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F ederal Reserve b a n k of Dallas DALLAS. TE X A S 75222 C i r c u l a r No. 78-83 J u n e 22, 1978 FEDERAL RESERVE REGULATIONS New Booklet on "A G uide to F e d e ra l R e s e r v e Regulations" TO ALL BANKS IN THE ELEVENTH FEDERAL RESERVE DISTRICT: A new booklet e x p la in in g F e d e ra l R e s e r v e re g u la tio n s in " la y m a n 's " la n g u a g e is now a v a ila b le w itho ut c h a r g e from the F e d e ra l R e s e r v e Bank of Dallas. T h e en clo se d booklet, e n title d "A Guide to Federal R e s e r v e R e g u l a ti o n s ," is d e s i g n e d to g iv e th e r e a d e r a g e n e r a l o v e rv ie w of th e r e g u la tio n s is s u e d b y th e Board of G o v e rn o rs of the F e d e ra l R e s e r v e System a n d is not in te n d e d to c ov er e a c h re g u la tio n in detail o r to e x p la in all of th e v a r io u s p r o v i s i o n s . Copies of th e n e w booklet may b e o b ta in e d from th e Bank a n d Public Information D epartm en t of th is B a n k , Ext. 6267. S in c e r e ly y o u r s , E r n e s t T . Baughman President E n c lo s u re Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1-8 00 -492 -440 3 (intrastate) and 1 -8 00 -527 -497 0 (interstate). For calls placed locally, please 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) A Guide to Federal Reserve Regulations A Guide to Federal Reserve Regulations ^ T h is b o o k le t is to g iv e t h e a d e s ig n e d re a d e r g e n e ra l o v e r v ie w o f th e r e g u la tio n s is s u e d b y B o a rd o f G o v e rn o rs th e th e F e d e ra l R e s e rv e S y s te m a n d in te n d e d e x p la in v a r io u s is n o t to r e g u la tio n to o f c o v e r e a c h in d e ta il a ll o f t h e ir p r o v is io n s . o r BOARD OF G O V E R N O R S F E D E R A L RESE RV E SYSTEM W A S H I N G T O N , D.C. 20551 (April 1978) Te xt prepared by the Federal Reserve Bank of New Y ork P refa ce The Board o f Governors o f the Federal Reserve System and the Federal Reserve Banks administer more than tw o dozen regulations affecting a wide variety o f financial activities. In broad terms, these regulations deal w ith the functions o f the central bank and its relationships w ith financial insti tu tio n s ,th e activities o f commercial banks and bank holding companies, and consumer credit transactions. These regulations are the Federal Reserve System's means of carrying ou t Congressional policies embodied in various banking laws and assigned to the System. For example, Con gress passed laws during the 1930's to restrain the type of credit-financed speculation th a t contributed to the stock market crash o f 1929. This legislation assigned to the Sys tem the task o f controlling stock market credit. Regulations T and U were established to implement the law. Regulations G and X were implemented to deal w ith diffe re nt aspects of the same problem. A Guide to Federal Reserve Regulations, as its name implies, provides a general understanding o f the goals and scope o f the regulations. This booklet is neither a substitute fo r the regulations, a comprehensive summary, nor a substi tu te fo r interpretations of the regulations. For definitive answers to specific questions the regulations themselves should be consulted. Individual copies o f the regulations can be obtained fro m the Board o f Governors or from Federal Reserve Banks and their Branches. Pamphlets explaining consumer and margin regulations in more detail are also available. Table of C ontents Page Regulations by Subject Matter V R EG U LA TIO N A — Loans to Member Banks B — Equal Credit O p p o rtu nity C — Home Mortgage Disclosure 1 1 2 D — Reserve Requirements E — Purchase o f Warrants F — Securities o f Member Banks G — Margin Credit Extended by Parties Other than Banks, Brokers, and Dealers H — Membership Requirements fo r StateChartered Banks 1 — Member Stock in Federal Reserve Banks J — Check Collection and Funds Transfer K — International Banking Corporations ("Edge A c t Corporations” ) L— M— N— 0 — Interlocking Bank Relationships Foreign Activities o f Member Banks Relationships w ith Foreign Banks Loans to Executive Officers o f Member Banks P — Member Bank Protection Standards Q — Interest on Deposits R — Interlocking Relationships Between Securities Dealers and Member Banks S — Banking Services Performed fo r StateChartered Members T — Margin Credit Extended by Brokers and Dealers U — Margin Credit Extended by Banks V — Guarantee o f Loans fo r National Defense Work W — Extensions o f Consumer Credit (revoked) X — Borrowers Who Obtain Margin Credit Y — Bank Holding Companies Z — T ru th in Lending A A — Consumer Complaint Procedures 3 4 4 5 6 7 7 8 8 9 10 10 11 12 12 13 13 14 15 15 16 16 17 18 R e g u la tio n s b y Subject M atter B A N K R E G U LA T IO N Bank Holding Companies Federal Reserve Banks Foreign Banking Business Interlocking Directorates Other Member Bank Requirements ■Regulation Y Regulations A , E, I, J, N ,a n d V ■Regulations K, M, and N ■Regulations L and R Regulations D, F, H, O, P, O, S, and U CONSUMER C REDIT -Regulations B, C, W (revoked), Z, and A A M O N E T A R Y POLICY -Regulations A , D, and Q SECURITIES CREDIT -Regulations G, T, U, and X i v R e g u l a t i o n Regulation A establishes the conditions and A means by which Reserve Banks lend funds to member banks and others. The regulation permits Reserve Banks to extend short-term adjustment, seasonal, and emergency credit to member banks and others. Credit extended to member banks usually takes the fo rm o f an advance on the bank's promissory note secured by U.S. Government and Federal agency securities, “ eligible" commercial, agricultural or construction paper, or bankers' acceptances. Credit also may be extended to member banks secured by any other acceptable collateral at a higher rate of interest. Under certain circumstances, Reserve Banks may discount eligible notes or drafts endorsed by member banks. The regulation also permits Reserve Banks to make loans (collateralized by U.S. Government or agency securities), in emergency circumstances, to ind ivid uals, partnerships, and corporations fo r up to 90 days. Regulation A requires Reserve Banks to make certain that credit they extend is not used fo r speculative purposes and that any paper offered as collateral is acceptable fo r dis count or purchase under criteria specified in the regulation. Moreover, unless it has Board approval, a member bank can not channel Federal Reserve credit to nonmember banks. R e g u l a t i o n Regulation B prohibits creditors fro m dis B criminating against credit applicants, estab lishes guidelines fo r gathering and evaluating credit inform ation, and requires w ritte n n o ti fication when credit is denied. The regulation prohibits creditors fro m discrim inating against applicants on the basis of age, race, color, religion, national origin, sex, marital status, or receipt of income from public assistance programs. As a general rule, creditors 1 may not ask on applications the race, color, religion, national origin, or sex of applicants. In addition, if the application is fo r individual, unsecured credit, the creditor may not ask the applicant's marital status. Exceptions apply in the case of residential mortgage applications, as noted below. Credi tors also may not discriminate against applicants who exer cise their rights under the Federal consumer credit laws. Model credit application forms are provided in the regu lation to facilitate compliance. By properly using these forms, creditors can be assured o f being in compliance w ith the application requirements o f the regulation. Creditors may use credit-scoring systems that allocate points or weights to key applicant characteristics. Creditors also may rely on their own judgment o f an applicant's creditworthiness. The regulation also requires creditors to give applicants a w ritte n notification o f rejection o f an application, a state ment o f the applicant's rights under the Equal Credit O pp o rtu n ity A ct, and a statement either o f the reasons for the rejection or of the applicant's right to request the rea sons. Creditors who furnish credit inform ation must, when reporting inform ation on married borrowers, report in fo r mation in the names o f each spouse. The regulation establishes a special residential mortgage credit m onitoring system fo r regulatory agencies by requir ing th a t lenders ask residential mortgage applicants their race/national origin, sex, marital status, and age. R e g u l a t i o n Regulation C requires depositary institutions c making Federally related mortgage loans to make annual public disclosure o f the loca tions o f certain residential loans. The regulation carries ou t the Home Mortgage Disclosure A c t of 1975, which seeks to provide citizens and public officials w ith enough inform ation to determine whether 2 depositary institutions are fu lfillin g their obligations to meet the housing credit needs o f their local communities. The regulation applies to most commercial banks, savings banks, savings and loan associations, building and loan asso ciations, homestead associations, and credit unions which make Federally related mortgage loans. These institutions must disclose annually the number and total principal amount o f (a) residential first mortgage loans originated or purchased and (b) home improvement loans originated or purchased during the most recent fiscal year. The Board o f Governors is charged w ith w ritin g regula tions to carry out the A c t, while enforcement is left to the appropriate Federal financial regulatory agencies. The Board may exempt from Regulation C any institutions complying w ith substantially similar State or municipal laws or regula tions which have adequate provision fo r enforcement. R e g u la tio n D Regulation D defines the term deposit, speci fies the amount o f reserves member banks must maintain against deposits, establishes the method fo r computing reserve require ments and imposes penalties for reserve deficiences. Required reserves are expressed as a percentage of balances a member bank has in each category o f deposit. The highest percentage o f reserves must be maintained against funds in depositors'checking accounts. Reserves are "lagged" so that they must be maintained fo r the current statement week (Thursday through Wednesday) against deposits held by the bank tw o weeks previously. A member bank meets its reserve requirement prim arily w ith a balance held at its Federal Reserve Bank, but may also use currency and coin held in its own vault fo r this purpose. A member bank may carry an excess or deficiency of reserves o f not more than 2 per cent o f the required amount 3 into the fo llo w ing statement week. Further deficiencies are subject to a penalty. R e g u l a t i o n Regulation E authorizes Reserve Banks to buy E “ acceptable" short-term obligations o f State, county, and municipal governments, includ ing those o f drainage and reclamation dis tricts. The regulation establishes "accepta b il i t y " criteria and limits the total amount of obligations Reserve Banks may purchase. Reserve Banks may purchase bills, notes, revenue bonds, and warrants (all defined in the regulation as "w arrants") issued by States, counties, political subdivisions, and municipalities in anticipation o f taxes or revenues. The securities must be the issuer's general obligations and must mature in six months or less. The issuer must have been in existence fo r at least ten years and not have defaulted on the interest or principal of its debts during the previous ten years. Unless permitted by the Board o f Governors, Reserve Banks may not purchase and hold more than 25 per cent of the total outstanding warrants o f a single issuer, or invest amounts exceeding ten per cent o f its member banks' deposits in the warrants o f all issuers. In addition, limits are placed upon the maximum amount o f warrants that can be purchased by Reserve Banks depending upon the popula tion o f the issuing m unicipality. R e g u la tio n F Regulation F requires certain State-chartered member banks to register and file financial statements w ith the Board o f Governors. The regulation applies to State-chartered member banks that have 500 or more stockholders and at least $1 m illion in 4 assets, or whose securities are registered on a national secu rities exchange. Generally, it does not apply to banks whose shares are owned by holding companies since these usually have fewer than 500 stockholders. In general, these State-chartered member banks must file registration statements, periodic financial statements, proxy statements, statements o f election contests, and various other disclosures o f interest to investors. Officers, directors, and principal stockholders also must file reports on their ho ld ings in the bank. The regulation also prohibits tender offers fo r the stock o f a bank subject to the regulation unless certain inform a tion is filed w ith the Board at the same time. Regulations issued by the Board o f Governors in this area are substantially similar to those issued by the Secu rities and Exchange Commission. Inform ation filed under the provisions o f Regulation F is available to the public at the offices of the Board o f Governors in Washington, D.C. R e g u l a t i o n Regulation G is one o f fo ur regulations con G cerning credit extended to finance securities transactions (see also Regulations T, U, and X). Regulation G governs credit secured by margin securities extended or arranged by parties other than banks, brokers, and dealers. The regulation applies, w ith the exceptions noted, to any party who normally extends or arranges credit secured by margin securities of $100,000 or more in a calendar quarter, or who has credit outstanding to $500,000 or more during a quarter. These lenders must register w ith the Board o f Gov ernors w ith in 30 days after the quarter ends. Margin securities are .those listed on national exchanges, securities convertible into margin securities, most mutual funds, and over-the-counter securities identified by the Board o f Governors' Over-the-Counter (OTC) list. (The OTC 5 list published periodically by the Board is available fro m the Board or at Federal Reserve Banks.) The amount o f credit a registered lender can extend or arrange fo r a securities trans action based on margin securities may not exceed the “ m axi mum loan value" o f the stock securing the credit. The m axi mum loan value of stock is a percentage o f current market value fixed by the Board from tim e to time. The regulation also includes special provisions covering loans to finance purchases of securities under stock option plans. R e g u l a t i o n Regulation H defines the membership require H ments and conditions fo r State-chartered banks, describes membership privileges and conditions imposed on these banks, explains financial reporting requirements, and sets out procedures fo r requesting approval to estab lish branches and fo r requesting voluntary w ithdrawal from membership. State member banks are prohibited under the regulation from engaging in practices that are unsafe or unsound or that result in a violation o f law, rule, or regulation. The regulation also prohibits State-chartered member banks fro m making or renewing loans secured by improved real estate or mobile homes located or to be located in flood hazard areas not covered by the National Flood Insurance Program. The regulation subjects State member banks issuing or renewing standby "letters o f c re d it" or "ineligible accep tances" or other similar credit extensions to the ceilings the chartering State imposes on individual or total credit exten sions and to the ceiling on loans to affiliates contained in Section 23A o f the Federal Reserve Act. Regulation H also requires State-chartered member banks acting as securities transfer agents to register w ith the Board o f Governors. 6 R e g u la tio n I Regulation I requires each bank joining the Federal Reserve System to subscribe to the stock o f its D istrict Reserve Bank in an amount equal to six per cent o f the member bank's capital and surplus. Half the total must be paid on approval. The remainder is subject to call by the Board o f Governors. A six per cent dividend is paid on paid-in portions o f Reserve Bank stock. The stock is not transferable and cannot be used as security. Whenever a member bank increases or decreases its perma nent capitalization, it must adjust its ownership o f Reserve Bank stock to maintain a six per cent proportion. Payment fo r additional shares o f Reserve Bank stock, cancellation of sjiares, as well as semi-annual dividend payments, are made through the member bank's reserve account. A member bank's ownership o f Federal Reserve stock is subject to cancellation on discontinuance o f operations, insolvency, or voluntary liquidation, conversion to nonmem ber status through merger or acquisition, or voluntary or involuntary term ination o f membership. R e g u l a t i o n Regulation J establishes procedures, duties J and responsibilities among Federal Reserve Banks and (1) the senders and payors of checks and other cash items and noncash items, and (2) the originators and recipients o f transfers o f funds. Regulation J provides fo r an orderly inter-bank system of collecting checks and other items and settling balances. It specifies terms and conditions under which Reserve Banks w ill receive items fo r collection fro m member banks and other depositors and under which Reserve Banks w ill pre sent items to payors. The regulation also provides fo r an orderly inter-bank system of transferring funds on the 7 Federal Reserve Communications System. To this purpose, it specifies terms and conditions under which Reserve Banks w ill receive and deliver transfer o f funds fro m and to mem ber banks. The Reserve Banks issue operating circulars, detailing the specific terms and conditions under which they w ill handle checks, cash and noncash items, and transfers o f funds. R e g u l a t i o n Regulation K governs the organization, capi K talization, and operations of domestic corpo rations involved in international banking or finance. Corporations organized to engage in international banking or other financial operations are chartered by the Board of Governors under Section 25(a) o f the Federal Reserve Act. This section o f the A c t was introduced as an amendment in 1919 by Senator Walter E. Edge o f New Jersey. Thus these corporations are known as "Edge A c t Corporations." The regulation permits Edge A ct Corporations to engage in a broad range o f international banking and financial activ ities, subject to supervision, while lim iting transactions w ithin the U.S. to those clearly international in character. It also imposes reserve requirements on certain deposits o f these corporations. R e g u l a t i o n Regulation L L seeks to avoid restraints on com petition between member banks and other banking institutions by restricting the relationships a director, officer, or employee of a member bank can have w ith other bank ing institutions. The regulation prohibits directors, officers, and employees of member banks fro m being simultaneously a director, o ff i8 cer, or employee o f another bank, banking association, sav ings bank or trust company organized under the National Banking A c t or under the laws of any State or of the Dis tric t of Columbia. Exceptions are provided fo r situations where the in stitu tions do not appear to be in com petition. For example, a director, officer, or employee o f a member bank can serve as a director, officer, or employee o f an institution which is not located in the same, adjacent, or contiguous city , tow n, or village. The regulation provides exceptions fo r certain other inter locking relationships, including those w ith banks in low income or economically depressed areas and banks controlled by m in o rity groups. R e g u l a t i o n Regulation M governs the foreign activities o f M member banks, including foreign branching, reserve requirements, and permissible foreign banking activities. Member banks w ith capital stock and surplus of at least $1 m illio n may establish a foreign branch w ith approval o f the Board o f Governors. A fte r 30 days notice to the Board, additional branches may be established in foreign countries where a member bank has a branch. Operations of foreign branches are governed by the regulation. W ith Board approval, a member bank may acquire and hold stock in foreign banks, providing the member bank has capital stock and surplus o f at least $1 m illion and th at the total investment in stocks o f foreign banks and certain other subsidiaries does not exceed 25 per cent o f capital and sur plus. Certain other lim itations are also imposed on invest ments in foreign bank stocks. The regulation imposes reserve requirements on transac tions undertaken by foreign branches w ith member banks and other U.S. residents. 9 R e g u l a t i o n Regulation N governs relationships and trans K T actions among Reserve Banks and foreign banks, bankers, and governments and describes the role of the Board o f Governors in these relationships and transactions. The regulation gives to the Board the responsibility for approving in advance negotiations or agreements by Reserve Banks w ith any foreign banks, bankers, or govern ments. Reserve Banks must keep the Board fu lly advised o f all foreign relationships, transactions, and agreements. W ith Board approval, any Reserve Bank may open and maintain accounts fo r foreign banks or governments, or par ticipate in accounts maintained by other Reserve Banks fo r foreign banks or governments. Accounts payable in foreign currencies maybe opened and maintained by Reserve Banks on the books o f Board-designated foreign banks. Under direction o f the Federal Open Market Committee, a Reserve Bank maintaining accounts w ith a foreign bank may undertake negotiations, agreements, or contracts to facilitate open market transactions. Reserve Banks must report to the Board at least quarterly on accounts they main tain w ith foreign banks. R e g u l a t i o n Regulation 0 prohibits member banks from extending credit to their own executive o f f i cers, except as specified. 0 A member bank's loans to any one o f its executive officers are limited to $45,000 allocated as follows: • a maximum of $30,000 fo r the officer's residence; • a maximum o f $10,000 outstanding at any one time to finance the education of the officer's children; and 10 • an additional maximum o f $5,000 fo r pu r poses not specified in the regulation. A ll loans must be reported p ro m p tly to the member bank's board o f directors. Loans must conform w ith the type the bank is authorized to make to all borrowers, and cannot have terms more favorable than those given other borrowers. The borrowing o ffice r must submit a detailed financial statement to the member bank. In addition, the loans, at the option o f the bank, become due and payable if the officer's outside bank borrowings exceed the limits on borrowings fro m the member bank. A member bank officer must report to the bank's board o f directors w ith in 10 days after outside total bank b o rro w ings in any of the three categories above exceed the amount that could be borrowed at the member bank. R e g u l a t i o n Regulation P sets m inim um standards for P security devices and procedures Statechartered member banks must establish to discourage robberies, burglaries, and larce nies and to assist in identifying and appre hending persons who c o m m it such acts. A member bank must appoint a security o fficer to develop and administer a security program at least equal to the requirements of the regulation. The program must be in w riting and approved by the bank's directors. Each State-chartered member bank must annually file w ith its D istrict Reserve Bank a signed statement certifying its compliance w ith the regulation. 11 a R e g u la tio n Regulation Q defines the term deposit, estab lishes rules governing the withdrawal o f sav ings deposits and the payment o f time deposits before m atu rity, and establishes ceil ings on the interest rates member banks pay on savings and time deposits. Generally, the longer a depositor agrees to leave funds on deposit, the higher the rate o f interest the bank is permitted to pay. Should a member bank allow withdrawal fro m a time deposit before the agreed-upon m a turity o f the deposit, the bank must impose an interest fo rfe itu re penalty on the funds w ithdraw n as specified in the regulation. The regulation also restates the statutory p roh ib itio n against the payment o f interest on demand deposits con tained in Section 19 o f the Federal Reserve A c t and pre scribes rules governing the advertising o f interest on deposits. R e g u l a t i o n Regulation R aims at avoiding interlocking R relationships between securities dealers and member banks, and, thus, any potential con flic t o f interest, collusion, or undue influence on member bank investment policies or investment advice to customers. The regulation restates the general statutory p roh ib itio n on individuals involved in various phases o f securities activities (including issuance, flo ta tio n , underwriting, public sale, or distribution) as either a director, officer, partner, or employee from serving simultaneously as a director, officer, or employee o f a member bank. However, the regulation permits member bank directors, officers, and employees to serve simultaneously as directors, officers, partners, or employees o f organizations involved only in "governm ent" securities transactions. These securi ties generally include, fo r example, those o f the United States, the International Bank for Reconstruction and Devel12 opment, the Tennessee Valley A u th o rity , and the general obligations of States and municipalities. s R e g u l a t i o n Regulation S provides the means fo r the Board o f Governors to regulate and examine banking services performed fo r State-char tered member banks by outsiders. The regulation provides that both the State-chartered mem ber bank and the outside party must make w ritten assurances that services w ill be subject to regulation and examination just as if they were being performed at the bank. Among the bank services performed under the regulation are check and deposit sorting and posting, and preparing and mailing checks, statements, and notes. R e g u l a t i o n Regulation T governs credit extensions made T in the course o f business by securities brokers and dealers, including all members o f national securities exchanges. The regulation limits the amount o f credit that may be extended to customers fo r purchasing or carrying securities based on the amount o f cash and margin securities contained in the accounts. Generally, margin securities are those listed on national exchanges or identified as subject to margin requirements by the Board o f Governors' Over-the-Counter stock list. The maximum credit that may be extended to cover a purchase o f margin securities—the "loan value"—is the per centage of their market value fixed fro m time to time by the Board. When securities on which credit has been extended are w ithdrawn fro m an account, cash or securities o f an equivalent loan value usually must be deposited or a por13 tion o f the account liquidated to the extent necessary to assure that the loan value o f the account is not exceeded. The regulation also prescribes rules governing cash trans actions among brokers, dealers, their customers, and other brokers and dealers. It limits the concerns fro m which lend ing brokers and dealers may borrow in the ordinary course o f their business. R e g u l a t i o n Regulation U limits the amount o f credit a u bank may extend fo r purchasing and carry ing margin securities if the credit is secured directly or indirectly by stock. I f a loan is to be secured, directly or indirectly, by any stock, a bank must obtain a properly completed Form U-1 in which the borrower must state the purpose o f the loan. If the pu r pose is to purchase or carry any margin stock, the loan is a "purpose c re d it." Generally, if purpose credit is stocksecured, it is subject to the credit lim itations and other restrictions of Regulation U. Margin stocks include stocks listed on national exchanges, securities convertible into margin stocks, most mutual funds, and over-the-counter stocks listed on the Board o f Gover nors' OTC list of securities subject to credit regulations. A t the time a purpose credit subject to Regulation U is extended, the amount o f the loan may not exceed the "m a xim u m loan value" o f the securing stock. The maximum loan value o f stock is a percentage o f current market value fixed by the Board fro m tim e to time. 14 R e g u l a t i o n Regulation V facilitates and expedites the V financing o f contractors, subcontractors, and others involved in national defense w ork. The Defense Production A c t o f 1950 and Executive Order 10480, as amended, authorize several Federal departments and agencies to guarantee loans by private financing in stitu tions to contractors, subcontractors, and others involved in national defense w ork. Regulation V spells o u t the author ity granted to Reserve Banks, as fiscal agents o f the United States, to assist Federal departments and agencies in making and administering these guarantees. The regulation estab lishes procedures fo r processing these loan guarantees and sets maximum rates o f interest, guarantee fees, and c o m m it ment fees. R e g u l a t ;o!, Regulation W was revoked in 1952. w Regulation W prescribed m inim um downpayments, m axi mum maturities and other terms applicable to extensions o f consumer credit. Such action was authorized by Executive Order during World War II, and by Congressional legislation in 1947-1948 and again during the Korean conflict. W ith the repeal o f authorizing legislation in 1952, Regulation W was revoked. 15 R e g u l a t i o n Regulation X extends the provisions o f Regu X lations G, T, and U (governing extensions of credit fo r purchasing or carrying securities in the United States) to certain borrowers and to certain types o f credit extensions not specifi cally covered by those regulations. The regulation applies to borrowers who, fo r purposes of purchasing or carrying securities, obtain credit in the United States and to borrowers who are "U n ite d States persons" or foreign persons controlled by, acting in behalf o f or in con junction w ith U.S. persons. Regulation X requires th at subject borrowers obtaining credit w ith in the U.S. com ply w ith Regulations G, T, or U— whichever applies to the lenders in the transaction. When credit is obtained outside the U.S., subject borrowers must comply as if the foreign lender were subject to Regulations G, T, or U. Certain records must be kept by borrowers subject to Regulation X who obtain credit outside the U.S. that is secured in any manner by any security. These records must be substantially similar to those required by Federal Reserve Form X -1 , and must be kept fo r six years after the credit is extinguished. A iding or abetting someone to violate the regulation is itself a violation. R e g u l a t i o n Regulation Y relates to the bank and nonbank Y expansion o f bank holding companies and to the divestiture o f impermissible nonbank interests. Under the Bank Holding Company A ct o f 1956, as amended, a bank holding company is a company which directly or indi rectly owns or controls a bank. The regulation contains pre sumptions and procedures the Board uses to determine 16 whether a company controls a bank. The regulation also explains the procedures fo r obtaining Board approval to become a bank holding company and procedures to be f o l lowed by bank holding companies acquiring voting shares in banks or nonbank companies. The Board has specified in the regulation those nonbank activities th at are closely related to banking and therefore permissible fo r bank holding com panies. The regulation applies a separate test to activities that are permissible fo r foreign bank holding companies. z Regulation Regulation Z prescribes uniform methods of computing the cost o f credit, disclosure of credit terms and lease terms, and procedures fo r resolving billing errors on certain credit accounts. The credit provisions o f the regulation apply to all persons w ho, in the ordinary course of business, regularly extend or o ffer to extend, arrange or offer to arrange consumer credit. Consumer credit is generally defined as credit offered or extended to individuals fo r personal, fam ily, household, or agricultural purposes. The major provisions o f the regulation require lenders to : • provide borrowers w ith meaningful, w ritten inform ation on the cost o f credit in terms o f both the finance charge and the annual percentage rate. • respond to consumer complaints o f billing errors on certain credit accounts w ith in a specific period. • identify credit transactions on periodic state ments o f open end credit accounts. • make sufficient disclosure o f personal prop erty leasing terms to enable consumers to compare leasing and purchasing costs,' and lim it end-term liab ility on cer tain leases. • provide certain rights regarding credit cards. • inform customers o f the right to rescind cer17 tain real property transactions w ithin a specified period. • advertising credit. Regulation comply w ith special requirements Regulation A A establishes consumer com plaint procedures. Under the regulation, any consumer complaint about an alleged unfair or deceptive a c to r practice by a State member bank, or an alleged violation o f law or regulation, w ill be investigated. Complaints should be submitted, preferably in w riting, to the D irector o f the Division o f Consumer A ffairs at the Board o f Governors o f the Federal Reserve System, Washington, D.C. 20551, or to the Reserve Bank fo r the District in which the institution is located. The complaint should describe the practice or action objected to and should give the names and addresses o f the bank concerned and the person complaining. The Board w ill attem pt to give a substantive reply w ithin 15 business days, or, if that is not possible, w ill acknowledge the complaint w ith in 15 business days and set a reasonable time fo r a substantive reply. The Board w ill also receive complaints regarding institu tions other than State member banks. Complaints about State-chartered member banks are handled by the Federal Reserve, and complaints about other institutions w ill be referred to the appropriate Federal agencies. A person filing a complaint does not have to be a cus tom er o f the institution in question, and the acts or prac tices complained o f do not have to be subject to Federal regulation. Consumers may complain about acts or prac tices that may, in fact, be expressly authorized, or not prohibited, by a current Federal or State law or regulation. 18