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F ederal Reserve Bank o f Dallas DALLAS, TE X A S 75222 Circular No. 6 9 -103 April 2 5 , 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 22 , 19&9; regarding six inter pretations, also attached, of Regulation Z, Truth in Lending, which goes into effect on July 1 , 19^9 • Yours very truly, P. E. Coldwell President Enclosures (7) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) F E D E R A L press R E S E R V E release For immediate release. April 22, 1969 The Board of Governors of the Federal Reserve System announced today the approval of six interpretations of provisions in its Truth in Lending Regulation Z which goes into effect on July 1. A copy of each interpretation is attached. -0- -1§226.401 Service charges on accounts not paid within a given period of time (a) Some vendors bill their customers for property or services purchased under the terms of a credit plan which requires that the full amount of each billing be paid within a stipulated period after billing, with no privilege of paying in instalments. If the bill is not paid with in that stipulated period of time, the vendor imposes a service charge periodically on the unpaid balance until the account is paid in full. The question arises as to whether Regulation Z applies to such transactions. (b) When in the ordinary course of business a vendor's billings are not paid in full within that stipulated period of time, and under such circumstances the vendor does not, in fact, regard such accounts in default, but continues or will continue to extend credit and imposes charges periodically for delaying payment of such accounts from time to time until paid, the charge so imposed comes within; the definitions of a "finance charge" [§226.2(q)] applicable in each case to the amount of the unpaid balance of the account. Under such circumstances the credit so extended comes within the definition of "open end credit" in §226.2(r), the vendor is a creditor as defined in §226.2(m), and the disclosures required for open end credit accounts under §226.7 shall be made. 4/22/69 § 226.604 Inconsistent State requirements. (a) Section 226.6(b) of Regulation Z indicates types of State law requirements that are inconsistent with Regulation Z, and §226.6(c) in dicates the methods of dealing with such inconsistent requirements of State law. (b) Whether State laws are inconsistent with Regulation Z necess arily depends on the nature of the State laws. Section 226.6(b)(1) pro vides that State law is inconsistent to the extent that it "requires a creditor to make disclosures different from the requirements of this part with respect to form, content, terminology, or time of delivery." This refers to disclosures of the kinds of information covered by Reg ulation Z, and not to other or collateral information such as a statement telling the customer that he should read the contract carefully, or that there should be no blanks in the contract. Similarly, it does not refer to headings that State law may require on a contract such as "Retail Installment Contract." Similarly, a specification in a State law that certain size type must be used is not necessarily inconsistent with the requirements of Regulation Z. 4/22/69 -3- §226.702 Location of statement of how the balance was determined. (a) Section 226.7(b)(8) requires the creditor of an open end credit account to disclose on the periodic statement, "the balance on which the finance charge was computed, and a statement of how that balance was deter mined." Under §226.7(c) which relates to the location of disclosures.there is no specific reference to the placement of the "statement of how that balance was determined" when separated from the balance to which it relates. The question arises as to where, under such circumstances, this required statement shall appear on the periodic statement. (b) If separated from the balance to which it relates, the required statement of how the balance was determined may be placed on the face of the periodic statement, the reverse side of the periodic statement, or on an enclosed supplement; however, where such statement and balance do not appear together, the statement shall make clear the balance to which it refers. 4/22/69 -4 - §226.801 Location of disclosures when contract, security agreement, and evidence of transaction are combined in a single document (a) Some creditors incorporate the terms of a contract, a security agreement, and evidence of a transaction in a single document. These documents are designed for processing by mechanical and electronic equipment. If all of the required disclosures under §226.8 should be placed on the face of such a document, the creditor will be unable to utilize conventional accounting and record keeping equipment because of the size of the resulting document. The question arises as to whether required disclosures may be made on the face and the reverse side of such a document. (b) Where a creditor elects to combine disclosures with the contract, security agreement, and evidence of a transaction in a single document, the disclosures required under §226.8 shall, in accordance with §226.6, be made on the face of that document, on its reverse side, or on both sides, provided that the amount of the finance charge and the annual percentage rate shall appear on the face of the document, and, if the reverse side is used, the printing on both sides of the document shall be equally clear and conspicuous, both sides shall contain the statement, "NOTICE: See other side for important information," and the place for the customer's signature shall be provided following the full content of the document. 4/22/69 -5- §226.1001 Advertising of credit terms in other than open end credit (a) The statement of certain credit terms in advertisements such as "no downpayment", the amount of any installment payments, dollar amount of finance charge, number of payments, etc., as provided in §226.10(d)(2), requires that certain other terms also be stated in the same advertisement. The question arises as to how a creditor may ad vertise credit terms in a meaningful way when all of his credit sales or loans are not made on the same basis. (b) The advertising of credit terms may be made by giving one or more examples of typical extensions of credit and stating all of the terms applicable to each example. In any such case, the advertiser shall set forth one or more examples which are, in fact, typical of the type of credit and terms usually and customarily made available by the credi tor to present and prospective customers and each shall be clearly and conspicuously identified as examples of typical transactions. 4/22/69 -6 - §226.1002 Catalogs-tables or (a) schedule of credit terms Under §226.10(b) in order that a catalog may qualify as a singl advertisement, among other things, it must include a table or credit terms. schedule of It has been the practice of catalog houses to include such tables in catalogs; however, such tables generally state amounts of purchases, amounts of finance charges, and number and amount of payments for brackets up to a certain level and then contain an instruction to include a specified dollar amount in computing the finance charge by application of a percentage rate on any purchase in excess of that level. Tables to show the actual terms including annual percentage rates for all purchases into thousands of dollars would be unwieldy, present a formidable appearance, and may be more confusing than helpful to the user. The question arises as to whether a creditor who publishes a catalog is required to include tables in detailed amounts from the minimum up to, for example, $5000, his highest priced cat aloged merchandise. ^b) Tables or schedules of terms in catalogs »ust include all 3f»purvfs up to a level of the more commonly sold higher priced property or services which are offered for sale, but in no event greater than $1000 unless the creditor elects to do so. If the creditor offers property or service for sale at prices higher than the uppermost level covered by his table, he shall state the method by which the finance charge is computed on larger amounts, how the amount of payments and the number and periods of payments are determined and states for each representative amount in increments of not more than $500 up to the highest priced property or service offered,the annual percentage rate. Any catalog which contains such a table or schedule of credit terms will comply with requirements of §226.10(b) provided all other requirements are met and such catalog shall be considered adequate for the purpose of §226.8(g)(1). 4/22/69
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