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F ederal Reserve Ban k o f Dallas

DALLAS. TEXAS

75222
C i r c u l a r No. 76-37
M a r c h 16, 1976

PROPOSAL TO AMEND REGULATION Z
T r u t h in L e n d in g

TO ALL BANKS, OTHER CREDITORS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
T h e B o a rd o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m p r o p o s e s to a m e n d
R e g u l a ti o n Z to s p e ll o u t t h e w a y in w h i c h f i n a n c e c h a r g e s o f o n e o r m o r e t y p e s m u s t
be d escrib e d .
T h e B o a rd i n v i t e s c o m m e n t on a p r o p o s a l to a m e n d R e g u la tio n Z to s t a t e
e x p l i c i t l y t h a t if o n l y o n e t y p e o f f i n a n c e c h a r g e is m a d e in a n e x t e n s i o n o f c r e d i t t h e
n a tu re of the c h a rg e need not be stated .
T h e B o a r d a l s o i n v i t e s c o m m e n t on tw o f u r t h e r a l t e r n a t i v e s .
tive p ro p o sa ls are:

The altern a­

—

T o r e q u i r e d e s c r i p t i o n of t h e c h a r g e e v e n if t h e r e is o n l y o n e t y p e
of f i n a n c e c h a r g e ;

—

To om it all ite m iz in g o f t h e c o m p o n e n ts of t h e f i n a n c e c h a r g e e v e n
if m o r e t h a n o n e t y p e of c h a r g e is i n v o l v e d .

Both t h e p r o p o s e d a m e n d m e n t a n d a n e x i s t i n g i n t e r p r e t a t i o n of R e g u l a ti o n Z p e r m i t
t h e u s e of t h e te r m " f i n a n c e c h a r g e " a l o n e w h e n o n l y o n e t y p e o f c h a r g e is i n v o l v e d .
U n d e r b o th t h e p r e s e n t r u l e a n d t h e p r o p o s e d a m e n d m e n t , if m o r e t h a n o n e t y p e of
c h a r g e is in v o l v e d e a c h m u s t b e d e s c r i b e d .
T h e p r o p o s e d a m e n d m e n t w o u ld r e p l a c e t h e e x i s t i n g i n t e r p r e t a t i o n o f t h e
R e g u l a ti o n i s s u e d b y th e B o a r d N o v e m b e r 21, 1975. T h e p r o p o s a l is id e n tic a l in
s u b s t a n c e to t h e i n t e r p r e t a t i o n t h a t h a s b e e n c h a l l e n g e d in c o u r t on p r o c e d u r a l
g r o u n d s . In p r o p o s i n g t h e r e g u l a t o r y a m e n d m e n t a n d p o s s i b l e a l t e r n a t i v e s , t h e
B o a r d b e l i e v e s its i n t e r p r e t a t i o n c o r r e c t l y c o n s t r u e d R e g u l a ti o n Z a n d met p r o c e ­
d u r a l r e q u i r e m e n t s . H o w e v e r , in v ie w of t h e legal c h a l l e n g e to t h e i n t e r p r e t a t i o n ,
t h e B o a r d d e c i d e d to p r o p o s e a r e g u l a t o r y a m e n d m e n t a n d a l t e r n a t i v e s .

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

- 2 -

I n t e r e s t e d p e r s o n s a r e i n v i t e d to s u b m i t r e l e v a n t d a t a , v i e w s , o r
a r g u m e n t s c o n c e r n i n g t h i s p r o p o s a l in w r i t i n g to t h e S e c r e t a r y , B o a rd o f G o v e r n o r s
of t h e F e d e r a l R e s e r v e S y s t e m , W a s h i n g to n , D . C . 20551, to b e r e c e i v e d n o t l a t e r
t h a n A p r i l 9, 1976.
, S in ce rely y o u rs ,
T . W. P la n t
F i r s t V ic e P r e s i d e n t
E nclosure

FEDERAL RESERVE SYSTEM
[12 CFR 226]
[Reg. Z]
[Docket No. R-0021}

Notice of Proposed Rulemaking on Disclosure of
Single-Component Finance Charges

The Board of Governors of the Federal Reserve System
(hereafter Board) proposes to amend 58 226.8(c)(8)(i) and
226.8(d)(3) of Regulation Z to specifically provide that a finance
charge consisting solely of one type of charge need not be individ­
ually described as to the nature of the charge.

In such cases, use

of the term "finance charge" is sufficient identification pursuant
to Regulation Z.

The amendments would not affect the requirement

for a description of each amount included in the finance charge
where the total charge is composed of more than one element.
The proposed amendments reflect the position stated by
the Board in Interpretation § 226.820, issued on November 21, 1975.
That interpretation was intended to alleviate the uncertainty
resulting from the decision in Ives v. W. T. Grant Co.,
(2nd Cir. 1975), 4 CCH CCG 1 98,561, in which the United States
Court of Appeals for the Second Circuit held that failure to
individually describe the type of charge when there is a single­
element finance charge violated the Truth in Lending Act. Those
district courts which had recently considered this issue were
divided on the necessity for such description. The growing

uncertainty over the proper interpretation of §§ 226.8(c)(8)(i)
and 226.8(d)(3) in such cases indicated to the Board the need
for an official statement on this issue.

As the agency responsible

for promulgating §§ 226.8(c)(8)(i) and 226.8(d)(3), pursuant to
its implementing authority under the Truth in Lending Act, the
Board issued Interpretation § 226.820 to clarify the application
of those sections to transactions involving single-element finance
charges. That interpretation reaffirmed the position taken in
the illustrative forms in the first Regulation Z pamphlet, as
well as in various opinion letters issued by the Board's staff.
A recent suit filed against the Board in the United
States District Court for the District of Connecticut calls into
question the position stated in Interpretation § 226.820.

In

Hatten v. Board of Governors, (D.C. Conn., Civ. No. N76-14, filed
January 7, 1976), plaintiffs allege, inter alia, that Interpretation
§ 226.820 was a substantive rule of general applicability as to
which the Board was obligated to follow the notice-and-comment
rulemaking procedures of the Administrative Procedure Act.
The Board believes that Interpretation § 226.820 was
exempt from the usual rulemaking procedures of the APA pursuant
to 5 U.S.C.

§ 553(d)(2) and that it correctly construed the present

language of the Truth in Lending Act and Regulation Z.

However,

to remove any uncertainty that may exist regarding this matter,
and further to provide an opportunity to consider some broader
related issues, the Board has decided to solicit public comment

-3 -

on the question of whether Regulation Z should be changed to:
(1) make it even clearer that required itemization of finance
charges is limited to multiple-element finance charges, or (2)
require such itemization even in the case of a single-element
finance charge, or (3) eliminate the requirement for itemization
in all cases.

Pending final Board action in this rulemaking

proceeding, Interpretation § 226.820 will remain in effect.
Pursuant to the authority granted in 15 U.S.C. 1604
(1968), the Board proposes to amend Regulation Z, 12 CFR Part 226,
as follows:
S 226.8— CREDIT OTHER THAN OPEN END— SPECIFIC DISCLOSURES
*

*

(c)

*

*

*

*

*

*

Credit sales

*

*
( 8)

* * *

(i)

The total amount of the finance charge, using the

term "finance charge," and where the total charge consists of two or
more types of charges, a description of the amount of each type, and
*

*

(d)
*

*

*

*

Loans and other nonsale credit
*

*

*

*
1 1

(3 )

/

* * * the total amount of the finance charge,

using the term "finance charge," and where the total charge consists
IT/
The disclosure required by this subparagraph need not be made
with respect to interim student loans made pursuant to federally
insured student loan programs under Public Law 89-329, Title IV
Part B of the Higher Education Act of 1965, as amended.

-4 -

of two or more types of charges, a description of the amount of
each type.
To aid in the consideration of this matter by the Board,
interested persons are invited to submit relevant data, views,
comments, or arguments.

Any such material should be submitted in

writing to the Secretary, Board of Governors of the Federal Reserve
System, Washington, D.C. 20551, to be received not later than
April 9, 1976.

All material submitted should include the docket

number R-0021.
This notice is published pursuant to S 553(b) of Title 5,
United States Code, and S 262.2(a) of the Rules of Procedure of the
Board of Governors of the Federal Reserve System (12 CFR 262.2(a)).
By order of the Board of Governors, February 27, 1976.

(signed) Theodore E. Allison
Theodore E. Allison
Secretary to the Board

[SEAL]

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