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F ederal r eser ve Bank of Dallas


Circular No. 69-84April 7; 1969

To All State Member Banks
in the Eleventh Federal Reserve District:
Attached for your information is a copy of a
press release of the Board of Governors of the Federal
Reserve System dated April 2, 1 9 6 9 , regarding five inter­
pretations, also attached, of Regulation Z, Truth in
Lending, which goes into effect on July 1, 1 9 6 9 •
Yours very truly,
P. E. Coldwell

Enclosures (6)

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (



For immediate release



April 2, 1969

The Board of Governors of the Federal Reserve System
announced today the approval of five interpretations of provisions
in its Truth in Lending Regulation Z which goes into effect on
July 1.

A copy of each interpretation is attached.


REGULATION Z, TRUTH IN LENDING--Use of ranges or brackets to
determine periodic rate of finance charge on open end accounts.

Section 226.5(a)(1) of Regulation Z, in effect, gives
a creditor the option in certain circumstances of stating (1) two
or more separate annual percentage rates (e.g., the rate on a
$700 balance might be stated as 18% on balance to $500 and 127o
on balance over $500), or (2) a single annual percentage rate
determined by the "quotient method" resulting from applying the
rates to a total balance (e.g., in the example above, an annual
percentage rate of

on a $700 balance).

Section 226.5(a)(2), which relates to the use of ranges
or brackets to compute periodic finance charges, does not prevent
a creditor who uses such brackets from exercising the options
referred to in section 226.5(a)(1).

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Regulation Z--Truth in Lending--Overstatement of Annual Percentage
Section 226.6(h) of Regulation Z provides that in certain
circumstances the disclosure of an annual percentage rate which is
greater than that required to be disclosed under the Regulation
does not in itself constitute a violation of the Regulation.
Under this section may a disclosure regarding an annual percentage
rate (e.g. "the annual percentage rate does not exceed 187o") be
preprinted on a contract or periodic statement and comply with
disclosure requirements when the actual rate will at times be
lower (e.g. 15%) for some transactions?
Section 226.5 specifies the methods which shall be
employed in determining annual percentage rates.

Section 226.6(h)

is not intended to provide an alternative to these requirements,
but is merely to provide appropriate relief to a creditor who
overstates accidentally.

Any disclosure of an annual percentage

rate whether preprinted or otherwise which overstates the annual
percentage rate determined in accordance with section 226.5
other than through inadvertence does not comply with require­

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REGULATION Z . TRUTH IN LENDING--Transition Period--Using existing
forms, suitably altered or supplemented.
Section 226.6(k) of Regulation Z provides that, in some
circumstances, if a creditor has been unable to obtain needed new
printed forms by

July 1, 1969, he may use

new ones are obtained, but not

later than

existingforms until
December31, 1969.


such instances, the existing forms must be suitably altered or
supplemented to make necessary disclosures clearly and conspicuously.
The requirement that existing forms be supplemented is met by attach­
ments or enclosures.
Also in some instances, creditors encounter unavoidable
delays in obtaining necessary equipment or computer programs needed
to utilize new printed forms.

Such delays can produce problems

comparable to those involved in delays in obtaining printed forms.
In such a situation, a creditor, under £226.6(k), may continue to
use existing forms until the means of utilizing the new forms are
available, but in no event later than December 31, 1969, and
subject, of course, to the conditions applicable under £ 226.6(k):
namely, that the

creditor must have taken

bona fide steps prior

to July 1, 1969,

to obtain the necessary equipment

or computer

programs, and the existing forms must be "altered or supplemented
as necessary to assure that all of the items of information the
creditor is required to disclose are set forth clearly and
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REGULATION Z, TRUTH IN LENDING--Disclosures in transaction
involving multiple customers.

Section 226.6(e) states the general rule that, except
in the case of a rescindable transaction under § 226.9, where
there are multiple customers in a transaction, the creditor is
only required to make disclosures to one of them.


in determining which customer shall receive disclosures, the
creditor may not select a customer who is secondarily liable,
such as an endorser, comaker (when designated as surety),
guarantor, or a similar party.

This does not prohibit the

creditor from also furnishing disclosures to such persons who
are secondarily liable.

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REGULATION Z. TRUTH IN LENDING--Periodic Statements--Finance charge
resulting from more than one periodic rate.
Section 226.7(b)(4) of Regulation Z requires that a
periodic statement for open end credit show the amount of any
finance charge, and that the statement also itemize and identify
that portion of the finance charge that is due to application of
one or more periodic rates and that portion due to any other charge
such as minimum, fixed, check service, transaction, activity, or
similar charge.
This does not require the statement to state separately
the portions of a finance charge due to application of two or more
periodic rates.

For example, if a creditor charges l-l/27o per

month on the first $500 of a balance and 1% per month on amounts
over $500, the monthly charge on a $600 balance would be $8.50,
which must be shown.

However, it would not be necessary to

itemize the two components ($7.50 and $1.00) of the $8.50 charge.
Under section 226.7(b)(5), the periodic rates that may apply to
the account, and the applicable range of balances must, of course,
be shown, but this could be preprinted.


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