Full text of Federal Reserve Bank of New York Circulars : 6782. Proposed Amendments to Regulation Z

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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
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[ 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
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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
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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
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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” ). * * *