Interpretation of provisions in Truth in Lending Regulation Z

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For immediate roLease April 2, 1969 The Board of Governors of the Federal |ienecv(> System announced todny the approval ol* fivo interpretations t>t prnvioi i n its Truth in Lending Regulation 2 which goes into e££c;ct on July I. A copy oI ouch interpretation't# attnchtidi

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REGULATION TRUTH .IN lENniNG-"U»o of determine ncriodic rnU* 06 finance ct1 Section 226.5(d) 0 ) of R ( «. creditor the option In certain v,. v or more eepnr cite annuaI percentage rates (o,t, .

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$700<balance might be stated as 187, on balance to $!i0o on balance over $500), or (2) a single annual percentage rate determined by the "quotient method" rosultinp, from applyinR the rates to a total balance (c.ft.> in the example above» nn. mutual percentage'rate of 16- 1 (i\% on 0 $700 balance). Section 226,5(a)(2), which relates to the une of ranges or brackets to compute periodic finance chnrftee, doe» not prevent a creditor who uses such btacUeta front exercising the options! referred to in section 226.5(a)(1).

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Regulation Zo-Truth 4H Lending:-Overatatement of Annual, Percentage

Section 226.6(h) of Regulation @ provides that in certain. circumstances the disclosure of an annual percentage rate which fa greater than that required to be diaclosed under the Regulation does not in itself conutitute a violution of the Regulation, Undar this section may a discloaure regarding an annual. percentage rate (c.g. “the annual percentage rate does not axceed 18%") be preprinted on a contract or partodic atatemant and comply with dioclosuce requirements when the actual rate will at times be lower (e.g. 15%) for ome transactions?

Section 226,5 spect{tea the methods which shall be employed in determining annual parcentage rates, Seetion 226. 6(h) {e not intended to provide an alternative to these requirements, but is merely to provide appropriate relief to @ creditor who coverstates accidentally. Any diselesure of an annual percentage vate whether. preprinted or othcruiee which overstates the annual piercentage rate determined in accordance with section 226,5 other than through inadvertence docs not comply vith requira-

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-3- •' REGULATION Z. TRUTH IN LENDING--Ttftnaltlon Pftglod--Union axiatinft forma, B u l f c a b l . v nltcrod or oupplcmentod, Section 226.6(k) of Regulation 2 provides that, in aomo circumstances) if a creditor has been unable to obtain needed new printed forma by July l, 196^» he may use existing form® until now ones are obtained, but not lacer than December 31, 1969, In such instances, the oitiatlng forum must be suitmbly altered or supplemented to tnake necftsanry diiiclosuras cleanly nnd oonaplcuoualy, The requirement that existing forms he'supplemented.is mot by attachments or eneioaurea, Also in acme instances, creditors encounter unavoidable delays in obtaining necessary equipment or computer programs needed to utilise new printnd forma, Such delays can products problems comparable to those involved in <|ieiayo in obtaining printed forms, In tutch a situation, a creditor, under 1226.6(U), may continue to uue existing formo until the means of utilizing the now forms are available, but in no event later than December 31, 1969, and subject, of course, to the condi'tiono applicable under i 226,6(k); namely, that the creditor must have taken bona fide sfcpa prior to July I, 1969, to obtain the necesoary equipment or computer programs, and the eiciating forms must bo "altered or uupplemented as neceooary to aaaure that all of the items i»£ information the creditor is required to diacloae arc act forth clearly and conspicuously,"

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RKGUtATlON Z , TRUTH, IN L E N D l H t N • IX R c l o f l u r n n I n t r a n s a c t i o n l n v t f l v l o | j ! m u l t i p l e c u f i t o m o r n , S o c t l o n 2 I ! 6 . 6 ( c ) s t a t e s t h o g e n e r a l r u l e t h a t , e x c e p t i n t h e c n a e o f a r e j i e i n d n b l e t r a n s a c t i o n u n d e r § 2 2 6 , 9 , w h e r e t h e r e a r e m u l t i p l e c u B t o m e r s I n a t r a n s a c t i o n , t h e c r e d i t o r i « o n l y r e q u i r e d t o m o k e d l s c l o f l u r c n t o oius o f t h i t m , l i l o w e v o r , i n d e t e r m i n i n g w h i c h c u s t o m e r s h a l l r e o c l v o d i i i c l o s u r e e , t h e c r e d i t o r m a y n o t a o l c c t n c u s t o m e r w h o i « B c c o i n d < » r i l y l l a b l n , s u c h n o n n e n d o r s e r , c o m a k e r ( w h e n d e s i g n a t e d a s s u r e t y ) , g u a r a n t o r , o r n Blroilar p a r t y , I h i s d o e n n o t p r o h i b i t t h e c r e d i t o r f r o m a l s o ( u r n l n h l n g d i s c l o s u r c a t o o u c h p e r s o n a w h o a r e s e c o n d a r i l y l i a b l e * - 0 -

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REGULATION TRUTH IN LENDING--Periodic Statemanta*-Finance charge roaulfclnK from moro fchnn QUO pertocllt. race, Section 2?6.7(b)(4) of Regulation % requires that fl periodic 6totomant l!or open i>rul credit show tho amount, of any finance charge, and thnt the »tatement nluo itemize and i d e n t i f y that portion of the finance charga that io dun to nppliuation of one or moro periodic rataa and that portion duo to any other charge such as minimum, fixed, cheek service» transaction, wctivlty, o x similar clHttge, This does not requirQ the stfltemeul: to atate scparfltoiy the portions of a finance charge duo to application of two or more periodic r a t e s .

For example^ if a creditor charges! b < \ / 2 % per month on the f i r s t $500 of a balance and 1% per mouth on amounts over $50Q, tho monthly charge on a $600 balmict) would bo 58.50, which must be shown.

However, i t would not bo nucuooat-y to itemize the two components ($7,50 and $1.00) o r the $3,50 charge. Under section 226.7(b)(3), the periodic raton that may apply to the account, «nd tho applicable :rangp. of bolmic^u mu»t, of course, be ahavm, but t h i s could he preprinted.