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FEDERAL R ESE R V E BANK OF DALLAS
Station K, Dallas, Texas 7 5 2 2 2

Circular No. 84-72
July 3, 1984

TO:

All member banks and others concerned in the Eleventh
Federal Reserve District

ATTENTION:

Chief Executive Officer

SUBJECT:

Official Staff Commentary on Regulation Z -- Truth
Lending

SUMMARY:

The Board of Governors of the Federal Reserve System
has published an update to the
official
staff
commentary on Regulation Z. The proposed changes to
the commentary were originally transmitted to you in
our Circular No. 83-151 dated December 27, 1983.
Reliance on the updated commentary is optional until
October 1, 1984.

ATTACHMENTS:

Material as published in the Federal Register

MORE INFORMATION:

Legal Department, Extension 6171

ADDITIONAL COPIES:

Public Affairs Department, Extension 6289

Banks and others are encouraged to use the following incoming WATS numbers in contacting this Bank: 1-800-442-7140
(intrastate) and 1-800-527-9200 (interstate). For calls plaped locally, please use 651 plus the extension referred to above.

in

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

13482

Federal Register / Vol. 49, No. 67 / Thursday, April 5. 1984 / Rules and Regulations
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) 4523867:
Subpart A—Ruth Amberg, Steven Zeisel
Subpart B—Richard Garabedian, Lynn
Goldfaden
Subpart C—Clarence Cain, Susan
Werthan
Subpart D—Rugenia Silver
SUPPLEMENTARY INFORMATION:

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[R eg. Z; TIL-1]

Truth in Lending; Official Staff
Com m entary U pdate
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Final official staff
interpretation.
SUMMARY: The

Board is publishing in
final form changes to the official staff
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 revisions address a variety
of questions that have arisen about the
regulation, such as the proper treatment
of certain mortgage guarantee insurance
premiums and certain types of variablerate transactions, and the disclosure of
the "total of payments” in closed-end
credit transactions. Final action is being
delayed on the proposal regarding the
disclosure of fees in interchange or
shared systems.
EFFECTIVE DATE: April 1, 1984, but
reliance optional until October 1,1984.

I. General
Effective October 13,1981, an official
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.
This is the third update to the
commentary; the first was in September
1982 (47 FR 41338) and the second was
in April 1983 (48 FR 14882). The changes
are effective on April 1,1984. Although
creditors are free to rely on the
provisions as of that date and are
protected if they do so, they need not
follow the revisions until October 1,
1984, the uniform effective date provided
for in Section 105(d) of the revised Truth
in Lending Act.
II. Commentary revisions
Following is a brief description of the
revisions to the commentary and how
they differ, if at all, from those proposed.
Subpart A—General
Section 226.2—Definitions and Rules o f
Construction
2(a)(17) “Creditor”. The last
sentence of comment 2(a)(17)(i)-7 is
deleted because it contains a crossreference to the commentary discussing
“arranger of credit,” which was deleted
in April 1983 (48 FR 14882). The sentence
should have been deleted at that time.
Section 226.4—Finance Charge
4(b) Examples of Finance Charges
Paragraph 4(b)(2). No final action on
proposed comment 4(b)(2)— is being
2
taken at this time. The proposal excepts
from the finance charge certain fees
imposed on cardholders for accessing
credit through electronic terminals in
interchange or shared systems. Final
action on this proposal is being
postponed in order to consider the
issues more fully and to further
investigate operational concerns, as well
as to consider any additional issues that
might be raised in response to proposed

Federal Register / Vol. 49, No. 67 / Thursday, April 5, 1984 / Rules and Regulations______13483
questions 7-1515 and 9-31.5 of the
update to the Regulation E commentary
(49 FR 2204). Final action is also delayed
on the proposed addition to comment
6(b)— which provides that certain
1,
disclosure requirements would be
retained for fees excepted from the
finance charge.
4(c) Charges Excluded From the
Finance Charge
Paragraph 4(c)(5). Comment 4(c) (5)-2
is added to explain the correct treatment
of mortgage insurance premiums and
other charges when they are paid at or
before settlement 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. The creditor should treat
the amount of the payment made by the
seller as seller’s points and exclude it
from the finance charge.
The final comment has been revised
from the proposal to eliminate some of
the restrictions on the payments to
which it applies and to explain the use
of estimates when disclosures must be
made before the creditor knows who
will pay the fee.
Subpart B—Open-end Credit
Section 226.6—Initial Disclosure
Statement
6(a) Finance Charge. Comment
8(a)(2)-10 is added to address the
disclosure of discounted variable-rate
plans on the initial disclosure statement.
The comment has been expanded from
the proposal to provide examples of the
types of plans covered by the
interpretation, to give additional
guidance on the required disclosures,
and to make clear that the creditor may
use the disclosure options set forth in
comment 6(a)(2)— in disclosing the
3
current “Indexed” rate.
The staff is awafe that, in the absence
of any additional interpretive material,
creditors could reasonably have applied
the variable-rate provisions of the
commentary in different ways to
discounted variable-rate plans, and that,
therefore, creditors may have given
different disclosures for these plans.
Because of possible confusion in this
area, comment 6(a)(2)-10 has been
added to explain creditors’ initial
disclosure statement responsibilities
with regard to these plans.
6(b) Other Charges. No final action
is being taken at this time on the
proposed addition to comment 6(b)-l.
The proposal provides that certain
intercharge fees excepted from the
finance charge under proposed comment

4(b)(2)-2 must still be disclosed as
“other charges” under § § 226.6(b) and
226.7(h). Final action is being delayed
for the reasons set forth in the
discussion of proposed comment 4(b)(2)2.

Section 226.12—Special Credit Card
Provisions
12(b)(3) N otification to Card Issuer.
Comment 12(b)(3)— is added to point
3
out that, under the regulation, the
liability protections of § 226.12 are not
dependent upon whether the consumer
follows the error resolution procedures
of § 226.13. Editorial changes were made
to the proposal to clarify the
relationship between §§ 226.12 and
226.13.
Section 226.13—Billing-Error Resolution
13(d)(1) Consumer’ Right to
s
W ithhold D isputed Amount; Collection
Action Prohibited. Language is added to
comment 13(d)(1)— to clarify that
3
finance or other charges cannot be
imposed on undisputed balances, even
in subsequent billing cycles, merely
because the consumer withholds
payment of a disputed amount. A
sentence has been added to the proposal
to further clarify this issue.
Paragraph 13(g)(1). Comment 13(g)(1)1 is revised to make clear that, when the
creditor notifies the consumer of
amounts still owed from the resolution
period, the creditor may not include
finance or other charges imposed on the
undisputed amounts solely because the
consumer withheld payment of a
disputed amount.
Section 226.14—Determination of
Annual Percentage Rate
14(a) General Rule. Comment 14(a)5 is added to clarify the circumstances
under which creditors may utilize
footnote 31a, regarding faulty
calculation tools. The comment has been
expanded from the proposal to provide
further guidance on the types of errors
that may be subject to the footnote.
Section 226.16—Advertising
A new comment 16-2 has been added
to permit open-end credit advertisers to
use readily understandable
abbreviations, such as "APR", as an
expression of the annual percentage
rate.
16(b) Advertisem ent of Terms That
Require A dditional Disclosures.
Comment 16(b)— is modified to describe
4
several ways of satisfying the required
disclosure of the annual percentage rate
in an advertisement for a variable-rate
plan. Language has been added to
clarify that disclosure of both the
current rate and the fact that the rate

may vary is required in advertisements
for variable-rate open-end credit plans.
Comment 16(b)-5 is added to explain
how discounted variable-rate plans may
be advertised. The comment has been
expanded from the proposal 1) to clarify
that an advertisement for a discounted
variable-rate will be in effect; 2) to
reflect that, as with any advertised
variable rate, the current indexed rate
must be accompanied by a disclosure
that the rate may vary; and 3) to
indicate that the options listed in
comment 16(b)-4 for use in disclosing
the annual percentage rate in an
advertisement for a variable-rate plan
are equally available in disclosing the
current indexed rate in a discounted
variable-rate plan.
Subpart C—Closed-End Credit
Section 226.17—General Disclosure
Requirements
17(b) Time of Disclosures. Comment
17(b)— is revised to clarify the time of
2
disclosure when an open-end credit
account is converted to a closed-end
transaction. Under some state laws,
consummation of the closed-end
transaction is deemed Jto occur at the
same time as the opening of the openend credit plan, even though the
conversion may occur several years
later. In these cases, the closed-end
credit disclosures may be given at the
time of the conversion.
Section 226.18—Content of Disclosures
18(f) Variable Rate. Comment 18(f)-8
is added to address the disclosure of
discounted variable-rate transactions.
The comment has been expanded from
the proposal to provide examples and to
respond to questions raised by the
comments. The examples illustrate the
use of a composite annual percentage
rate and its effect on other calculations.
As requested by commenters, the effect
of a rate cap also has been shown in the
example.
The staff is aware that, in the absence
of any additional interpretive material,
creditors could reasonably have applied
the variable-rate provisions of the
commentary in different ways to
discounted variable-rate plans, and that,
in fact, creditors have given different
disclosures for these transactions.
Because of confusion in this area,
comment 18(f)— has been added to
8
explain creditors’ disclosure
responsibilities with regard to these
transactions.
18(g) Payment Schedule. Comment
18(g)-3 is added to make clear that
creditors are not required to disclose the
total number of pevments in a

13484

Federal Register / Vol. 49, No. 87 / Thursday, April 5, 1984 / Rules and Regulations

transaction involving several payment
levels.
Section 226.22—Determination o f the
Annual Percentage Rate

22(a) Accuracy of the Annual
Percentage Rate. Comment 22(a)(l)-5 is
added to clarify the circumstances under
which creditors may utilize footnote 45a,
regarding faulty calculation tools. The
comment has been expanded from the
proposal to provide farther guidance on
the types of errors that may be subject
to the footnote.
Section 226.24—Advertising
A comment has been added to the
commentary to § 226.16 to permit the
use of an abbreviation for “annual
percentage rate” when that term is used
in advertising open-end credit. Because
of a difference in regulatory language
between §§ 226.16 and 226.24, a
companion provision to that comment
has not been adopted for
advertisements of closed-end credit. The
issue will be considered for inclusion in
any future regulatory revision.
24(b) Advertisem ent o f Rate Finance
Charge. Comment 24(b)-5 is added to
explain how discounted variable-rate
transactions may be advertised. In
response to questions, the comment has
been expanded from the proposal to
describe more specifically the special
rules for advertising these transactions,
and to provide examples. Although a
composite annual percentage rate must
be shown, the discounted rate and
payment amounts may be shown in
conjunction with the higher rate and
payments without triggering other terms
under § 226.24(c). A sentence also has
been added to the proposal stating that
limits or caps on rates or payments need
not be shown.
24(c) Advertisem ent o f Terms that
Require A dditional Disclosure. The
proposed revision to comment 24(c)(1)—
1, which would have deleted the
sentence limiting application of
§ 226.24(c)(1) to credit sales, has not
been adopted. After consideration of the
comments received, the staff believes
that the proposed revision is not
necessary or appropriate.
Subpart D—Miscellaneous
Section 226.28—Effect on State Laws
28(a) Inconsistent Disclosure
Requirements. Comments 28(a)-ll and
28(a)-12 are added to reflect Board
determinations on the effect of the Truth
in Lending Act on the consumer credit
laws of Mississippi and South Carolina.

List of Subjects in CFR Part 226
Advertising; Banks, banking;
Consumer protection; Credit; Federal
Reserve System; Finance; Penalties;
Truth in lending.
III. Text of Revisions
The revisions to the commentary
(Supplement I to Part 226) read as
follows:
Supplement I—Official Staff
Commentary—TIL-1
Subpart A —General

*

* * * *
1. The commentary to section 226.2 is
amended by removing the last sentence
of comment 2(a)(17)(i)-7.
* * * * *
2. The commentary to section 226.4 is
amended by adding comment 4(c) (5)—
2,
to read as follows:
Section 226.4—Finance Charge

*

*

*

*

*

4(c) Charges excluded from the finance
charge.

*

*

*

*

*

Paragraph 4(c)(5).
*
*
*
*
*
2. Other seller-paid amounts. Mortgage
insurance premiums and other charges are
sometimes paid at or before consummation or
settlement on the borrower’s behalf by a
noncreditor seller. In such cases, the creditor
should treat the payment made by the seller
as seller’s points and exclude it from the
finance charge. A creditor who gives
disclosures before the payment has been
made should base them on the best
information reasonably available, as called
for by the estimate provisions of the
regulation.
*
*
*
*
*

• When creditors use an initial rate that is
not calculated using the index or formula for
later rate adjustments, the initial disclosure
statement should reflect: (1) The initial rate
(expressed as a periodic rate and a
corresponding annual percentage rate),
together with a statement of how long it will
remain in effect; (2) the current rate that
would have been applied using the index or
formula (also expressed as a periodic rate
and a corresponding annual percentage rate);
and (3) the other variable-rate information
required by footnote 12 to fi 226.6(a)(2).
• In disclosing the current periodic and
annual percentage rates that would be
applied using the index or formula, the
creditor may use any of the disclosure
options described in comment 6(a)(2)-3.
*
*
*
*
*

4. The commentary to section 226.12 is
amended by adding comment 12(b){3)-3,
to read as follows:
Section 226.12—Special Credit Card
Provisions
*
*
*
*
*
12(b) Liability of cardholder for
unauthorized use.
*
*
*
*
*
12(b)(3) Notification to card issuer.
*
*
*
*
*
3. Relationship to §226.13. The liability
protections afforded to cardholders in
§ 226.12 do not depend upon the cardholder’s
following the error resolution procedures in
S 226.13. For example, the written notification
and time limit requirements of $ 226.13 do not
affect the section 226.12 protections.
*
*
*
*
*

5. The commentary to section 226.13 is
amended by revising comments 13(d)(1)—
3 and 13(g)(1)— to read as follows:
1,
Section 226.13—Billing-Error Resolution
*

*

*

*

*

13(d) Rules pending resolution
*
*
*
*
*
Subpart B— Open-End Credit
*
*
*
*
*
13(d)(1) Consumer's right to withhold
disputed amount; collection action
3. The commentary to section 226.6 is
prohibited.
amended by adding comment 6(a)(2)-10,
*
*
*
*
*
to read as follows:
3. Imposition o f additional charges on
Section 226.6—Initial Disclosure Statem ent
undisputed amounts. The consumer’s
*
*
*
*
*
withholding of a disputed amount from the
Paragraph 6(a)(2).
total bill cannot subject undisputed balances
*
*
*
*
*
(including new purchases or cash advances
10. Discounted variable-rate plans. In some made during the present or subsequent
cycles) to the imposition of finance or other
variable-rate plans, creditors may set an
charges. For example, if on an account with a
initial interest rate that is not determined by
free-ride period (that is, an account in which
the index or formula used to make later
paying the new balance in full allows the
interest rate adjustments. Typically, this
consumer to avoid the imposition of
initial rate is lower than the rate would be if
additional finance charges), a consumer
it were calculated using the index or formula.
disputes a $2 item out of a total bill of $300
•
For example, a creditor may calculate
interest rates according to a formula using the and pays $298 within the free-ride period, the
consumer would not lose the free-ride as to
six-month Treasury bill rate plus a 2 percent
any undisputed amounts, even if the creditor
margin. If the current Treasury bill rate is 10
determines later that no billing error
percent, the creditor may forego the 2 percent
occurred. Furthermore, finance or other
spread and charge only 10 percent for a
charges may not be imposed on any new
limited time, instead of setting an initial rate
purchases or advances that, absent the
of 12 percent, or the creditor may disregard
unpaid disputed balance, would not have
the index or formula and set the initial rate at
finance or other charges imposed on them.
9 percent.

Federal Register / Vol. 49, No. 67 / Thursday, April 5, 1984 / Rules and Regulations______13485
Finance or other charges that would have
been incurred even if the consumer had paid
the disputed amount would not be affected.
*
*
*
*
*
13(g) Creditor’ rights and duties after
s
resolution.
Paragraph 13(g)(1).
1. Amounts owed by consumer. Amounts
the consumer still owes may include both
minimum periodic payments and related
finance and other charges that accrued during
the resolution period. As explained in the
commentary to § 228.13(d)(1), even if the
creditor later determines that no billing error
occurred, the creditor may not include
finance or other charges that are imposed on
undisputed balances solely as a result of a
consumer’s withholding payment of a
disputed amount.
*

*

*

*

Section 226.14—Determination o f Annual
Percentage Rate
14(a) General rule.
*
*
*
*
*
5. Good faith reliance on faulty calculation
tools. Footnote 31a absolves a creditor of
liability for an error in the annual percentage
rate or finance charge that resulted from a
corresponding error in a calculation tool used
in good faith by the creditor. Whether or not
the creditor’s use of the tool was in good faith
must be determined on a case-by-case basis,
but the creditor must in any case have taken
reasonable steps to verify the accuracy of the
tool, including any instructions, before using
it. Generally, the footnote is available only
for errors directly attributable to the
calculation tool itself, including software
programs; it is not intended to absolve a
creditor of liability for its own errors, or for
errors arising from improper use of the tool,
from incorrect data entry, or from
misapplication of the law.
*
*
*
*
*

7. The commentary to section 226.16 is
amended by adding comment 16-2,
revising comment 16(b)-4, adding new
comment 16(b)— and redesignating
5,
existing comments 16(b)-5 and 6 as
16(b)-6 and 7, to read as follows:
Section 226.16—Advertising
*
*
*
*
*
2. Expressing the annual percentage rate in
abbreviated form. Whenever the annual
percentage rate is used in an advertisement
for open-end credit, it may be expressed
using a readily understandable abbreviation
such as “APR".
*
*
*
*
*
16(b) Advertisement o f terms that require
additional disclosures.
*

*

*

*

*

*

*

*

*

6. The commentary to section 226.14 is
amended by adding comment 14(a)-5, to
read as follows:

*

estimated rate under § 226.5(c). The
additional requirement in § 226.16(b)(2) to
disclose the variable-rate feature may be
satisfied by disclosing that “the annual
percentage rate may vary" or a similar
statement, but the advertisement need not
include the information required by footnote
12 to § 226.0(a)(2).
5. Discounted variable-rate plans—
disclosure o f the annual percentage rates.
The advertised annual percentage rates for
discounted variable-rate plans must, in
accordance with comment 0(a)(2)-lO, include
both the initial rate (with the statement of
how long it will remain in effect) and the
current indexed rate (with the statement that
this second rate may vary). The options listed
in comment 16(b)-4 may be used in disclosing
the current indexed rate.

*

4. Variable-rate plans. In disclosing the
annual percentage rate in an advertisement
for a variable-rate plan, as required by
§ 220.10(b)(2), the creditor may use an insert
showing the current rate; may give the rate as
of a specified recent date; or may disclose an

Subpart C—Closed-End Credit

8. The commentary to section 226.17 is
amended by revising comment 17(b)-2,
to read as follows:
Section 226.17—General Disclosure
Requirements
*
*
*
*
*
17(b) Time o f disclosures.
*
*
*
*
*
2. Converting open-end to closed-end
credit. If an open-end credit account is
converted to a closed-end transaction under
a written agreement with the consumer, the
creditor must provide a set of closed-end
credit disclosures before consummation of
the closed-end transaction. If consummation
of the closed-end transaction occurs at the
same time as the consumer enters into the
open-end agreement, the closed-end credit
disclosures may be given at the time of
conversion. (See the commentary to § 226.5
regarding conversion of closed-end to openend credit.)
*
*
*
*
*

9. The commentary to section 226,18 is
amended by adding comments 18(f)—
6
and 18(g)-3, to read as follows:

the rate that would have been applied using
the index or formula at the time of
consummation.
• The effect of the multiple rates must also
be reflected in the calculation and disclosure
of the finance charge, total of payments, and
payment schedule.
• If a loan contains a rate or payment cap
that would prevent the initial rate or
payment, at the time of the first adjustment,
from changing to the rate determined by the
index or formula at consummation, the effect
of that rate or payment cap should be
reflected in the disclosures.
• Because these transactions involve
irregular payment amounts, an annual
percentage rate tolerance of V* of 1 percent
applies, in accordance with § 226.22(a)(3) of
the regulation.
• Examples of discounted variable-rate
transactions include:
—A 30-year loan for $100,000 with no prepaid
finance charges and rates determined by
the Treasury bill rate plus 2 percent. Rate
and payment adjustments are made
annually. Although the Treasury bill rate at
the time of consummation is 10 percent, the
creditor sets the rate for one year at 9
percent, instead of 12 percent according to
the formula. The disclosures should reflect
a composite annual percentage rate of 11.63
percent based on 9 percent for one year
and 12 percent for 29 years. Reflecting
those two rate levels, the payment
schedule should show 12 payments of
$804.62 and 348 payments of $1,025.31. The
finance charge should be $266,463.32 and
the total of payments $366,463.32.
—Same loan as above, except with a 2
percent rate cap on periodic adjustments.
The disclosures should reflect a composite
annual percentage rate of 11.53 percent
based on 9 percent for the first year, 11
percent for the second year, and 12 percent
for the remaining 28 years. Reflecting those
three rate levels, the payment schedule
should show 12 payments of $804.62,12
payments of $950.09, and 336 payments of
$1,024.34. The finance charge should be
$265,234.70, and the total of payments
$305,234.70.
*
*
*
*
*
18(g) Payment schedule.
*
*
*
*
*
In 3. Total number o f payments. In disclosing
the number of payments for transactions with
more than one payment level, creditors may
but need not disclose as a single figure the
total number of payments for all levels. For
example, in a transaction calling for 108
payments of $350, 240 payments of $335, and
12 payments of $330, the creditor need not
state that there will be a total of 300
payments.
*
*
*
*
*

Section 226.16—Content o f Disclosures
*
*
*
*
*
18(f) Variable rate.
*
*
*
*
*
8. Discounted variable-rate transactions.
some variable-rate transactions, creditors
may set an initial interest rate that is not
determined by the index or formula used to
make later interest rate adjustments.
Typically, this initial rate is lower than the
rate would be if it were calculated using the
index or formula. For example, a creditor
may calculate interest rates according to a
formula using the six-month Treasury bill
rate plus a 2 percent margin. If the current
Treasury bill rate is 10 percent, the creditor
may forego the 2 percent spread and charge
only 10 percent for a limited time, instead of
setting an initial rate of 12 percent.
•
When creditors use an initial rate that is
not calculated using the index or formula for
later rate adjustments, the disclosures should
reflect a composite annual percentage rate
based on the initial rate for as long as it is
applied and. for the remainder of the term.

10. The commentary to section 226.22
is amended by adding comment
22(a)(1)— to read as follows:
5,
Section 226.22—Determination o f the Annual
Percentage Rate 22(a) Accuracy o f the
annual percentage rate.
Paragraph 22(a)(1).
*
*
*
*
*

13486

Federal Register / Vol. 49, No. 67 / Thursday, April 5, 1984 / Rules and Regulations

5. Goodfaith reliance on fa u lty calculation
tools. Footnote 45a absolves a creditor of
liability for an error in the annual percentage
rate or finance charge that resulted from a
corresponding error in a calculation tool used
in good faith by the creditor. Whether or not
the creditor’s use of the tool was in good faith
must be determined on a case-by-case basis,
but the creditor must in any case have taken
reasonable steps to verify the accuracy of the
tool, including any instructions, before using
it. Generally, the footnote is available only
for errors directly attributable to the
calculation tool itself, including software
programs; it is not intended to absolve a
creditor of liability for its own errors, or for
errors arising from improper use of the tool,
from incorrect data entry, or from
misapplication of the law.
*
*
*
*
*

• Section 03-19-31(2)(g)—Disclosure of
finance charge. This disclosure is preempted
in those cases in which the term “finance
charge” would be used under state law to
describe a different amount than the finance
charge disclosed under federal law.
12. Preemption determination—South
Carolina. Effective October h 1984, the Board
has determined that the following provision
in the state law of South Carolina is
preempted by the federal law.
• Section 37-10-102(c)—Disclosure of dueon-sale clause. This provision is preempted,
but only to the extent that the creditor is
required to include the disclosure with the
segregated federal disclosures, the state law
is not preempted.
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Board of Governors of the Federal Reserve
System, March 30,1984.

11. The commentary to section 226.24
is amended by adding comment 24(b)-5,
to read as follows:

Secretary o f the Board.

Section 226.24—Advertising
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2A(b) Advertisem ent o f rate o f finance
charge.
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5.
Discounted variable-rate transactions.
The advertised annual percentage rate for
discounted variable-rate transactions must be
determined in accordance with comment
13(0— regarding the basis of transactional
8
disclosures for such financing. A creditor or
seller may promote the availability of the
initial rate reduction in such transactions by
advertising the reduced initial rate, provided
the advertisement slums the limited term to
which the reduced rate applies.
• Limits or caps on periodic rate or
payment adjustments need not be stated. To
illustrate using the second example in
comment 18(f)~8, the fact that the rate is
presumed to be 11 percent in the second year
and 12 percent for the remaining 28 years
need not be included in the advertisement
• The advertisement may also show the
effect of the discount on the payment
schedule for the discount period without
triggering the additional disclosures under
S 226.24(c). For example, the advertisement
may state that “with this discount, your
monthly payments for the first year of the
mortgage term will be only $57/" or “this
discount will reduce your monthly payments
for the first year of the mortgage term by
$223."
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Subpart U—M iscellaneous

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12. The commentary to section 226.28
is amended by adding comments 28(a)11 and 12, to read as follows:
Section 226.28—Effect on State Laws
28(a) Inconsistent disclosure requirements.
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11. Preemption determination—
M ississippi. Effective October 1,1984, the
Board has determined that the following
provision in the state law of Mississippi is
preempted by the federal law:

W illiam W . W iles,
{FR Doc. 84-0058 Filed 4-4-84; 8:45 am]

BILLING CODE 6210-01-M


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102