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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 ]

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