View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FED ER AL RESERVE BANK OF DALLAS
DALLAS, TEX A S

75222

Circular No. 77—
47
April 18, 1977

IN T E R P R E T A T IO N S TO
R EG ULATIO N C (HOME MORTGAGE D ISCLO SURE) AN D
R E G U LA TIO N Z (T R U T H IN LENDING)

T O A L L BANKS
AN D O THERS CO NCERNED IN T H E
E LE V E N TH FE D E R A L RESERVE D IS T R IC T :
T h e Board of G o v e rn o rs of the F e d e ra l R e s e rv e System has adopted
th re e in te rp re ta tio n s intended to c la r i f y c e rta in aspects of its consumer c r e d it
protection r e g u l a t i o n s .
T h e Board adopted an in te rp re ta tio n to its T r u t h in L e nding R egulation Z
stating th a t the am ount of a d e a le r 's p a r tic ip a tio n in the finance c h arg e on the c r e d it
p u rc h a s e of an autom obile or o th e r d u r a b le goods need not be disclosed as a s e p a r ­
ate p a r t of the fin a n c e c h a r g e .
A t the same tim e , the Board w i t h d r e w a proposal tha t w ould have r e ­
q u ir e d d is c lo s u re of the fact b u t not the amount of a d e a le r 's p a r tic ip a tio n .
T h e Board took these actions because it d id not feel that d is c lo s u re of a
d e a le r p a rtic ip a tio n in a fin a n c e c h arg e w ould s ig n ific a n tly b e n e fit consumers in
shopping fo r c r e d it.
A t the same tim e , the B oard adopted two technical in te rp re ta tio n s to its
Home M o rtgage D is c lo s u re R e gulation C .
T h e f i r s t in te r p r e ta tio n p e rm its a d e p o s ito ry in s titu tio n subject to the
A ct that is m a jo rity -o w n e d b y a n o th e r d e p o s ito ry to disclose its m ortgage loan
data s e p a ra te ly from th a t of the p a r e n t .
T h e second in te r p r e ta tio n of R egulation C c la r ifie s w h a t dis clo s u res
must be made b y de pos itorie s that w e r e e xe m p t from the p ro v is io n s of the A c t , b u t
lose t h e i r e xe m p tio n . A d e p o s ito ry is e xe m p t if (a) it does not have an office in a
s tandard m etropolitan statistical area ( S M S A ) , (b ) does not ha ve assets on the

Banks and others are encouraged to use the fo llo w in g to ll-fr e e incoming WATS numbers in contacting th is Bank:
1 -8 0 0-492-4403 (intra s ta te ) and 1 -8 0 0 -52 7 -4 97 0 (in te rs ta te ). For c a lls placed lo c a lly , p lease use 651 plus the
extension referred to above.

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

-

2 -

last d ay of its fiscal y e a r of $10 m illio n o r m o re , o r (c) is a S ta te -c h a r te r e d
ins titu tio n subject to a State d is c lo s u re law that the Board has d e te rm in e d imposes
d is c lo s u re re q u ire m e n ts s u b s ta n tia lly s im ila r to those o f the Home M o rtgage D is ­
c lo su re A c t.
T h e B oard's in te r p r e ta tio n makes it c le a r th a t p r e v io u s ly exem pt
ins titutions w h ic h become subject to the A c t (b y extension of an SMSA to c o v e r one
o r more of its offices o r by g r o w th of its assets) may r e p o r t on t h e i r m ortgage len d­
ing d u r i n g t h e ir last fu ll fiscal y e a r by Postal ZIP code areas and th e re a fte r by
Census B u re a u census t r a c t s . T h is is the same tre atm en t accorded to depositories
in the f i r s t y e a r a fte r R egulation C became e ffe ctive (June 28, 1976) .
A copy of each of the th r e e in te rp re ta tio n s is a tta ch ed . In q u ir ie s r e ­
g a r d in g this m atter should be d ir e c te d to R ic h a rd West of o u r Regulations D e p a r t­
m ent, E x t. 6171. A d d itio n a l copies of these in te rp re ta tio n s w i ll be fu r n is h e d upon
re q u e s t to the S e c r e ta r y 's Office of this B a n k , E x t. 6267.
S in c e r e ly y o u r s ,
R obert H . B oy k in
F i r s t V ic e P re s id e n t
Attachm ents

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

HOME MORTGAGE DISCLOSURE
TEC HN IC A L IN TERPRETATIO NS OF R EG U LA TIO N C

S E C T IO N 203.001 — T R E A T M E N T O F
M A JO R IT Y -O W N E D , D E PO SIT O R Y
SU B SID IA R IE S O F D E PO SIT O R Y
IN S T IT U T IO N S
T he Board has been asked w hether a majorityowned, depository subsidiary of a depository insti­
tution should be treated in the same way as a n on ­
depository subsidiary. T he first sentence of §203.2
(c) defines a depository institution as “ any com ­
mercial bank, savings bank, savings and loan asso­
ciation, building and loan association, hom estead
association (including cooperative b an k s), or
credit union, w hich makes federally related m o rt­
gage loans.” The second sentence deals with sub­
sidiaries: “A ny m ajority-owned subsidiary of a
depository institution shall be deemed to be p art of
its p aren t depository institution for the purposes of
this P a rt.” T he purpose of the subsidiary provision
is to provide a m ore com plete picture of a p arent’s
lending patterns by including inform ation regard­
ing the lending activities of any non-depository,
m ajority-owned subsidiary.
A few depository institutions, however, have
majority-owned subsidiaries that are themselves
depository institutions. This raises the issue of how
a depository institution as defined in the first p art
of §203.2 ( c ) , which is also a m ajority-owned sub­
sidiary of a depository institution, should be treated
for R egulation C disclosure purposes. If, absent the
second p art of §203.2 ( c ) , the depository subsidiary
otherwise would m ake separate disclosures under
Regulation C, then com bining the subsidiary’s loan
data w ith the p aren t’s into a single statem ent would
reduce public disclosure, contrary to the intent of
§203.2(c) and the purpose of the H om e M ortgage
Disclosure Act.
T herefore, to fu rth er the intent o f the act and
the regulation, a paren t depository institution may
draw a distinction fo r disclosure purposes between
depository and non-depository, majority-owned
subsidiaries. A majority-owned, non-depository
subsidiary of a depository institution should be

treated as an integral p art of its parent, w ith no
distinction m ade between them for reporting p u r­
poses, in accordance w ith the second sentence of
§203.2 ( c ) . O n the other hand, at the parent’s op­
tion, a majority-owned, depository subsidiary o f a
depository institution may be treated as a distinct,
unaffiliated entity since it is a depository institution
as defined in th e first sentence of §203.2 ( c ) .
S E C T IO N 203.002 — D IS C L O SU R E
A F T E R LOSS O F E X E M P T IO N
The B oard has been requested to clarify the
Regulation C disclosure requirem ents that apply
to a depository institution th at ceases to be exempt
from the H om e M ortgage Disclosure Act.
Section 203.3(a) of Regulation C describes the
three classes of depository institutions that are
exem pt from the regulation’s disclosure require­
ments. T hey are: (1 ) institutions th a t have assets
of $10,000,000 or less as of the last day of their fis­
cal year; (2) institutions that do not have an office
in a standard m etropolitan statistical area; and (3 )
S tate-chartered institutions th at are subject to a
State disclosure law that the Board has determ ined
imposes substantially sim ilar requirem ents to those
m andated by the H om e M ortgage D isclosure Act.
Section 2 0 3 .3 (b ) sets forth the initial disclosure
requirem ents applicable to an exem pt institution
that subsequently loses its exemption. It states:
A depository institution that was exem pt on or
after the effective date of this P art on the basis
of paragraph (a ) o f this section and that sub­
sequently becomes no longer exem pt shall
com pile the d ata described in section 203.4 of
this P a rt for each fiscal year beginning w ith
its last full fiscal year ending prior to the date
it was no longer exempt, and that last full fis­
cal year shall be deemed to be a “full fiscal
year ending prior to July 1, 1976” for the p u r ­
poses of section 203.4 of this Part.
T he first point on w hich clarification has been
sought is the m eaning of the language “last full fis­

cal year ending prior to the date it was no longer
exem pt . .
F o r any depository institution that
loses its exem ption under §203.3 (a ) (2) because of
the re-definition of a standard m etropolitan statis­
tical area or loses its exem ption under §20 3.3 (a)
(3 ) because applicable State disclosure law is
found not to be substantially sim ilar to the Federal
act, “its full fiscal year ending prior to the date
it was no longer exem pt” is its fiscal year im m edi­
ately preceding the fiscal year during which the
exem ption was lost. F o r example, a depository in­
stitution having a calendar fiscal year that ceases
to be exempt during 1977 w ould have to disclose
relevant 1976 data.
F o r any depository institution that loses its ex­
em ption u n d er §203.3 ( a ) ( 1 ) because its assets
exceeded $10,000,000 on the final day of its last
fiscal year, the period to be covered by its initial
disclosure statem ent is that last fiscal year. F o r
example, a calendar fiscal year institution that has
assets of m ore th an $10,000,000 on D ecem ber 31,
1977, would have to disclose relevant 1977 loan
inform ation.
T he B oard also has been asked to explain the
significance of the phrase “ ‘full fiscal year ending
prior to July 1, 1976 . . .’ ” The purpose in §203.3
(b ) of equating an institution’s “last full fiscal year
ending prior to the date it was no longer exem pt”
with a “ ‘full fiscal year ending p rio r to July 1,
1976’ ” is to m ake available to an institution that
loses its exemption the same disclosure options that
were available to institutions when Regulation C
becam e effective. T hus, fo r the purposes of §203.4,
a depository institution th at ceases to be exempt
m ay compile the necessary mortgage and home
im provem ent loan d ata by U nited States Postal
Service Z IP codes, in lieu of Census Bureau census
tracts, for its last full fiscal year and any p o rtio n of
its current fiscal year ending prior to the loss of
exemption. In addition, such an institution may
exercise the options and rely on th e presum ption
contained in paragraphs ( a ) ( 4 ) ( ii) and (c) of
§203.4 as if it has lost its exem ption and become
subject to the regulation on July 1, 1976.
T he following examples illustrate the points
made in this interpretation. A ssume th a t a deposi­
tory institution having a calendar fiscal year ceases

to be exem pt u nd er §203.3 ( a ) (2) on A pril 1,
1977, because of the enlargem ent o f a standard
m etropolitan statistical area to include a county in
which the institution has an office. P u rsu an t to
§203.5 ( a ) (1) (iii), that institution w ould be re ­
quired to prepare and m ake available publicly a
disclosure statem ent by Jun e 29, 1977, ninety days
after its loss of exemption.
U nder §203.3 ( b ) , the disclosure statement
would have to cover the institution’s “last full fiscal
year ending p rior to the date it was no longer
exem pt,” which, as indicated previously, w ould be
1976. P ursuant to §203.4 ( a ) (2 ) ( i), read in view
of §203.3 ( b ) , the institution could compile the
necessary loan inform ation fo r 1976 by Z IP code if
it chose.
Also, under §203.4 ( a ) (2 ) (ii), it could elect to
issue a separate disclosure statement, com piled on
a ZIP-code basis, fo r the first three m onths o f its
current fiscal year — January, F ebruary, M arch
1977 — if it also m ade that statem ent available on
June 29, 1977. If it chose that option, then it would
report on its relevant lending activities fo r the re­
m ainder of 1977 by census tract on M arch 31,
1978. T he alternative to this latter option would be
for the institution to report on all of its relevant
lending activities during 1977 by census tra c t on
M arch 31, 1978. Finally, the institution m ay exer­
cise the reporting options and rely on the residence
presum ption set forth in §§20 3.4 (a) (4) (ii) and
203 .4(c) for its 1976 disclosure statem ent and the
January through M arch 1977 statem ent if that
option is chosen.
T he second example assumes that a depository
institution having a calendar fiscal year ceases to
be exempt under §203.3 ( a ) ( 1 ) because its assets
exceed $10,000,000 as of D ecem ber 31, 1977. P u r­
suant to the applicable provisions of the regulation
as outlined in the preceding example, the institu­
tion would have to prepare a disclosure statement
by M arch 31, 1978, covering its relevant lending
activities during 1977 on a ZIP-code basis. Since
the loss of exem ption w ould not have occurred d u r­
ing the course of its fiscal year, no partial fiscal
year report would be possible. T he options and
presum ption contained in §§203.4(a) (4 ) (ii) and
2 0 3 .4 (c ), respectively, could be used, however, in
preparing the 1977 disclosure statement.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

TRUTH IN LENDING

IN TER PR ETA TIO N OF R E G U LA T IO N Z

SEC T IO N 226.821 — D ISC L O SU R E O F
D E A L E R P A R T IC IP A T IO N
(a) Section 226.8(c)(8)(i) requires the itemiza­
tion of each com ponent of a finance charge con­
sisting of m ore than one type of charge. Section
226.4(a)(3) lists am ong the types o f charges to
be included in the finance charge a “finder’s fee or
similar charge.” In certain credit transactions,
such as the sale of automobiles and other con­
sum er goods, where the finance charge is deter­
mined by application of a percentage rate or
rates to the am ount financed, a portion of that
charge may be allocated to the dealer by the finan­
cial institution as a dealer participation. T he ques­
tion arises w hether such allocations m ust be
itemized as a separate com ponent of the total
finance charge in the nature o f a finder’s fee.
(b) The requirem ent for itemization o f a fi­
nance charge w hich includes a finder’s fee or
oth er elements in addition to an interest com po­

nent is intended to assure th at the total finance
charge disclosed to th e custom er properly reflects
all com ponents which m ust be included in that
am ount. Any com ponent of the finance charge
which is com puted by the application of a per­
centage rate or rates to the am ount financed con­
stitutes a single charge of the type described in
§226.4(a)(l). As such, it m ust be included in the
finance charge calculation and disclosure. A po r­
tion of such single com ponent of the finance
charge which is distributed to a dealer is not
considered a “finder’s fee or similar charge” and
need not be separately identified or disclosed. The
concept o f a “finder’s fee,” as that term is used
in §226.4(a)(3), is intended to cover certain
charges in the nature of brokerage fees which
are imposed in addition to th at portion of the
finance charge attributable to the application of
a percentage rate or rates to the am ount financed.
A ny such separate fee must, o f course, be sep­
arately itemized.

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