Interpretation of provision in Truth in Lending Regulation Z
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For immediate release July 29, 1971 The Board of Governors of the Federal Reserve Syotem today issued a Truth in Lending interpretation relating to changes in the method of determining the balance on which a customer'^ finance charge is computed, Legislation in gome States has compelled creditors of open end accounts to change the method of computing finance charges. Previouoly any partial payments or credits wora not deducted in determining the balance upon which the finance charge was computed. In eome Stated these payments and credits must now be deducted before computing the finance charges.
The interpretation to Regulation Z atatea that no prior notice to the customer is required whan the method of determining the balance on which the finance charge is confuted ia changed in this manner, aince the change will result in a reduction of the finance charge to customers who do not pay their accounts in full, Prior notica i« required, however, if any other change# in terms normally requiring notification «ra made at tho some time.
A copy of the interpretation lo attached, - 0 -
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TITLE 12**BANKS AND BANK!NO CHAPTER I I — F E D E R A L RESERVE SYSTEM SUBCHAPTER A — B O A R O OP GOVERNORS OF THE FEDERAL RESERVE SYSTEM (Rag» £} PART 226—TttUTH IN LENDING Open End Credit"*Chang# In the Method of Determining The Balance On Which Finance Charges Are Computed § 226,705 Open end credit"ehamRfe in the method of determining the balooce on which finance churKftB are computed (a) The creditor of an open end credit account plan desires to change his method of determining the balance on which finance charge# ftts computed from a method in which payments and credit# made during the billing cycle are not deducted in determining such balance to a method in which such payment# and credits are deducted in determining such balance, Thin' change resultb in a reduction in finance charges to the cuatomer, where full payment of the account is deferred, The question arises whether notice of tnsch change Is required to be sent to customers of open end credit accountA under § 226,7(c), since that Section alao provides that prior notice is not required if the only change la a reduction in the "periodic rate or rates, or in any minimum, fixed, check service, transaction, activity, or similar charge applicable to the account."
(b) Where a creditor changes his method of determining the balance on which finance charges are computed from a method in which payments and credits made during the billing cycle are not deducted *tn determining ouch balance, to a method in which auch payments and credira are deducted in
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determining such balance, § 226.7 (e) requirea no prior notice of such change ‘in terma, provided no other changes in terms applicable to the account ore made simultaneously which would require § 226.7(e) notification.
(Interprets and applies 15 U,8.C. 1637)
By order of the Board of Governorea, July 29, 1971.
(signed) Kenneth A. Kenyen Kenneth A. Kenyon Deputy Secretary
(SEAL)