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FEDERAL RESERVE BANK OF NEW YORK E a C ir c u la r N o . 6782 A u g u s t 16, 1971 PROPOSED AMENDMENTS TO REGULATION Z Open-End Credit Accounts To A ll State Member Banks, and Others Concerned, in the Second Federal R eserv e D istrict: The following statement was issued August 6 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today proposed for comment a change in its Truth in Lending regulation relating to the disclosure of the annual percentage rate in open-end credit accounts. Comments on the proposal should be sub mitted to the Board by September 15. The proposed amendment relates to the content of monthly statements that must be sent by creditors to holders of open-end accounts— the so-called revolving charge accounts. At present, Regulation Z does not require the creditor to disclose an annual percentage rate on the monthly statement if no finance charge is imposed during the period covered by that statement. The amendment would require creditors — whether or not a finance charge is im posed— to state a rate using the term ’’corresponding nominal annual percentage rate." This would be the rate obtained by multiplying the periodic rate (usually a monthly rate) by the number of periods in a year (usually 12 since most creditors operate on a monthly basis). A typical example is a charge of 1 -1 /2 per cent per month which results in an annual rate of 18 per cent. In addition, the creditor would be required— as at present— to state an "annual percentage rate" which would include not only the periodic charge but also any special transaction fees imposed during the period covered by the statement. A creditor could use only one term — annual percentage rate — where the finance charge results exclusively from a periodic or monthly rate and where any minimum, fixed or other charges do not exceed 50 cents per month. Printed on the reverse side is an excerpt from the Federal Register of August 13, containing the text of the proposed amendments. Comments thereon should be submitted by September 15 and may be sent to our Consumer Information and Securities Regulations Department. A lfre d H ayes, P re sid e n t. (Over) require the use of a new term, “corre sponding nominal annual percentage rate” (or “ rates” ). However, In those * * * * * [ 1 2 CFR Part 226 1 cases where the finance charge, if (c) L ocation o f disclosures. * * * imposed, is exclusively the product of the [Reg. Z] (2) The disclosures required by para application of one or more periodic rates graph (b) (6) of this section and a ref TRUTH IN LENDING and where any minimum, fixed, or other erence to the amounts required to be dis charge does not exceed 50 cents per Contents of Periodic Statement When closed under paragraph (b) (4) and (8) month, the term “annual percentage of this section, if not disclosed together No Finance Charge Is M a d e rate” may be substituted for the new on the face or the reverse side of the term. This provision would make it possi 1. Pursuant to the authority contained periodic statement, shall appear together ble in certain situations for some credi in the Truth in Lending Act (15 U.S.C. on the face of a single supplemental tors who have been voluntarily supply 1601 et seq.), the Board of Governors statement which shall accompany the ing the information, to continue to do proposes to amend Part 226 (Regulation periodic statement. so using present supplies of statement Z ), in the manner and for the reasons * * * * * forms. It would also permit others to set forth below: 2. Part 226 (Regulation Z) was issuedcomply with minimum change in forms Amend § 226.7(b) (5), the first sen by the Board pursuant to the statutory and conversion expense. tence of § 226.7<b) <6>, and § 226.7(c) (2) mandate in the Truth in Lending Act to 4. The amended 5 226.7(b)(6), as to read as follows: prescribe regulations to carry out the indicated previously, would eliminate purposes of the Act. The proposed redundant language and- is therefore § 2 2 6 .7 Open end credit accounts— amendments apply to the provisions of technical in nature. specific disclosures. Regulation Z, § 226.7 (b) and (c), which 5. The proposed amendment of 5 226.7 * * * * * pertain to the content of periodic state (c) which deals with the location of (b) Period ic sta tem en ts required. Ex ments mailed or delivered to customers required disclosijres on periodic state cept in the case of an account which the with respect to open end credit plans, ments of account would simplify place creditor deems to be uncollectable or with commonly called revolving charge ac ment of the disclosures in a way which respect to which delinquency collection counts. At this time, the regulation does is expected to be more meaningful and procedures have been instituted, the not require the creditor to disclose on useful to the customer and minimize creditor of any open end credit account such statements any nominal annual per confusion. shall mail or deliver to the customer, centage rate if no finance charge is im If the proposed amendments are for each billing cycle at the end of which posed by the creditor during the state adopted, the Board will issue and publish there is an outstanding debit balance in ment period. This follows from the fact the amendments in final form with an excess of $1 in that account or with re tliat § 226.7(b) (6) of the regulation re appropriate prospective date so as to per spect to which a finance charge is im quires disclosure of an annual percent mit such changes in printed forms and posed, a statement or statements which age rate “determined under § 226.5(a) ”— procedures as may be necessary for com the customer may retain, setting forth and under the latter section,' this rate pliance in an orderly manner. in accordance with paragraph (c) of this can be calculated only when there is a This notice is published pursuant to section each of the following items to finance charge during the period. After section 553(b) of title 5, United States the extent applicable: further consideration, the Board is in Code, and 5 226.2(a) of the rules of pro * * * * * cedure of the Board of Governors of the clined to believe that it might help to Federal Reserve System (12 CFR 262.2 (5) Whether or not a finance charge carry out the purposes of the Act if the (a )) . is imposed during the billing cycle, each regulation required that the customer of To aid in the consideration of these periodic rate (whether or not applied an open end credit account, whether or matters by the Board, interested persons during the billing cycle), using the term not a finance charge is imposed during are invited to submit relevant data, a statement period, be informed of the “periodic rate” (or “rates”), that may views, or arguments. Any such material be used to compute a finance charge, nominal annual percentage rate of fi should be submitted in writing to the nance charge for which he may become the range of balances to which it is ap Secretary, the Board of Governors of the liable should he decide to defer payment plicable, and the “corresponding nom Federal Reserve System, Washington, inal a n n u a l percentage rate” (or in full of his account. The proposed D.C. 20551, or to any Federal Reserve “ rates” ), using that term, determined amendments are to incorporate into Reg Bank for transmittal to the Board, to be by multiplying the periodic rate by the ulation Z that requirement, to eliminate leceived at the Board not later than number of periods in a year, except that language which is an unnecessary repe September 15, 1971. Such material will the term “annual percentage rate” (or tition of a requirement already stated be made available for inspection and “rates” ) may be used instead of the term in the regulation, and to permit disclo copying upon request, except as provided sure of the newly required information “corresponding nominal annual per in 5 261.6(a) of the Board’s rules regard centage rate” (or “rates” ) if the creditor in a clear, simplified, and meaningful ing availability of information. regularly discloses for those billing cycles manner. 3. The amendment of 5 226.7(b)(5) in which any finance charge is imposed By order of the Board of Governors, an equivalent annual percentage rate or would require, in addition to its present August 5, 1971. rates determined pursuant to either requirements and whether or not a § 226.5(a) (1) (i) or § 226.5(a) (3) (ii), as finance charge is imposed, disclosure of [seal] K enneth A. K e n yo n , the nominal annual percentage rate applicable. D eputy Secretary. (6) The annual percentage rate or which corresponds to the periodic rate (monthly rate in most cases) and would [F R D o c .7 1 -1 1 6 6 6 F ile d 8 - 1 2 - 7 1 :8 :4 5 a m ] rates determined under § 226.5(a), using FEDERAL RESERVE SYSTEM the term “annual percentage rate” (or “ rates” ). * * *