of liability for the unauthorized use of a credit card, as set forth in subsection (a), have been met.
(c) Nothing in this section imposes liability upon a cardholder for the unauthorized use of a credit card in excess of his liability for such use under other applicable law or under any agreement with the card issuer. (d) Except as provided in this section, a cardholder incurs no liability from the unau thorized use of a credit card. [15 USC 1643. As added by act of Oct. 26, 1970 (84 Stat. 1126) and amended by acts of March 31, 1980 (94 Stat. 182) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 134— Fraudulent Use of Credit Card (a) Whoever knowingly in a transaction af fecting interstate or foreign commerce, uses or attempts or conspires to use any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card to obtain money, goods, services, or anything else of value which within any one-year period has a value aggregating $1,000 or more; or (b) Whoever, with unlawful or fraudulent in tent, transports or attempts or conspires to transport in interstate or foreign commerce a counterfeit, fictitious, altered, forged, lost, sto len, or fraudulently obtained credit card knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained; or (c) Whoever, with unlawful or fraudulent in tent, uses any instrumentality of interstate or foreign commerce to sell or transport a coun terfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card knowing the same to be counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained; or (d) Whoever knowingly receives, conceals, uses, or transports money, goods, services, or anything else of value (except tickets for in terstate or foreign transportation) which (1) within any one-year period has a value aggre gating $1,000 or more, (2) has moved in or is part of, or which constitutes interstate or for eign commerce, and (3) has been obtained with a counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card; or (e) Whoever knowingly receives, conceals, uses, sells, or transports in interstate or for eign commerce one or more tickets for inter state or foreign transportation, which (1) within any one-year period have a value ag gregating $500 or more, and (2) have been purchased or obtained with one or more coun terfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit cards; or (f) Whoever in a transaction affecting inter state or foreign commerce furnishes money, property, services, or anything else of value, which within any one-year period has a value aggregating $1,000 or more, through the use of any counterfeit, fictitious, altered, forged, lost, stolen, or fraudulently obtained credit card knowing the same to be counterfeit, ficti tious, altered, forged, lost, stolen, or fraudu lently obtained— shall be fined not more than $10,000 or im prisoned not more than ten years, or both. [15 USC 1644. As amended by acts of Oct. 26, 1970 (84 Stat. 1127) and Oct. 28, 1974 (88 Stat. 1520).] SECTION 135—Business Credit Cards The exemption provided by section 104(1) does not apply to the provisions of sections Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 137 132, 133, and 134, except that a card issuer and a business or other organization which provides credit cards issued by the same card issuer to ten or more of its employees may by contract agree as to liability of the business or other organization with respect to unautho rized use of such credit cards without regard to the provisions of section 133, but in no case may such business or other organization or card issuer impose liability upon any employ ee with respect to unauthorized use of such a credit card except in accordance with and subject to the limitations of section 133. [15 USC 1645. As added by act of Oct. 28, 1974 (88 Stat. 1519).] SECTION 136—Dissemination of Annual Percentage Rates (a) The Board shall collect, publish, and dis seminate to the public, on a demonstration ba sis in a number of standard metropolitan sta tistical areas to be determined by the Board, the annual percentage rates charged for repre sentative types of nonsale credit by creditors in such areas. For the purpose of this section, the Board is authorized to require creditors in such areas to furnish information necessary for the Board to collect, publish, and dissemi nate such information.
(b) (1) The Board shall collect, on a semian nual basis, credit card price and availability information, including the information re quired to be disclosed under section 127(c) of this chapter, from a broad sample of fi nancial institutions which offer credit card services.
(2) The broad sample of financial institu tions required under paragraph (1) shall include— (A) the 25 largest issuers of credit cards; and (B) not less than 125 additional finan cial institutions selected by the Board in a manner that ensures— (i) an equitable geographical distribu tion within the sample; and (ii) the representation of a wide spec trum of institutions within the sample. (3) Each financial institution in the broad sample established pursuant to paragraph (2) shall report the information to the Board in accordance with such regulations or orders as the Board may prescribe. (4) The Board shall— (A) make the information collected pur suant to this subsection available to the public upon request; and (B) report such information semiannu ally to Congress.
(c) The Board is authorized to enter into contracts or other arrangements with appro priate persons, organizations, or State agen cies to carry out its functions under subsec tions (a) and (b) and to furnish financial assistance in support thereof. [15 USC 1646. As amended by acts of March 31, 1980 (94 Stat. 183); Dec. 26, 1981 (95 Stat. 1515); and Nov. 3, 1988 (102 Stat. 2967).] SECTION 137—Home Equity Plans (a) In the case of extensions of credit under an open end consumer credit plan which are subject to a variable rate and are secured by a consumer’s principal dwelling, the index or other rate of interest to which changes in the annual percentage rate are related shall be based on an index or rate of interest which is publicly available and is not under the control of the creditor.
(b) A creditor may not unilaterally terminate any account under an open end consumer credit plan under which extensions of credit are secured by a consumer’s principal dwell ing and require the immediate repayment of any outstanding balance at such time, except in the case of— (1) fraud or material misrepresentation on the part of the consumer in connection with the account;
(2) failure by the consumer to meet the re payment terms of the agreement for any outstanding balance; or (3) any other action or failure to act by the consumer which adversely affects the credi tor’s security for the account or any right of the creditor in such security. (c) (1) No open end consumer credit plan under which extensions of credit are se l l s Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§137 Truth in Lending Act cured by a consumer’s principal dwelling may contain a provision which permits a creditor to change unilaterally any term re quired to be disclosed under section 127A(a) or any other term, except a change in insignificant terms such as the ad dress of the creditor for billing purposes. (2) Notwithstanding the provisions of sub section (1), a creditor may make any of the following changes:
(A) Change the index and margin appli cable to extensions of credit under such plan if the index used by the creditor is no longer available and the substitute in dex and margin would result in a sub stantially similar interest rate. (B) Prohibit additional extensions of credit or reduce the credit limit applica ble to an account under the plan during any period in which the value of the con sumer’s principal dwelling which secures any outstanding balance is significantly less than the original appraisal value of the dwelling.
(C) Prohibit additional extensions of credit or reduce the credit limit applica ble to the account during any period in which the creditor has reason to believe that the consumer will be unable to com ply with the repayment requirements of the account due to a material change in the consumer’s financial circumstances. (D) Prohibit additional extensions of credit or reduce the credit limit applica ble to the account during any period in which the consumer is in default with re spect to any material obligation of the consumer under the agreement. (E) Prohibit additional extensions of credit or reduce the credit limit applica ble to the account during any period in which— (i) the creditor is precluded by gov ernment action from imposing the an nual percentage rate provided for in the account agreement; or (ii) any government action is in effect which adversely affects the priority of the creditor’s security interest in the account to the extent that the value of the creditor’s secured interest in the property is less than 120 percent of the amount of the credit limit applicable to the account.
(F) Any change that will benefit the consumer.
(3) Upon the request of the consumer and at the time an agreement is entered into by a consumer to open an account under an open end consumer credit plan under which extensions of credit are secured by the con sumer’s principal dwelling, the consumer shall be given a list of the categories of con tract obligations which are deemed by the creditor to be material obligations of the consumer under the agreement for purposes of paragraph (2)(D).
(4) (A) For purposes of paragraph (2) (F), a change shall be deemed to ben efit the consumer if the change is un equivocally beneficial to the borrower and the change is beneficial through the entire term of the agreement. (B) The Board may, by regulation, de termine categories of changes that benefit the consumer.
(d) If any term or condition described in sec tion 127 A (a) which is disclosed to a consum er in connection with an application to open an account under an open end consumer cred it plan described in such section (other than a variable feature of the plan) changes before the account is opened, and if, as a result of such change, the consumer elects not to enter into the plan agreement, the creditor shall re fund all fees paid by the consumer in connec tion with such application. (e) (1) No nonrefundable fee may be im posed by a creditor or any other person in connection with any application by a con sumer to establish an account under any open end consumer credit plan which pro vides for extensions of credit which are se cured by a consumer’s principal dwelling before the end of the 3-day period begin ning on the date such consumer receives the disclosure required under section 127A(a) and the pamphlet required under section 127A(e) with respect to such application. (2) For purposes of determining when a nonrefundable fee may be imposed in ac cordance with this subsection if the disclo sures and pamphlet referred to in para- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act § 144 graph (1) are mailed to the consumer, the date of the receipt of the disclosures by such consumer shall be deemed to be 3 business days after the date of mailing by the creditor.
[15 USC 1647. As added by act of Nov. 23, 1988 (102 Stat. 4731).] CHAPTER 3—CREDIT ADVERTISING Section Catalogs and multiple-page advertisements 142 Advertising of downpayments and installments Advertising of open end credit plans 144 Advertising of credit other than open end plans Nonliability of media 146 Use of annual percentage rate in oral disclosures 147 Advertising of open end consumer cred it plans secured by the consumer’s prin cipal dwelling SECTION 141—Catalogs and Multiple- Page Advertisements For the purposes of this chapter, a catalog or other multiple-page advertisement shall be considered a single advertisement if it clearly and conspicuously displays a credit terms ta ble on which the information required to be stated under this chapter is clearly set forth. [15 USC 1661.] SECTION 142—Advertising of Downpayments and Installments No advertisement to aid, promote, or assist directly or indirectly any extension of con sumer credit may state (1) that a specific periodic consumer credit amount or installment amount can be ar ranged, unless the creditor usually and cus tomarily arranges credit payments or in stallments for that period and in that amount.
(2) that a specified downpayment is re quired in connection with any extension of consumer credit, unless the creditor usually and customarily arranges downpayments in that amount.
[15 USC 1662 ] SECTION 143—Advertising of Open End Credit Plans No advertisement to aid, promote, or assist directly or indirectly the extension of consum er credit under an open end credit plan may set forth any of the specific terms of that plan unless it also clearly and conspicuously sets forth all of the following items: (1) Any minimum or fixed amount which could be imposed.
(2) In any case in which periodic rates may be used to compute the finance charge, the periodic rates expressed as annual per centage rates.
(3) Any other term that the Board may by regulation require to be disclosed. [15 USC 1663. As amended by acts of March 31, 1980 (94 Stat. 177) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 144— Advertising of Credit Other Than Open End Plans (a) Except as provided in subsection (b), this section applies to any advertisement to aid, promote, or assist directly or indirectly any consumer credit sale, loan, or other exten sion of credit subject to the provisions of this title, other than an open end credit plan. (b) The provisions of this section do not ap ply to advertisements of residential real estate except to the extent that the Board may by regulation require.
(c) If any advertisement to which this sec tion applies states the rate of a finance charge, the advertisement shall state the rate of that charge expressed as an annual percentage rate.
(d) If any advertisement to which this section applies states the amount of the downpayment, if any, the amount of any install ment payment, the dollar amount of any fi- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 144 Truth in Lending Act nance charge, or the number of installments or the period of repayment, then the adver tisement shall state all of the following items: (1) The downpayment, if any. (2) The terms of repayment. (3) The rate of the finance charge ex pressed as an annual percentage rate. [15 USC 1664. As amended by acts of March 31, 1980 (94 Stat. 183) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 145—Nonliability of Media There is no liability under this chapter on the part of any owner or personnel, as such, of any medium in which an advertisement ap pears or through which it is disseminated. [15 USC 1665.] SECTION 146—Use of Annual Percentage Rate in Oral Disclosures In responding orally to any inquiry about the cost of credit, a creditor, regardless of the method used to compute finance charges, shall state rates only in terms of the annual percentage rate, except that in the case of an open end credit plan, the periodic rate also may be stated and, in the case of an other than open end credit plan where a major compo nent of the finance charge consists of interest computed at a simple annual rate, the simple annual rate also may be stated. The Board may, by regulation, modify the requirements of this section or provide an exception from this section for a transaction or class of trans actions for which the creditor cannot deter mine in advance the applicable annual per centage rate.
[15 USC 1665a. As added by act of Oct. 28, 1974 (88 Stat. 1517) and amended by acts of March 31, 1980 (94 Stat. 185) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 147—Advertising of Open End Consumer Credit Plans Secured by the Consumer’s Principal Dwelling (a) If any advertisement to aid, promote, or assist, directly or indirectly, the extension of consumer credit through an open end consumer credit plan under which extensions of credit are secured by the consumer’s principal dwelling states, affirmatively or negatively, any of the specific terms of the plan, including any periodic payment amount required under such plan, such advertisement shall also clear ly and conspicuously set forth the following information, in such form and manner as the Board may require:
(1) Any loan fee the amount of which is determined as a percentage of the credit limit applicable to an account under the plan and an estimate of the aggregate amount of other fees for opening the ac count, based on the creditor’s experience with the plan and stated as a single amount or as a reasonable range.
(2) In any case in which periodic rates may be used to compute the finance charge, the periodic rates expressed as an annual percentage rate.
(3) The highest annual percentage rate which may be imposed under the plan. (4) Any other information the Board may by regulation require.
(b) If any advertisement described in subsec tion (a) contains a statement that any interest expense incurred with respect to the plan is or may be tax deductible, the advertisement shall not be misleading with respect to such deductibility.
(c) No advertisement described in subsection (a) with respect to any home equity account may refer to such loan as “free money” or use other terms determined by the Board by regu lation to be misleading.
(d ) (1) If any advertisement described in subsection (a) includes an initial annual percentage rate that is not determined by the index or formula used to make later in terest rate adjustments, the advertisement shall also state with equal prominence the current annual percentage rate that would have been applied using the index or formu la if such initial rate had not been offered. (2) The annual percentage rate required to be disclosed under the paragraph (1) rate must be current as of a reasonable time giv en the media involved.
(3) Any advertisement to which para- Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §161 graph (1) applies shall also state the period of time during which the initial annual per centage rate referred to in such paragraph will be in effect.
(e) If any advertisement described in subsec tion (a) contains a statement regarding the minimum monthly payment under the plan, the advertisement shall also disclose, if appli cable, the fact that the plan includes a balloon payment.
(f) For purposes of this section and section 127A, the term “balloon payment” means, with respect to any open end consumer credit plan under which extensions of credit are se cured by the consumer’s principal dwelling, any repayment option under which— (1) the account holder is required to repay the entire amount of any outstanding bal ance as of a specified date or at the end of a specified period of time, as determined in accordance with the terms of the agreement pursuant to which such credit is extended, and (2) the aggregate amount of the minimum periodic payments required would not fully amortize such outstanding balance by such date or at the end of such period. [15 USC 1665b. As added by act of Nov. 23, 1988 (102 Stat. 4730).] CHAPTER 4—CREDIT BILLING Section Correction of billing errors Regulation of credit reports Length of billing period 164 Prompt crediting of payments Treatment of credit balances 166 Prompt notification of returns 167 Use of cash discounts Prohibition of tie-in services 169 Prohibition of offsets 170 Rights of credit card customers Relation to State laws SECTION 161—Correction of Billing Errors (a) If a creditor, within sixty days after hav ing transmitted to an obligor a statement of the obligor’s account in connection with an extension of consumer credit, receives at the address disclosed under section 127(b) (10) a written notice (other than notice on a pay ment stub or other payment medium supplied by the creditor if the creditor so stipulates with the disclosure required under section 127(a)(7) from the obligor in which the obligor— (1) sets forth or otherwise enables the creditor to identify the name and account number (if any) of the obligor, (2) indicates the obligor’s belief that the statement contains a billing error and the amount of such billing error, and (3) sets forth the reasons for the obligor’s belief (to the extent applicable) that the statement contains a billing error, the creditor shall, unless the obligor has, after giving such written notice and before the expi ration of the time limits herein specified, agreed that the statement was correct— (A) not later than thirty days after the receipt of the notice, send a written ac knowledgment thereof to the obligor, un less the action required in subparagraph (B) is taken within such thirty-day peri od, and (B) not later than two complete billing cycles of the creditor (in no event later than ninety days) after the receipt of the notice and prior to taking any action to collect the amount, or any part thereof, indicated by the obligor under paragraph (2) either— (1) make appropriate corrections in the account of the obligor, including the crediting of any finance charges on amounts erroneously billed, and trans mit to the obligor a notification of such corrections and the creditor’s explana tion of any change in the amount indi cated by the obligor under paragraph (2) and, if any such change is made and the obligor so requests, copies of documentary evidence of the obligor’s indebtedness; or (ii) send a written explanation or clarification to the obligor, after having conducted an investigation, setting forth to the extent applicable the rea Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 161 Truth in Lending Act sons why the creditor believes the ac count of the obligor was correctly shown in the statement and, upon re quest of the obligor, provide copies of documentary evidence of the obligor’s indebtedness. In the case of a billing error where the obligor alleges that the creditor’s billing statement reflects goods not delivered to the obligor or his designee in accordance with the agreement made at the time of the transaction, a creditor may not con strue such amount to be correctly shown unless he determines that such goods were actually delivered, mailed, or otherwise sent to the obligor and provides the obligor with a statement of such determination.
After complying with the provisions of this subsection with respect to an alleged billing error, a creditor has no further responsibility under this section if the obligor continues to make substantially the same allegation with respect to such error.
(b) For the purpose of this section, a “billing error” consists of any of the following: (1) A reflection on a statement of an ex tension of credit which was not made to the obligor or, if made, was not in the amount reflected on such statement. (2) A reflection on a statement of an ex tension of credit for which the obligor re quests additional clarification including documentary evidence thereof. (3) A reflection on a statement of goods or services not accepted by the obligor or his designee or not delivered to the obligor or his designee in accordance with the agree ment made at the time of a transaction. (4) The creditor’s failure to reflect proper ly on a statement a payment made by the obligor or a credit issued to the obligor. (5) A computation error or similar error of an accounting nature of the creditor on a statement.
(6) Failure to transmit the statement re quired under section 127(b) of this Act to the last address of the obligor which has been disclosed to the creditor, unless that address was furnished less than twenty days before the end of the billing cycle for which the statement is required.
(7) Any other error described in regula tions of the Board.
(c) For the purposes of this section, “action to collect the amount, or any part thereof, in dicated by an obligor under paragraph (2)” does not include the sending of statements of account, which may include finance charges on amounts in dispute, to the obligor follow ing written notice from the obligor as specified under subsection (a), if— (1) the obligor’s account is not restricted or closed because of the failure of the obli gor to pay the amount indicated under paragraph (2) of subsection (a), and (2) the creditor indicates the payment of such amount is not required pending the creditor’s compliance with this section. Nothing in this section shall be construed to prohibit any action by a creditor to col lect any amount which has not been indi cated by the obligor to contain a billing error.
(d) Pursuant to regulations of the Board, a creditor operating an open end consumer credit plan may not, prior to the sending of the written explanation or clarification re quired under paragraph (B)(ii), restrict or close an account with respect to which the obligor has indicated pursuant to subsection (a) that he believes such account to contain a billing error solely because of the obligor’s failure to pay the amount indicated to be in error. Nothing in this subsection shall be deemed to prohibit a creditor from applying against the credit limit on the obligor’s ac count the amount indicated to be in error. (e) Any creditor who fails to comply with the requirements of this section or section 162 forfeits any right to collect from the obligor the amount indicated by the obligor under paragraph (2) of subsection (a) of this sec tion, and any finance charges thereon, except that the amount required to be forfeited under this subsection may not exceed $50. [15 USC 1666. As added by act of Oct. 28, 1974 (88 Stat. 1512) and amended by acts of March 31, 1980 (94 Stat. 177, 184) and Dec. 26, 1981 (95 Stat. 1515).] Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act §165 SECTION 162—Regulation of Credit Reports (a) After receiving a notice from an obligor as provided in section 161(a), a creditor or his agent may not directly or indirectly threat en to report to any person adversely on the obligor’s credit rating or credit standing be cause of the obligor’s failure to pay the amount indicated by the obligor under section 161(a)(2), and such amount may not be re ported as delinquent to any third party until the creditor has met the requirements of sec tion 161 and has allowed the obligor the same number of days (not less than ten) thereafter to make payment as is provided under the credit agreement with the obligor for the pay ment of undisputed amounts.
(b) If a creditor receives a further written no tice from an obligor that an amount is still in dispute within the time allowed for payment under subsection (a) of this section, a creditor may not report to any third party that the amount of the obligor is delinquent because the obligor has failed to pay an amount which he has indicated under section 161(a)(2), un less the creditor also reports that the amount is in dispute and, at the same time, notifies the obligor of the name and address of each party to whom the creditor is reporting information concerning the delinquency.
(c) A creditor shall report any subsequent resolution of any delinquencies reported pur suant to subsection (b) to the parties to whom such delinquencies were initially reported.
[15 USC 1666a. As added by act of Oct. 28, 1974 (88 Stat. 1513).] SECTION 163—Length of Billing Period (a) If an open end consumer credit plan pro vides a time period within which an obligor may repay any portion of the credit extended without incurring an additional finance charge, such additional finance charge may not be imposed with respect to such portion of the credit extended for the billing cycle of which such period is a part unless a statement which includes the amount upon which the finance charge for that period is based was mailed at least fourteen days prior to the date specified in the statement by which payment must be made in order to avoid imposition of that finance charge.
(b) Subsection (a) does not apply in any case where a creditor has been prevented, delayed, or hindered in making timely mailing or deliv ery of such periodic statement within the time period specified in such subsection because of an act of God, war, natural disaster, strike, or other excusable or justifiable cause, as deter mined under regulations of the Board. [15 USC 1666b. As added by act of Oct. 28, 1974 (88 Stat. 1514).] SECTION 164— Prompt Crediting of Payments Payments received from an obligor under an open end consumer credit plan by the creditor shall be posted promptly to the obligor’s ac count as specified in regulations of the Board. Such regulation shall prevent a finance charge from being imposed on any obligor if the cred itor has received the obligor’s payment in readily identifiable form in the amount, man ner, location, and time indicated by the credi tor to avoid the imposition thereof. [15 USC 1666c. As added by act of Oct. 28, 1974 (88 Stat. 1514).] SECTION 165—Treatment of Credit Balances Whenever a credit balance in excess of $1 is created in connection with a consumer credit transaction through (1) transmittal of funds to a creditor in excess of the total balance due on an account, (2) rebates of unearned fi nance charges or insurance premiums, or (3) amounts otherwise owed to or held for the benefit of an obligor, the creditor shall— (A) credit the amount of the credit bal ance to the consumer’s account; (B) refund any part of the amount of the remaining credit balance, upon request of the consumer; and (C) make a good faith effort to refund to the consumer by cash, check, or money or Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§165 Truth in Lending Act der any part of the amount of the credit balance remaining in the account for more than six months, except that no further ac tion is required in any case in which the consumer’s current location is not known by the creditor and cannot be traced through the consumer’s last known address or telephone number.
[15 USC 1666d. As added by act of Oct. 28, 1974 (88 Stat. 1514) and amended by acts of March 31, 1980 (94 Stat. 185) and Dec. 26, 1981 (95 Stat. 1515).] SECTION 166—Prompt Notification of Returns With respect to any sales transaction where a credit card has been used to obtain credit, where the seller is a person other than the card issuer, and where the seller accepts or allows a return of the goods or forgiveness of a debit for services which were the subject of such sale, the seller shall promptly transmit to the credit card issuer, a credit statement with respect thereto and the credit card issuer shall credit the account of the obligor for the amount of the transaction.
[15 USC 1666e. As added by act of Oct. 28, 1974 (88 Stat. 1514).] SECTION 167—Use of Cash Discounts (a) With respect to credit card which may be used for extensions of credit in sales transac tions in which the seller is a person other than the card issuer, the card issuer may not, by contract or otherwise, prohibit any such seller from offering a discount to a cardholder to induce the cardholder to pay by cash, check, or similar means rather than use a credit card. (b) With respect to any sales transaction, any discount from the regular price offered by the seller for the purpose of inducing payment by cash, checks, or other means not involving the use of an open-end credit plan or a credit card shall not constitute a finance charge as deter mined under section 106 if such discount is offered to all prospective buyers and its avail ability is disclosed clearly and conspicuously. [15 USC 1666f. As added by act of Oct 28, 1974 (88 Stat. 1515) and amended by acts of Feb. 17, 1976 (90 Stat. 197) and July 27, 1981 (95 Stat. 144).] SECTION 168—Prohibition of Tie-In Services Notwithstanding any agreement to the con trary, a card issuer may not require a seller, as a condition to participating in a credit card plan, to open an account with or procure any other service from the card issuer or its sub sidiary or agent.
[15 USC 1666g. As added by act of Oct. 28, 1974 (88 Stat. 1515).] SECTION 169—Prohibition of Offsets (a) A card issuer may not take any action to offset a cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer unless— (1) such action was previously authorized in writing by the cardholder in accordance with a credit plan whereby the cardholder agrees periodically to pay debts incurred in his open end credit account by permitting the card issuer periodically to deduct all or a portion of such debt from the cardhold er’s deposit account, and (2) such action with respect to any out standing disputed amount not be taken by the card issuer upon request of the cardholder.
In the case of any credit card account in exis tence on the effective date of this section, the previous written authorization referred to in clause (1) shall not be required until the date (after such effective date) when such account is renewed, but in no case later than one year after such effective date. Such written authori zation shall be deemed to exist if the card is suer has previously notified the cardholder that the use of his credit card account will subject any funds which the card issuer holds in deposit accounts of such cardholder to off set against any amounts due and payable on his credit card account which have not been paid in accordance with the terms of the Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Truth in Lending Act agreement between the card issuer and the cardholder.
(b) This section does not alter or affect the right under State law of a card issuer to attach or otherwise levy upon funds of a cardholder held on deposit with the card issuer if that remedy is constitutionally available to credi tors generally.
[15 USC 1666h. As added by acts of Oct. 28, 1974 (88 Stat. 1515).] SECTION 170—Rights of Credit Card Customers (a) Subject to the limitation contained in subsection (b), a card issuer who has issued a credit card to a cardholder pursuant to an open end consumer credit plan shall be sub ject to all claims (other than tort claims) and defenses arising out of any transaction in which the credit card is used as a method of payment or extension of credit if (1) the obli gor has made a good faith attempt to obtain satisfactory resolution of a disagreement or problem relative to the transaction from the person honoring the credit card; (2) the amount of the initial transaction exceeds $50; and (3) the place where the initial transaction occurred was in the same State as the mailing address previously provided by the cardholder or was within 100 miles from such address, except that the limitations set forth in clauses (2) and (3) with respect to an obligor’s right to assert claims and defenses against a card issuer shall not be applicable to any transac tion in which the person honoring the credit card (A) is the same person as the card is suer, (B) is controlled by the card issuer, (C) is under direct or indirect common control with the card issuer, (D) is a franchised deal er in the card issuer’s products or services, or (E) has obtained the order for such transac tion through a mail solicitation made by or participated in by the card issuer in which the cardholder is solicited to enter into such transaction by using the credit card issued by the card issuer.
(b) the amount of claims or defenses asserted by the cardholder may not exceed the amount of credit outstanding with respect to such § 171 transaction at the time the cardholder first no tifies the card issuer or the person honoring the credit card of such claim or defense. For the purpose of determining the amount of credit outstanding in the preceding sentence, payments and credits to the cardholder’s ac count are deemed to have been applied, in the order indicated, to the payment of: (1) late charges in the order of their entry to the ac count; (2) finance charges in order of their entry to the account; and (3) debits to the account other than those set forth above, in the order in which each debit entry to the ac count was made.
[15 USC 1666i. As added by act of Oct. 28, 1974 (88 Stat. 1515).] SECTION 171—Relation to State Laws (a) This chapter does not annul, alter, or af fect, or exempt any person subject to the pro visions of this chapter from complying with the laws of any State with respect to credit billing practices, except to the extent that those laws are inconsistent with any provision of this chapter, and then only to the extent of the inconsistency. The Board is authorized to determine whether such inconsistencies exist. The Board may not determine that any State law is inconsistent with any provision of this chapter if the Board determines that such law gives greater protection to the consumer. (b) The Board shall by regulation exempt from the requirements of this chapter any class of credit transactions within any State if it determines that under the law of the State that class of transactions is subject to require ments substantially similar to those imposed under this chapter or that such law gives greater protection to the consumer, and that there is adequate provision for enforcement. (c) Notwithstanding any other provisions of this title, any discount offered under section 167(b) of this title shall not be considered a finance charge or other charge for credit un der the usury laws of any State or under the laws of any State relating to disclosure of in formation in connection with credit transac tions, or relating to the types, amounts or rates of charges, or to any element or elements Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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§ 171 Truth in Lending Act of charges permissible under such laws in con nection with the extension or use of credit. [15 USC 1666j. As added act of Oct. 28, 1974 (88 Stat. 1516) and amended by act of Feb. 27, 1976 (90 Stat. 198).] Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis
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Competitive Equality Banking Act of 1987 Section 1204 12 U S C 3806; 101 Stat. 662; Pub. L. 1 0 0 -8 6 (A u g u st 10, 1987) SECTION 1204— Adjustable Rate Mortgage Caps (a) Any adjustable rate mortgage loan origi nated by a creditor shall include a limitation on the maximum interest rate that may apply during the term of the mortgage loan. (b) The Board of Governors of the Federal Reserve System shall prescribe regulations to carry out the purposes of this section. (c) Any violation of this section shall be treated as a violation of the Truth in Lending Act and shall be subject to administrative en forcement under section 108 or civil damages under section 130 of such Act, or both. (d) For purpose of this section— (1) the term “creditor” means a person who regularly extends credit for person al, family, or household purposes; and (2) the term “adjustable rate mortgage loan” means any loan secured by a lien on a one- to four-family dwelling unit, including a condominium unit, coopera tive housing unit, or mobile home, where the loan is made pursuant to an agree ment under which the creditor may, from time to time, adjust the rate of interest. (e) This section shall take effect upon the ex piration of 120 days after the date of enact ment of this Act.
[12 USC 3806.] Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis