6332. Interpretations of Regulation Z

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FEDERAL RESERVE BANK OF NEW YORK Interpretations of Regulation Z [ C ircular No. 6332 May 13, 1969 To All State Member Batiks, and Others Concerned, in the Second Federal Reserve District: Printed below is an excerpt from the Federal Register of May 10, containing the text of six interpretations by the Board of Governors of the Federal Reserve System of provisions in its Truth in Lending Regulation Z, which goes into effect on July 1. Additional copies of this circular will be furnished upon request. Alfred Hayes, President.

Title 12-BANKS AND BANKING Chapter II— Federal Reserve System SU BCH APTER A — BO ARD OF G O VER N O RS OF THE FEDERAL RESERVE SYSTEM [Reg. Z] PART 226— TRUTH IN LENDING Miscellaneous Interpretations 1. In order to group current and future interpretations of this part ac­ cording to their subject matter, the fol­ lowing sections are redesignated as follows:

Former New section section number number 226.101 226.501 226.102 226.601 226.103 226.602 226.104 226.603 226.105 226.701 2. The following interpretations are added:

§ 226.401 Service charges on accounts not paid within a given period of time.

(a) Some vendors bill their customers for property or services purchased under the terms of a credit plan which requires that the full amount of each billing be paid within a stipulated period after bill­ ing, with no privilege of paying in instal­ ments. If the bill is not paid within that stipulated period of time, the vendor imposes a service charge periodically on the unpaid balance until the account is paid in full. The question arises as to whether Regulation Z applies to such transactions.

(b) When in the ordinary course of business a vendor’s billings are not paid in full within that stipulated period of time, and under such circumstances the vendor does not, in fact, regard such accounts in default, but continues or will continue to extend credit and imposes charges periodically for delaying pay­ ment of such accounts from time to time until paid, the charge so imposed comes within the definitions of a “finance charge” (§ 226.2(q)) applicable in each case to the amount of the unpaid balance of the account. Under such circum­ stances the credit so extended comes within the definition of “open end credit” in § 226.2 (r), the vendor is a creditor as defined in § 226.2(m), and the dis­ closures required for open end credit accounts under § 226.7 shall be made. (Interprets and applies 15 U.S.C. 1604 and 1605.) § 226.604 Inconsistent State require­ ments.

(a) Section 226.6(b) of Regulation Z indicates types of State law requirements that are inconsistent with Regulation Z, and § 226.6(c) indicates the methods of dealing with such inconsistent require­ ments of State law.

(b) Whether State laws are incon­ sistent with Regulation Z necessarily de­ pends on the nature of the State laws. Section 226.6(b)(1) provides tjiat State law is inconsistent to the extent that it “requires a creditor to make disclosures different from the requirements of this part with respect to form, content, ter­ minology, or time of delivery.” This re­ fers to disclosures of the kinds of infor­ mation covered by Regulation Z, and not to other or collateral information such as a statement telling the customer that he should read the contract carefully, or that there should be no blanks in the contract. Similarly, it does not refer to headings that State law may require on a contract such as “Retail Installment Contract.” Similarly, a specification in a State law that certain size type must be used is not necessarily inconsistent with the requirements of Regulation Z. (Interprets and applies 15 U.S.C. 1610.) § 226.702 Location of statement of how the balance was determined. (a) Section 226.7(b)(8) requires the creditor of an open end credit account to disclose on the periodic statement, “the balance on which the finance charge was computed, and a statement of how that balance was determined.” Under § 226.7 (c) which relates to the location of dis­ closures there is no specific reference to the placement of the “statement of how that balance was determined” when sep­ arated from the balance to which it re­ lates. The question arises as to where, under such circumstances, this required statement shall appear on the periodic statement.

(b) If separated from the balance to which it relates, the required statement of how the balance was determined may be placed on the face of the periodic statement, the reverse side of the peri­ odic statement, or on an enclosed sup­ plement: however, where such state­ ment and balance do not appear to­ gether, the statement shall make clear the balance to which it refers. (Interprets and applies 15 U.S.C. 1636) § 226.801 Location of disclosures when contract, security agreement, and evidence of transaction are combined in a single document.

(a) Some creditors incorporate the terms of a contract, a security agree­ ment and evidence of a transaction in a single document. These documents are (Over) Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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designed for processing by mechanical and electronic equipment. If all of the re­ quired disclosures under § 226.8 should be placed on the face of such a docu­ ment, the creditor will be unable to utilize conventional accounting and rec­ ord keeping equipment because of the size of the resulting document. The ques­ tion arises as to whether required dis­ closures may be made on the face and the reverse side of such a document. (b) W here a creditor elects to com ­ bine disclosures with the contract, security agreement, and evidence of a transaction in a single document, the disclosures required under § 226.8 shall, in accordance with § 226.6, be made on the face of that document, on its reverse side, or on both sides: Provided, That the amount of the finance charge and the annual percentage rate shall appear on the face of the document, and, if the reverse side is used, the printing on both sides of the document shall be equally clear and conspicuous, both sides shall contain the statement, “ N o t ic e :

See other side for im portant inform a­ tion,” and the place for the custom er’s signature shall be provided following the full content of the document. (Interprets and applies 15 U.S.C. 1638) § 226.1001 Advertising of credit terms in other than open end credit. (a) The statement of certain credit terms in advertisements such as “ no downpayment” , the amount of any in ­ stallment payments, dollar amount of finance charge, number of payments, etc., as provided in § 226.10(d) (2), re­ quires that certain other terms also be stated in the same advertisement. The question arises as to how a creditor may advertise credit terms in a meaningful way when all of his credit sales or loans are not made on the same basis. (b) The advertising of credit terms may be made by giving one or more examples of typical extensions of credit and stating all of the terms applicable to each example* In any such case, the ad­ vertiser shall set forth one or more ex­ amples which are, in fact, typical of the type of credit and terms usually and customarily made available by the credi­ tor to present and prospective customers and each shall be clearly and con­ spicuously identified as examples of typical transactions.

(Interprets and applies 15 U.S.C. 1664) § 226.1002 Catalogs-tables or schedule of credit terms.

(a) Under § 226.10(b) in order that a catalog may qualify as a single adver­ tisement, among other things, it must include a table or schedule of credit terms. It has been the practice of catalog houses to include such tables in catalogs; however, such tables generally state amounts o f purchases, amounts of fi­ nance charges, and number and amount of payments for brackets up to a certain level and then contain an instruction to include a specified dollar amount in com ­ puting the finance charge by applica­ tion of a percentage rate on any purchase in excess of that level. Tables to show the actual terms including annual per­ centage rates for all purchases into thou­ sands of dollars would be unwieldy, pre­ sent a formidable appearance, and may be more confusing than helpful to the user. The question arises as to whether a creditor who publishes a catalog is re­ quired to include tables in detailed amounts from the minimum up to, for example, $5,000, his highest priced cata­ loged merchandise.

(b) Tables or schedules of terms in catalogs must include all amounts up to a level of the more commonly sold higher priced property or services which are o f­ fered for sale, but in no event greater than $1,000 unless the creditor elects to do so. If the creditor offers property or service for sale at prices higher than the uppermost level covered by his table, he shall state the method by which the fi­ nance charge is computed on larger amounts, how the amount of payments and the number and periods of payments are determined and state, for each rep­ resentative amount in increments of not more than $500 up to the highest priced property or service offered, the annual percentage rate. Any catalog which con­ tains such a table or schedule of credit terms will comply with requirements of § 226.10(b) provided all other require­ ments are met and such catalog shall be considered adequate for the purpose of § 226.8(g) (1).

(Interprets and applies 15 U.S.C. 1661) Dated at Washington, D.C., the 22d day of April 1969.

By order of the Board of Governors. [s e a l] R o b e r t P. F o r r e s t a l, Assistant Secretary.

[F.R. Doc.

69-5614;

Piled, May 9, 1969;

8:47 a.m.] Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis