Board seeks public comment on proposed official staff commentary to simplified Regulation Z

Page 1

FEDERAL RESERVE press release 21, 1981 For immediate release May The Federal Reserve Board's staff is publishing for coiWtMlt d piopusud official staff commentary following up and interpreting the Board's simplified Regulation Z, which implements the Truth in Lending Simplification and Reform Act.

Comment should be received by July 10, 1981.

The proposed commentary applies and interprets the requirements of Truth in Lending with respect to open-end and closed-end consumer credit. The commentary will deal with the substance of some 1,500 Board and staff interpretations that have been issued, at the request of consumers and creditors, since the Act became effective over a decade ago. The commentary is expected to replace all individual interpretations and to be the sole vehicle for interpreting Regulation Z. Compliance with the simplified regulation becomes mandatory April 1, 1982, a year after its publication, but creditors may begin to comply with it immediately.

The Board believes that the attempt to issue highly specific interpretations in the past led to an accumulation of interpretations that by their number and complexity complicated rather than facilitated compliance. The proposed new commentary focuses on providing more general guidance, together with illustrative examples.

The proposed commentary is described in the attached notice of the request for comment. The full proposed commentary is available from the Federal Reserve Board or Federal Reserve Banks.

- 0 -

Page 2

FEDERAL RESERVE SYSTEM 12 CFR Part 226 [Reg. Z; T I L - l ] TRUTH IN LENDING Proposed Official Staff Commentary AGENCY:

Board of Governors of the Federal Reserve System. ACTION:

Proposed o f f i c i a l staff interpretation. SUMMARY:

In accordance with Appendix C to 12 CFR Part 226, the Board's s t a f f is publishing for comment a proposed o f f i c i a l staff commentary to Regulation Z, as revised effective April 1, 1981 (46 FR 20848, April 7, 1981). The commentary applies and interprets the requirements of Truth in Lending to open-end and closedend consumer credit, and is intended to substitute for individual Board and s t a f f interpretations of the regulation. In order to make the final commentary available at the earliest possible time, commenters must submit their comments by July 10, 1981.

DATE:

Comments must be received on or before July 10, 1981. ADDRESS:

Comments should include a reference to TIL-l and should be mailed to the Secretary, Board of Governors of the Federal Reserve System, Washington, D.C.

20551, or delivered to Room B-2223, 20th and Constitution Avenue, N.W., Washington, D.C., between 8:45 a.m. and 5:15 p.m. To aid in their consideration, comments regarding each section should begin on a separate page. Comments may be inspected in Room B-1122 between 8:45 a.m. and 5:15 p.m. FOR FURTHER INFORMATION:

Contact the following attorneys in the Division of Consumer and Community A f f a i r s , Board of Governors of the Federal Reserve System, Washington, D.C.

20551, at (202) 452-3667 or (202) 452-3867: Subpart A Subpart B and Appendices Gerald Hurst Beth Morgan Denise Rechter Ruth Amberg Jesse Filkins Lynn Goldfaden Gerald Hurst Barbara Ranagan John Wood Subpart C and Appendices Subpart D and Appendices Beth Morgan Denise Rechter Rugenia Silver Susan Werthan Claudia Yarus Steve Zeisel Lynn Goldfaden Susan Werthan

Page 3

- - SUPPLEMENTARY INFORMATION:

Effective April 1, 1981, the Board substantially revised Regulation Z, which implements the Truth in Lending Act (46 FR 20848, April 7, 1981).

The revisions reflect amendments made by the Truth in Lending Simplification and Reform Act (Title VI of the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. 96-221). Creditors may begin complying with the revised regulation immediately. Compliance does not become mandatory, however, until April 1, 1982.

Before that date, creditors may continue to comply with the regulation as i t existed prior to those amendments. Board and staff interpretations issued under the prior regulation w i l l remain effective until that date.

The Board's Division of Consumer and Community Affairs is publishing a draft commentary on the revised regulation. The final commentary w i l l be issued as an o f f i c i a l staff interpretation, providing creditors with protection under § 130(f) of the Truth in Lending Act. Under that section, creditors acting in conformity with an o f f i c i a l staff interpretation have no l i a b i l i t y for violations arising from those actions.

The commentary w i l l significantly alter the s t a f f ' s approach to providing interpretations of the regulation. Under the prior regulation, staff opinions were issued in response to individual inquiries regarding specific fact situations, and were normally limited to those facts. Subsequent variations in those facts were similarly addressed in individual responses tailored to the variations.

More than 1500 letters interpreting and applying the prior regulation were issued on this basis. The commentary is expected to replace Board and staff interpretations as the sole vehicle for interpreting the regulation. The commentary w i l l , however, be more general than the interpretations issued under the prior regulation.

Unlike the earlier interpretations, the commentary w i l l not attempt to address and resolve every question regarding the application of the regulation to specific sets of facts.

Although originally designed to aid creditors in complying, the longstanding practice of trying to respond in writing to each and every special circumstance has instead created an enormous amount of regulatory material.

The cumulative effect of the interpretations has been to complicate, rather than f a c i l i t a t e , compliance by layering one set of distinctions on top of another.

Rather than resolving questions, this material in the aggregate has served to generate further questions. In the past, creditor exposure to c i v i l l i a b i l i t y for technical violations of the regulation has also contributed to the demand for staff interpretations that sought to provide certainty in applying the regulation. The reduction in c i v i l l i a b i l i t y resulting from the 1980 statutory amendments should reduce the perceived need for written responses to a variety of specific questions.

The commentary focuses on providing general guidance to assist creditors in applying the regulation to specific situations. That guidance may take several forms.

The commentary may l i s t examples that comply with a particular regulatory standard, discuss the impact of a regulatory provision on a prevalent type of plan or transaction, or draw together and elaborate on a related group of regulatory requirements.

Page 4

- 3 - The commentary does not purport to be exhaustive. I t concentrates on material of general application whose inclusion w i l l , in the s t a f f ' s view, be useful to the widest possible audience.

For example, the commentary provides several i l l u s t r a t i o n s of ways in which closed-end credit disclosures may be segregated in accordance with the requirements of § 226.17(a). The examples chosen are those that appear most l i k e l y to be u t i l i z e d by a number of creditors, although other methods may be equally permissible. Similarly, the commentary w i l l address prevalent credit transactions, to the extent that they present important questions under the regulation.

I t w i l l not, however, attempt to address each credit plan's unique set of facts. The commentary instead i d e n t i f i e s several basic factors characterizing that type of transaction. Creditors must then determine whether the discussion applies to t h e i r own transactions given t h e i r particular variations.

The s t a f f expects to update the commentary on an annual basis, or more often as the need arises. Each paragraph in the commentary is i d e n t i f i e d by section and in some cases by subsection.

For example, the comments for § 226.21 (Treatment of credit balances) are designated as comments 21-1 through 21-5, while the comments for § 226.18 (Content of disclosures) are further broken down and designated according to the particular subsection addressed, such as comment 18(b)-l and 1 8 ( r ) - l .

The following cross-references to related material appear at the end of each section of the commentary:

(1) "Statute" -- those sections of the Truth in Lending Act on which the regulatory provision is based; (2) "Other sections" -- d e f i n i t i o n s and other provisions in the regulation relating to that section; (3) "Previous regulation" - - parallel provisions in Regulation Z as i t existed before April 1, 1981; and (4) "1981 changes." This last category is a b r i e f description of the major changes made by the 1981 revisions to Regulation Z.

The text of the commentary does not refer to the e a r l i e r regulat i o n .

However, a comparison to the prior regulation may in some cases be helpful in explaining the amended provision and may be of interest to some users, and the proposed commentary incorporates t h i s information, to a limited extent, in the cross-references.

The s t a f f p a r t i c u l a r l y s o l i c i t s comment on whether t h i s material should be retained. Comment is welcome both on the substance of the material and on the format in which i t is presented.

Commenters are encouraged to focus on material of particular interest to them; they need not address every provision. The s t a f f w i l l consider for inclusion in the commentary any material appropriate for a s t a f f interpretation of t h i s scope, but commenters should not expect the commentary to answer every question or remove every possible ambiguity from the regulation.

No comments that have the effect of revising or eliminating any requirements of the regulation i t s e l f w i l l be considered. To expedite analysis of the comments, commenters are requested to i d e n t i f y portions of the commentary according to section and paragraph numbers and to begin discussion of each section on a separate page.

Comments must be received by Friday, July 10, 1981. After consideration of these comments and possible revision of the commentary, o f f i c i a l s t a f f interpretation TIL-1 w i l l be published in f i n a l form in the Federal Register.