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F ed er al Reserve Ba n k o f Dalla s DALLAS, TEXAS 75222 C i r c u l a r No. 78-50 May 2, 1978 PROPOSED AMENDMENTS TO REGULATION Z Deferral of Action on Proposal To Simplify C ertain D is c lo s u re R e q u ire m e n ts PROPOSED INTERPRETATION OF REGULATION Z D is c lo s u re R e q u i r e m e n t s fo r V a ria b le Debt Payments TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e Board of G o v e rn o rs of the Federa l R e s e r v e Syste m h a s a n n o u n c e d it is d e f e r r i n g action on p r o p o s a l s p u b l i s h e d in May 1977, fo r w a r d e d to you u n d e r o u r C ir c u la r No. 77-60 d a te d May 22, 1977, for the simplification of the d i s c l o s u r e r e q u i r e m e n t s of Regulation Z, T r u t h - i n - L e n d i n g . T h e p r o p o s a ls c o n c e rn e d itemi zation of th e finan ce c h a r g e a n d d o w n p a y m e n t, itemization of c e r t a i n fees to e x c lu d e them from th e fin a n c e c h a r g e a n d identification of the method of com p u tin g u n e a r n e d fin a n c e c h a r g e s upon p r e p a y m e n t . In a n o t h e r m a tte r , the Board p r o p o s e d for p u b lic comment a r e v i s e d in te r p r e ta tio n of its Regulation Z—T r u t h - i n - L e n d i n g —to c o v e r all c a s e s in w hich a d e b t is re p a id in p a y m e n ts of v a r y i n g a m o un ts. T h e Board a s k e d for comment b y May 24, 1978. Regulation Z r e q u i r e s c r e d i t o r s to d is c lo s e the s c h e d u le of p a y m e nts r e q u i r e d to s ettle a d e b t . T h i s p o s e s a p ro b le m w h e r e p a y m e nts a r e of d iff e r e n t am o u n ts . T h i s may o c c u r w h en n o n - c r e d i t items (such a s p re m iu m s for c r e d i t c o n nec te d in s u r a n c e ) a r e re m itted to the c r e d i t o r on a monthly b a s is o r w h e r e p a r t s of the fin ance c h a r g e (such a s m o rtg ag e g u a r a n t e e i n s u r a n c e prem ium s) v a r y o v e r the life of the d e b t b e c a u s e th e y a r e com pute d on the d e c r e a s i n g u n p a id b a la n c e of th e d e b t . T h e Board p r o p o s e d in specified ty p e s of tr a n s a c t i o n s to p e r m it c r e d itors to d is c lo s e th e n u m b e r of p a y m e n t s , th e amounts of th e f i r s t a n d last p aym en ts a n d th e fa ct t h a t th e p a y m e n t will in c r e a s e o r d e c r e a s e a s the c a s e may b e . In all This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - o th e r c a s e s of v a r i a b l e p a y m e n ts , the full s c h e d u le of p a y m e n ts may be set forth on th e r e v e r s e of the d i s c l o s u r e s tatem ent, o r on a s e p a r a t e p a g e . T h i s would e x p a n d th e c o v e r a g e of th e e x is t in g in te r p r e ta tio n to all t y p e s of t r a n s a c t i o n s in w h ic h th e in d e b te d n e s s is r e p a i d in v a r y i n g a m o u n ts . P r in te d on th e following p a g e s is the text of the B o a r d 's p ro p o s a l a s it a p p e a r e d in th e FEDERAL REGISTER. Comments on th e p r o p o s e d i n te r p r e ta tio n sh o u ld be d i r e c t e d to the S e c r e t a r y , Board of G o v e r n o r s of th e Federal R e s e r v e S y stem , W ashington, D .C . 20551. All material su b m itte d s h o u ld in c lu d e Docket No. R-0152. S in c e r e ly y o u r s , R obert H . Boykin F i r s t Vice P r e s i d e n t E x t r a c t From FEDERAL REGISTER, VOL. 43, NO. 79, M onday, April 24, 1978 p p . 17363 - 17364 f 6210- 01 ] FEDERAL RESERVE SYSTEM [ 1 2 CFR P a rt 2 2 6 ] [R e g . Z; D o c k e t N o. R -0 1 5 2 ] TRUTH IN LENDING D isclo su re o f V a ry in g P a y m e n ts S c h e d u le d to R o p a y t h e I n d e b te d n e s s AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed revised interpreta tion. SUMMARY: This proposed revised in terpretation would permit additional methods of disclosing the payments scheduled to repay the indebtedness as required by § 226.8(b)(3) of Regula tion Z in consumer credit transactions in which th e amounts of those pay ments vary. In any such transaction, creditors could disclose th e entire pay m ent schedule on the reverse of the disclosure statem ent or on a separate page or pages, or, in certain transac tions described in the interpretation, creditors could provide the customer with an abbreviated disclosure that in dicates th e progression of th e pay m ent amounts. In addition, a number of conflicting public information let ters and official staff interpretations would be rescinded. DATES: Comments must be received on or before May 24,1978. ADDRESS: Secretary, Board of Gov ernors of the Federal Reserve System, W ashington, D.C. 20551. FOR FURTHER INFORMATION CONTACT: Anne Geary, Chief Staff Attorney, Division of Consumer Affairs. Board of Governors of the Federal Reserve System, W ashington, D.C. 20551, 202-452-2761. SUPPLEMENTARY INFORMATION: (1) In response to a number of inquir ies regarding th e proper method of disclosure of th e payments scheduled to repay th e indebtedness in transac tions in which th e amounts of such payments vary, th e Board is proposing to revise Interpretation $226,808. if adopted by th e Board, this interpreta tion would facilitate compliance with th e requirement of § 226.8(b)(3) that creditors disclose the number,- amount and due dates or periods of payments. T he disclosure m ethod would be chosen by th e creditor. The creditor could, in any transac tion which th e amounts scheduled to repay th e indebtedness vary, provide the customer with a com plete pay ment schedule on th e reverse of the disclosure statem ent or on a separate page or pages (conspicuously refer enced in th e disclosure statem ent), notwithstanding th e requirement of § 226.8(a) that all disclosures be made on one side of a single page. The Board solicits comments on whether th e disclosure of a complete payment schedule on th e reverse of th e statem ent or a separate page would detract from th e value of the disclosures to customers. The Board also wishes to know if providing such a schedule would involve operational difficulties in computing th e payments for disclosure purposes, particularly for creditors that engage in transac tions in which th e amounts collected from th e customer include non-credit items, such as credit life and disability insurance premiums which are ex cluded from th e amount financed. In addition, th e interpretation would provide that in certain transactions (which are described briefly below), th e creditor could give the customer an abbreviated schedule of payments which would disclose th e number of payments, th e amount of certain pay ments, and a description of the vari ation in th e payment amounts. Those transactions are: (a) Transactions in which a level amount is collected from th e custom er, and that level amount includes varying charges, such as credit life and disability insurance premiums that are not financed but rem itted to th e insur er as they become due, and which are therefore not part of th e amount fi nanced or finance charge (Example I). (b) Transactions in which each pay m ent includes an equal amount to be applied to reduction of the unpaid principal balance and a finance charge that varies because it is computed by application of a rate to th e decreasing unpaid principal balance (Example II, Transaction A). This is th e transaction addressed by the present Interpreta tion S 226.808. (c) Transactions similar to th e trans actions described in (b) but with irreg ular first and last payments (Example II, Transaction B). (d) Transaction in which the pay m ents vary annually or more frequent ly because a finance charge (such as certain mortgage guarantee insurance premiums) is computed by application of a rate to th e decreasing unpaid principal balance (Example III). The board solicits comment on whether abbreviated schedules should be permitted in other types of transac tions. Central to this issue is whether an abbreviated schedule will provide th e customer with sufficient informa tion concerning th e progression of the payment amounts. Thus, transactions with payments that vary in unusual patterns or at lengthy intervals would not appear to be proper subjects for such treatment. It should again be pointed out that creditors could give a com plete payment schedule in any transaction with varying payments. T he Board solicits comment on whether or not th e abbreviated pay m ent schedules authorized by th e in terpretation would provide customers with sufficient information as to th e amounts of th e payments. As presently provided in th e inter pretation, creditors that disclose in ac cordance with th e examples could not take advantage of th e exem ption for purchase money loans for dwellings or sales of dwellings from th e disclosure requirements of §§ 226.8(b)(3), 226.8(c)(8)' and 226.8(d)(3) (total of payments, deferred paym ent price and total finance charge disclosures). The proposed interpretation also provides that creditors could disregard deviations in th e pattern of th e pay m ent amounts caused by th e fewer days in February than in other m onths when disclosing in accordance with th e three examples. The Board solicits comment on whether this should be permitted and whether creditors should be permitted to ignore similar minor deviations. A number of public information let ters and official staff interpretations would be affected by this interpreta tion. T he following interpretations would be rescinded; comments are so licited on whether others should also be rescinded. Public inform ation letters 169 632 684 735 799 833 *834 850 1021 1158 1164 1186 ’F in a l p a ra g ra p h only. O fficial itaJT interpretations PC-0003 PC-0026 PC-0030 PC-0031 PC-0104 Letters 632, 735 and 850 deal with th e disclosure of optional, cancellable credit life and disability insurance pre miums. They conflict w ith the position of th e proposed interpretation that charges not included in the amount fi nanced or th e finance charge may not be included in th e payments scheduled to repay th e indebtedness. The last paragraph of Letter 834 also m isstates that position. T he remaining letters conflict in some way with th e pro posed interpretation. (2) To aid in the consideration of this matter by th e Board, interested persons are invited to submit relevant data, views, comments or arguments. Any such material should be submit ted in writing to th e Secretary, Board of Governors of th e Federal Reserve System , W ashington, D.C. 20551, to be received not later than May 24, 1978. The comments will be made available for inspection and copying upon re quest, except as provided in § 261.6(a) of the Board’s Rules Regarding Avail ability’ of Information (12 CFR Part 261.6(a)). (3) Pursuant to the authority grant ed in 15 U.S.C. 1604 (1968), the Board proposes to revise Regulation Z, 12 CFR 226.808, to read as follows: § 226.808 D is c lo s u r e o f v a r y in g p a y m e n ts s c h e d u le d t o r e p a y th e I n d e b te d n e s s . (a) Section 226.8(B)(3) requires the creditor to disclose, among other things, the “number, amount, and the due dates or periods of payments scheduled to repay the indebtedness.” The Payments scheduled to repay the indebtedness include only the amount financed and th e finance charge. The question arises how these require m ents may be m et in transactions in which th e amounts of such payments vary. (b) In such transactions, a creditor may satisfy th e requirements of § 226.8(b)(3) with respect to the number, amount, and due dates or pe riods of payments by disclosing the re quired information on th e reverse of th e disclosure statem ent or on a sepa rate page(s), notwithstanding the re quirements of § 226.8(a) concerning lo cation of disclosures: Provided, That th e following notice appears w ith the other required disclosures: “NOTICE: See [reverse side] [accompanying statem ent] for the schedule of pay m ents.” (c) Alternatively, if a transaction is of a type described below, a creditor may disclose in accordance with the applicable example. EXAMPLE I A tr a n s a c t io n in w h ic h a le v e l s u m is c o l le c te d f ro m t h e c u s to m e r e a c h m o n th . I n c lu d e d in t h e a m o u n t c o lle c te d f ro m t h e c u s to m e r a r e c h a r g e s w h ic h a r e n o t p a r t o f t h e a m o u n t f in a n c e d o r t h e f in a n c e 'c h a r g e ( s u c h a s c e r t a i n c r e d it life a n d d is a b ility i n s u r a n c e p r e m iu m s ) a n d w h ic h c o n s ta n tly d e c re a se b e c a u se th e y a re b a se d o n th e u n p a id p r in c ip a l b a la n c e . A s t h e s e c h a r g e s d e c re a s e , t h e a m o u n ts s c h e d u le d to r e p a y t h e in d e b te d n e s s c o n s ta n tly In c re a se . T h e a m o u n t c o lle c te d e a c h m o n t h f r o m t h e c u s to m e r is $50. T h e c r e d it life in s u r a n c e p r e m iu m s d e c lin e f r o m $1.50 in m o n t h 1 t o $0.10 in m o n th 12 . T h e a m o u n ts t h a t r e p a y t h e in d e b te d n e s s in c r e a s e f ro m $48.50 in m o n t h 1 t o $49.90 i n m o n t h 12. T h e c r e d ito r m a y d isc lo s e t h a t t h e r e w ill b e 12 m o n th ly p a y m e n ts to r e p a y t h e in d e b te d n e s s, t h a t t h e f i r s t p a y m e n t w ill b e $48.50, a n d t h a t t h e p a y m e n ts w ill in c r e a s e , w ith a l a s t p a y m e n t o f $49.90. A t t h e c r e d ito r ’s o p tio n , t h e c r e d ito r m a y d isc lo se t h e a m o u n t c o lle c te d f ro m t h e c u s to m e r, $50, a s a d d itio n a l in f o r m a tio n u n d e r § 226.6(c). E X A M PL E I I A t r a n s a c tio n in w h ic h t h e a m o u n t o f e a c h p a y m e n t s c h e d u le d t o r e p a y t h e i n d e b te d n e s s ( o t h e r t h a n a f i r s t o r l a s t p a y m e n t) in c lu d e s a n e q u a l a m o u n t to b e a p p lie d to p r in c ip a l a n d a f in a n c e c h a r g e c o m p u t e d b y a p p lic a tio n o f a r a t e to t h e d e c r e a s in g u n p a id p r in c ip a l b a la n c e . Transaction A T h e p r in c ip a l p o r tio n o f e a c h m o n th ly p a y m e n t is $125 a n d t h e f in a n c e c h a r g e p o r t io n o f t h e m o n th ly p a y m e n ts d e c lin e s f ro m $30 in m o n t h 1 t o $1.25 in m o n th 24. T h e p a y m e n t in m o n th 1 is $155 ($125 p r i n c ip a l, $30 f in a n c e c h a r g e ) . T h e p a y m e n t in m o n t h 24 is $126.25 ($125 p r in c ip a l, $1.25 f in a n c e c h a r g e ) . T h e c r e d ito r m a y d isc lo s e t h a t t h e r e w ill b e 24 m o n th ly p a y m e n ts , t h a t t h e f i r s t p a y m e n t w ill b e $155. a n d t h a t t h e p a y m e n ts w ill d e c re a s e , w ith a la s t p a y m e n t o f $126.25. Transaction B T h e f i r s t a n d l a s t p a y m e n ts a r e ir r e g u la r , a n d e a c h o f t h e in te r v e n in g p a y m e n ts i n c lu d e s a p r in c ip a l p o r tio n o f $120 a n d a fi n a n c e c h a r g e p o r tio n w h ic h d e c lin e s f ro m $29.25 in m o n t h 2 t o $2.85 tn m o n th 23. T h e p a y m e n t in m o n t h 1 is $93 b e c a u s e t h e f i r s t p a y m e n t p e r io d is s h o r t ($75 p r in c i p a l, $18 f in a n c e c h a r g e ) . T h e p a y m e n t in m o n th 2 is $149.25 ($120 p r in c ip a l, $29.25 f in a n c e c h a r g e ) . T h e p a y m e n t i n m o n t h 23 is $122.85 ($120 p r in c ip a l, $2.85 f in a n c e c h a r g e ) . T h e p a y m e n t in m o n t h 24 is $286.65 ($285 p r in c ip a l, $1.65 f in a n c e c h a r g e ) . T h e c r e d ito r m a y d isc lo se t h a t (i) t h e r e w ill b e 24 m o n th ly p a y m e n ts , (ii) t h e f i r s t p a y m e n t w ill b e $93, (iii) t h e s e c o n d p a y m e n t w ill b e $149.25, (iv ) t h e fo llo w in g p a y m e n ts w ill d e c re a s e t o a t w e n ty - th ir d p a y m e n t o f $122.85, a n d (v) t h e la s t p a y m e n t w ill b e $286.65. EXAUPLE I I I A t r a n s a c t i o n in w h ic h t h e p a y m e n ts s c h e d u le d t o r e p a y t h e in d e b te d n e s s v a ry a n n u a lly o r m o r e f r e q u e n tly b e c a u s e a f i n a n c e c h a r g e ( s u c h a s m o r tg a g e in s u r a n c e p r e m iu m s ) is c o m p u te d b y t h e a p p lic a tio n o f a r a t e ( s ) t o t h e d e c r e a s in g u n p a id p r in c i p a l b a la n c e . E a c h m o n th ly p a y m e n t in c lu d e s a p o r tio n f o r p r in c ip a l a n d f in a n c e c h a r g e s e x c lu siv e o f m o r tg a g e in s u r a n c e p r e m iu m s ($250 ) a n d a p o r t io n f o r m o r tg a g e i n s u r a n c e p r e m iu m s ($25 e a c h m o n t h in y e a r 1 a n d d e c lin in g o n c e a y e a r u n t i l n o p r e m i u m s a r e d u e in y e a r 30). P a y m e n ts 1 t h r o u g h 12 a r e $275 ($250 p r i n c ip a l a n d f in a n c e c h a r g e s e x c lu s iv e o f m o r tg a g e I n s u r a n c e p re m iu m s ). P a y m e n ts 349 t h r o u g h 360 a r e $250 ($250 p r in c ip a l a n d f in a n c e c h a r g e s , n o m o r t g a g e I n s u r a n c e p re m iu m s ). T h e c r e d ito r m a y d isc lo se t h a t t h e r e w ill b e 360 m o n t h ly p a y m e n ts , t h a t t h e f i r s t p a y m e n t w ill b e $275, a n d t h a t t h e p a y m e n ts w ill d e c r e a s e o n c e a y e a r w ith a l a s t p a y m e n t o f $250. I f d is c lo s u re s a r e m a d e i n a c c o r d a n c e w ith E x a m p le s I, I I, o r I I I , t h e e x c e p tio n s p r o v id e d u n d e r p a r a g r a p h s (b )(3 ), (c )(8 ), a n d (d )(3 ) o f § 226.8 s h a l l n o t a p p ly . A n y ir r e g u la r ity in t h e u p w a r d o r d o w n w a rd p r o g re s s io n in t h e p a y m e n t a m o u n ts r e s u ltin g f ro m t h e fe w e r d a y s in F e b r u a r y t h a n in o t h e r m o n th s m a y b e d is r e g a r d e d if d is c lo s u re s a r e m a d e in a c c o r d a n c e w ith E x a m p le s I , I I , o r I I I . By order of th e Board of Governors. April 18, 1978. T h e o d o r e E. A l l i s o n , Secretary of the Board. [ F R D oc. 78-10997 F ile d 4 -2 1 -7 8 ; 8:45 a m ]
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