Full text of Federal Reserve Bank of New York Circulars : 7597. Truth in Lending

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FED ER A L RESERVE BANK
O F N EW YORK
r Circular No. 7 5 9 7 "j
L March 28, 1975 J

TRUTH IN LENDING
Uniform Disclosure/Settlement Statement
T o A ll M e m b er B a n ks, and O thers Concerned,
in the Second F ederal R eserve D istric t:

The following statem ent was issued M arch 18 by the Board of Governors of the Federal
Reserve System in connection with the proposed adoption of a new disclosure form , under the
T ru th in Lending Act, that is designed to assist homebuyers in understanding the terms of their
m o rtgages:
The Board of Governors of the Federal Reserve System today published for comment a disclosure form,
under the Truth in Lending Act, to assist homebuyers in understanding the terms of their mortgage.
The proposed new form will be used, along with forms already published for comment by the Housing
and Urban Development Department, to implement the disclosure of settlement and credit cost require­
ments of the Real Estate Settlement Procedures Act of 1974. The forms, as finally adopted, are to be given
to homebuyers in advance of and at the time of settlement in credit transactions under the Real Estate
Settlement Procedures Act.
This Act requires in part that homebuyers be supplied with all information required to be disclosed by
the Truth in Lending Act. The Federal Reserve Board is the rulemaking body under the Truth in Lending
Act, and has therefore prepared the Truth in Lending portion of the Uniform Disclosure/Settlement State­
ment required by the new legislation.
The proposed new Truth in Lending form is accompanied by proposed instructions for its use. Comment
will be received in writing by the Secretary of the Board through April 16.

In subm itting the proposed form fo r publication in the Federal Register, the Board of
Governors made the following additional statem ent:
The Real Estate Settlement Procedures Act of 1974 (P.L. 93-533) requires the disclosure of settle­
ment and credit costs on standardized forms to be given to homebuyers in advance of and at the time of
settlement in a transaction which involves a Federally related mortgage loan. Section 4 of this statute
(12 U.S.C. §2603) specifically requires that such forms include all information and data required to be
disclosed by the Federal Truth in Lending Act. The Secretary of Housing and Urban Development on
February 18, 1975, published for comment the settlement cost portions of these forms and referenced the
fact that the Board would subsequently be publishing the Truth in Lending portion of the Uniform Dis­
closure/Settlement Statement. Pursuant to the authority under P.L. 93-533, the concurrence of the Secretary
of Housing and Urban Development, and the Board’s authority under the Truth in Lending Act (15
U.S.C. § 1604), the enclosed form is published for comment. This form is proposed to be added as the
last page of the combined form dealing with both settlement and credit costs in Federally related mortgage
loans, which was proposed by HUD on February 18, 1975.
It is anticipated that following the analysis of responsive comments, the Board will recommend to
the Secretary of Housing and Urban Development the format of the Truth in Lending form to be included
in the combined form. It is also anticipated that the Secretary of Housing and Urban Development will
subsequently incorporate these Truth in Lending disclosures into a finally adopted combined Uniform Dis­
closure/Settlement Statement.

A copy of the proposed form and related instructions thereto is printed on the following pages.
Comments thereon should be submitted by April 16, 1975, and may be sent to our Bank Regula­
tions D epartm ent. Additional copies of this circular will be furnished upon request.




A

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President.

PROPOSED FEDERAL TRUTH IN LENDING STATEMENT
( A s p a r t o f U n if o r m D is c lo s u r e /S e ttle m e n t F o r m )

* Indicates a rate or amount that is estimated and may change at time of closing.
1. a. The principal amount of the loan is $...........................
b. Plus other amounts financed:
1. Property insurance premiums
$.
2 .........................................................................................................$
3.........................................................................................................$
c. Total amount borrowed $...........................
d. Less any Prepaid Finance Charges:
1. Origination fee or points paid by borrower
$.
2. Loan discount or points paid by seller if passed on to buyer
$.
3. Interest from ............... to ........................................................$.
4. Mortgage guaranty insurance
$.
5
......$
6 .......................................................................................................$.
e. Amount Financed
$........................... ........................................$.
2. a. The FINANCE CHARGE consists of:
1. Interest (simple annual rate o f ...........%)
$.
2. Total prepaid finance charges (Id)
$.
3
...... $.
4
......$.
b. Total FINANCE CHARGE $.......................... ............................. $.
3. a. The ANNUAL PERCENTAGE RATE on the amount financed i s ...........°/c
b. If the contract includes a provision for variation
in the interest rate, describe ...................................................................................................................................
4 . The borrower will pay principal and interest i n ....equal.......................... ....................................... instalments of

$...................... each and a final payment of $......................... The total of payments is $....................... The first
payment will be due on .............................. and the final payment on ............................ and ............................
5. The finance charge begins to accrue on ......................................................(date).....................................................
6 . In the event of late payment or delinquency, the creditor may assess charges of ...............................................

7. a. Conditions and penalties for prepaying this loan:................................................................................................
b. Identification of method of rebate of unearned finance charges: ......................................................................
Property damage insurance with extended coverage in the amount of $.........-............. . is required in connec­
tion with the loan. This insurance may be purchased from any company, subject to rejection by the lender for
reasonable cause, but may be purchased through the lender at an estimated cost of $.......................... for a term
of .............................. years9. The security for this loan shall be .............................................................................................................................
8

10 In the event that this transaction is subject to the right of rescission as provided by the Truth in Lending Act,
a separate notification of the right of rescission must be given to the borrower(s).
11. Acknowledgment of Receipt of this □ advance or □ settlement Disclosure: The undersigned borrower(s)
acknowledge receipt of the above disclosure.
............5 " t'e .............................Buyer/Borrower

Date

Buyer/Borrower

............Qate..................................... Seller

Date

Lender




1

Instructions for Federal Truth in Lending Statement
Item 2
This item is provided to show the components of the
finance charge, such as the amount of contract interest,
all prepaid finance charges, continuing premiums for
mortgage guaranty insurance, and discounts to cash
customers as well as to show the total amount of the
finance charge (§ 226.4(a)). Line 1 permits, at the
creditor’s option, the disclosure of the contract rate of
interest where such interest is computed by the appli­
cation of a simple annual rate. None of these disclosures
are required of the creditor in a first purchase money
mortgage transaction ( § 226.8 (d )(3 )).
item 3
Item 3(a) is provided to show the annual percentage
rate as determined in accordance with § 226.5(b). Item
3(b) is provided to show variable interest provisions
(§ 226.8(b)(8)).i

The preceding form is the Federal Truth in Lending
disclosure portion of the Uniform Disclosure/Settlement and Truth in Lending Statement to be provided
by the Department of Housing and Urban Develop­
ment in connection with the Real Estate Settlement
Procedures Act (P.L. 93-533).
This form is not intended to be totally comprehensive
of all charges and terms that may be incident to a given
Federally related mortgage loan. Blank lines have been
inserted in several instances where it is anticipated that
additional charges or terms may be included by the
creditor. In the event that additional charges or infor­
mation may not be fully accommodated in these blank
lines, a creditor may include such information or
charges on the reverse side of this form, provided that
the form is clearly marked at the bottom: “See reverse
side for important information.” In the event that items
listed on the proposed form are not applicable to a given
transaction, these lines may be marked with the abbre­
viation “N /A ” for not applicable.
As indicated, the creditors may make bona fide esti­
mates in connection with charges on which exact dollar
amounts or rates are unknown at the time of the dis­
closure (§ 226.6(f)). Such estimates must be replaced
with exact information, if known, at settlement.

1'Item 3 (b ) is included to accom m odate the proposed am end­
m ent § 2 2 6 .8 (b ) ( 8 ) .

Item 4
This item provides for the disclosure of the repay­
ment terms. The total of payments is an optional dis­
closure in purchase money first mortgage transactions
(§226.8(b) (3). The blank line following the end of
item 4 is provided to show any required information
or disclosure with respect to balloon payments or other
payment irregularities.
Item 5
This item is provided to show the date on which the
finance charge begins to accrue if that date differs
from the date shown at the top of the form ( S 226.8
( b ) ( 1)).
Item 6
This item is provided for the disclosure of any late
payment, delinquency or reinstatement charges (§ 226.4
(c) and § 226.8(b) ( 4 )).

N o te : A ll sectional references in the instructions are to R egula­
tion Z issued by the B oard of G overnors of the Federal
R eserve System .

Item i
Item 1(a) is provided to show the principal amount
of the loan.
Item 1(b). Property insurance premiums under 1(b)
are included in the amount financed if they are financed
as part of the credit transaction and the other conditions
of § 226.4(a) ( 6 ) have been met (see item 8 ). The
blank lines 2 and 3 are intended to include similar items,
which ar^ financed, such as those under the terms of
§ 226.4(b) or (e).
Item 1(c). This item is the sum of 1(a) and 1(b).
Item 1(d). This item is intended for disclosure of
all prepaid finance charges, (§ 226.4(a), § 226.8(d) ( 2 )
and § 226.8(e)(1)).
Line 1 is provided to show the origination fee or
points paid directly by the borrower, such as the one
point permitted in VA transactions.
Line 2 is provided to show those loan discounts or
points paid by the seller when passed on to the bor­
rower either directly or indirectly through the selling
price (§226.406).
Line 3 is provided to show the prepayment of any
accruing interest charge on the contract until the first
monthly payment is due. The blank spaces are provided
to show the dates for which such interest accrues.
Line 4 is provided to show the payment of mortgage
guaranty insurance premiums, such as FHA and MGIC,
accruing prior to the first monthly payment.
The blank lines 5 and 6 are provided to show any
additional prepaid finance charges.
Item 1(e). This item is provided to show the dif­
ference between item 1 (c) and 1 (d) (8 226.8(d)(7)/
226.8(d)(1)).




Item 7
Item 7(a) is provided for disclosure of conditions or
penalties charged in the event of prepayment of a loan
on which interest is computed on the unpaid principal
balance (§ 226.8(b) ( 6 )). Item 7(b) is provided to
identify the method of rebate of unearned finance
charges in the event of prepayment in full of instalment
obligations which include precomputed finance charges
(§ 226.8(b) (7 )).
Item 8
This item is provided to show property damage in­
surance required as an incident to the credit transaction
(§ 226.4(a) ( 6 )). Premiums for such insurance when
purchased from the creditor may be excluded from the
finance charge when this disclosure is made, including
the disclosure of the customer’s option.
Item p
This item is provided to show the creditor’s security
interests (§ 226.2(z) and § 226.8(b) (5)).
Item io
This item is included to reference disclosure of the
right of rescission in transactions to which this right
3

relates (§ 226.9). The right of rescission does not apply
to the creation, retention or assumption of a first lien
or equivalent security interest to finance the acquisition
of a dwelling in which the customer resides or expects
to reside (§ 226.9(g)(1)).

Item u
This item provides for an optional acknowledgement
0f
disclosure statement and differentiates between
the form given in advance of settlement and the form
given on the day of settlement.

This notice is published pursuant to Section 553(b) of Title 5 United States Code, and § 262.2(a) of the
Rules of Procedure of the Board of Governors of the Federal Reserve System (12 C.F.R. 262.2(a)). To aid
in the consideration of these matters by the Board, interested persons are invited to submit relevant data, views,
or arguments in writing to the Office of the Secretary, the Board of Governors of the Federal Reserve System,
Washington, D. C., 20551, to be received not later than April 16, 1975. Such material will be made available
upon request, except as provided in 12 C.F.R. § 261.6(a) of the Board’s Rules Regarding Availability
of Information.




4

Board of Governors of the Federal Reserve System
BANK HOLDING COMPANIES
IN T E R P R E T A T IO N O F R E G U L A T IO N Y

Title 12—Banks and Banking
CHAPTER II—FEDERAL RESERVE
SYSTEM
Subchapter A—Board of Governors of the
Federal Reserve System
[Reg. Y]
PART 225—BANK HOLDING COMPANIES
Nonbanking Activities of
Bank Holding Companies
§225.123—Activities closely related to bank­
ing.
(a) Effective June 15, 1971, the Board of
Governors has amended § 225.4(a) of Regu­
lation Y to implement its regulatory authority
under section 4(c)(8 ) of the Bank Holding
Company Act. In some respects activities de­
termined by the Board to be closely related
to banking are described in general terms that
will require interpretation from time to time.
The Board’s views on some questions that have
arisen are set forth below.
(b) Section 225.4(a) states that a company
whose ownership by a bank holding company
is authorized on the basis of that section may
engage solely in specified activities. That limita­
tion refers only to activities the authority for
which depends on section 4(c) (8) of the Act.
It does not prevent a holding company from
establishing one subsidiary to engage, for ex­
ample, in activities specified in § 225.4(a) and
also in activities that fall within the scope of
section 4 (c )(1 )(C ) of the Act—the “servic­
ing” exemption.
(c) The amendments to § 225.4(a) do not
apply to restrict the activities of a company
previously approved by the Board on the basis
of section 4(c) (8) of the Act. Activities of a
company authorized on the basis of section
4 (c)(8) either before the 1970 Amendments
or pursuant to the amended § 225.4(a) may
be shifted in a corporate reorganization to




another company within the holding company
system without complying with the procedures
of § 225.4(b), as long as all the activities of
such company are permissible under one of the
exemptions in section 4 of the Act.
(d) Under the procedures in § 225.4(a) (c),
a holding company that wishes to change the
location at which it engages in activities author­
ized pursuant to § 225.4(a) must publish notice
in a newspaper of general circulation in the
community to be served. The Board does not
regard minor changes in location as within the
coverage of that requirement. A move from one
site to another within a 1-mile radius would
constitute such a minor change if the new site
is in the same State.
(e) Data processing: The authority of hold­
ing companies under § 225.4(a) to engage in
data processing activities is intended to permit
holding companies to process, by means of a
computer or otherwise, data for others of the
kinds banks have processed, by one means or
another, in conducting their internal operations
and accommodating their customers. It is not
intended to permit holding companies to engage
in automated data processing activities by
developing programs either upon their own
initiative or upon request, unless the data in­
volved are financially oriented. The Board
regards as incidental activities necessary to
carry on the permissible activities in this area
the following: (1) making excess computer
time available to anyone so long as the only
involvement by the holding company system is
furnishing the facility and necessary operating
personnel; (2) selling a byproduct of the devel­
opment of a program for a permissible data
processing activity; and (3) furnishing any
data processing service upon request of a cus­
tomer if such data processing service is not
otherwise reasonably available in the relevant
market area; and (4) supplying formatting for
computer output microfilm and supplying com­
puter output microfilm only as an output option
for data otherwise being permissibly processed
by the holding company system.

PR IN T E D IN N EW YORK