Regulation Z official staff commentary updated

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FEDERAL RESERVE press release For immediate release November ?8, 1983 The Federal Reserve Board today published an update to the o f f i c i a l s t a f f commentary on Regulation Z (Truth in Lendiny). Three principal subjects of the proposed revision are set forth in excerpts from the text of the proposal.

The Board requested comment by January 31, 1984. - 0 - Attachment

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FEDERAL RESERVE SYSTEM 12 CFR Part 226 [Reg. Z; TIL-1] TRUTH IN LENDING Official Staff Commentary Update AGENCY:

Board of Governors of the Federal Reserve System. ACTION:

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

The Board is publishing for comment proposed changes to the o f f i c i a l s t a f f commentary to Regulation Z (Truth in Lending), 12 CFR Part 226. The commentary applies and interprets the requirements of Regulation Z with regard to consumer credit transactions and is a substitute for individual staff interpretations of the regulation.

The commentary proposals address a variety of questions that have arisen about the regulation, such as the proper treatment of certain mortgage guarantee insurance premiums, certain fees for the use of credit cards in interchange or shared systems, and certain types of variablerate transactions.

DATE:

Comments must be received on or before January 31, 1984. ADDRESS:

Comments should be mailed to William W. Wiles, 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.

Comments should include a reference to TIL-1. 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 Affairs, Board of Governors of the Federal Reserve System, Washington, D.C.

20551, at (202) 452-2412 or (202) 452-3867: Subpart A — Ruth Amberg, Steven Zeisel Subpart B - - Richard Garabedian, Lynn Goldfaden Subpart C — Clarence Cain, Susan Werthan Subpart D — Rugenia Silver SUPPLEMENTARY INFORMATION:

(1) General.

Effective October 13, 1981, an o f f i cial staff commentary was published to interpret Regulation Z (12 CFR Part 226). The commentary is designed to provide guidance to creditors in applying the regulation to specific transactions. The commentary is updated periodically to address significant questions that arise. There have been two updates to the commentary so f a r , the f i r s t in September 1982 (47 FR 41338) and the second in April 1983 (48 FR 14882).

This notice contains the proposed t h i r d update. I t is expected that i t w i l l be adopted in final form in March 1984 with optional compliance until the uniform effective date of October 1 for mandatory compliance.

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Following are excerpts from the notice on three subjects of interest:

SECTION 226.4 — Finance Charge 4(b) Examples of Finance Charges Comment 4(b)(2)-2 would be added to except from the finance charge certain fees imposed on cardholders for the use of electronic terminals in interchange or shared systems.

A companion provision would be added to the commentary on § 226.6(b) to retain certain disclosure requirements for these fees.

4(c) Charges Excluded from the Finance Charge Paragraph 4(c)(5) Comment 4(c)(5)-2 would be added to explain the correct treatment of mortgage insurance premiums (and other charges that are normally paid by the borrower) when they are paid at or before settlement in a lump sum by the noncreditor seller.

This is most likely to arise in the case of FHA mortgage insurance premiums, which the Department of Housing and Urban Development now collects in a lump sum rather than periodically. If the seller makes the payment, the creditor should treat the amount of the payment as seller's points and exclude i t from the finance charge. A creditor who gives disclosures before the payment has been made should rely on the estimate provision of § 226.17(c)(2) to determine the correct disclosures.

SECTION 226.18 - - Content of Disclosures 18(f) Variable Rate A paragraph would be added to the commentary to § 226.18(f) to c l a r i f y the disclosures for discounted variable-rate transactions. [The f u l l text of the notice is available upon request from the Federal Reserve Banks.]