The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F ederal Reserve b a n k o f D allas DALLAS, TEXAS 75222 C ircular No. 77-143 December 20, 1977 PROPOSED AMENDMENT TO REGULATION Z Right of Rescission to Open-End Credit Accounts TO ALL BANKS, OTHER CREDITORS, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Board of Governors of the Federal Reserve System has proposed for public comment an amendment to its Regulation Z—T r u t h - in - L e n d in g —concerning the right of con sumers to be notified that they may cancel open-end cred it plans within three days if their home is pledged as security. The Board requested comment by F eb ru ary 1, 1978. The T ru th -in -L en d in g Act and Regulation Z provide that consumers who pledge their home as security for cred it have a t h r e e -d a y "cooling-off period" d u rin g which they may r e scind the arran ge m e n t. The proceeds of the loan may not be d is b u r s e d d u rin g this period. Some lenders, who wish to extend open-end cred it lines se cured by an interest in a consumer's home, have asked the Board how notice should be given of this rig h t of r e s c i s sion in such cases. Credit card and overdraft arrangem ents a r e examples of open-end credit. The Board proposed that consumers must be notified of th eir right to cancel openend credit a rrange m e nts involving their homes as security d u rin g the th ree-d ay cooling-off period in three instances: — When an open-end credit plan is first opened, — Whenever the credit limit is increased, and — If a security interest in a home is added to an open-end credit arrangem ent. A copy of the Board's o r d e r is printed on the r e v e rs e of this c i r c u la r. Please d ire c t any comments to the S e c r e ta ry , Board of Governors of the Federal Reserve System, Washington, D.C. 20551, by F ebruary 1, 1978. All materials submitted should include the Docket No. R-0134. Sincerely y o u r s , Robert H. Boykin F irst Vice P resident This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Extract From FEDERAL REGISTER, VOL. 42, NO. 237, Friday, December 9, 1977 p. 62146 [6210-01 ] FEDERAL RESERVE SYSTEM [ 12 CFR Part 226 ] [Reg. Z; Docket No. R-0134) TRUTH IN LENDING Right of Rescission AGENCY: Board of G overnors of the Federal Reserve System. ACTION: Proposed rule. SUMMARY: This proposed rule seeks to clarify th e application of th e rig h t of rescission in connection w ith open end credit accounts. R egulation Z provides th a t in th e case of any credit transactio n in w hich a security in terest is taken in th e principal residence of th e consumer, th e consum er shall have th re e business days to rescind th a t transaction. The regulation requires creditors to disclose th is rig h t to th e consumer, a n d th e credit proceeds m ay n o t be disbursed during the three-day period. Questions have been raised on th e application of these provi sions to open ?nd credit plans. The B oard’s proposal would clarify these p ro visions by requiring creditors to give the required notice of the rig h t of rescision to consum ers who pledge th e ir homes as security for an open end line of credit a t the tim e th e open end account is e n tered into as well as prior to any su b sequent increase in th e line of credit underlying th e account. T he Board views th is proposal as consistent w ith th e con gressional purpose in creatin g th e rig h t of rescision and w ith its efforts to sim plify T ru th in Lending disclosures w ith out sacrificing th e A ct’s consum er pro tection features. DATE: Com m ents m ust be received on o r before February 1,1978. A D D R ESS:.Secretary, Board of Gover nors of th e F ederal Reserve System, W ashington, D.C. 20551. All m aterial sub m itted should include Docket No. R 0134. FOR FU R TH ER INFORMATION CON TACT: G lenn E. Loney, Acting Chief, F air Credit Practices Section, Division of Consum er Affairs, Board of Governors of th e F ederal Reserve System, W ash ington, D.C. 20551, 202-452-2412. SUPPLEMENTARY INFORMATION: T he Board of G overnors of th e F ederal Reserve System is publishing for com m ent a proposed am endm ent to R egula tion Z designed to clarify th e application of th e rig h t of res:ission to open end credit accounts. Section 226.9(a) of the regulation provides custom ers w ith a rig h t to rescind any consum er credit tran sa ctio n in which a security interest is taken in th e custom er’s home. W hen th e rig h t of rescission exists, § 226.9(b) requires creditors to give consum ers n o tice of th a t right. These provisions could be interpreted as providing a rig h t to rescind an d requiring notice of th a t rig h t each tim e a tran sa ctio n takes place un der a open end credit plan. T he Board u n d erstan ds th a t it was Congress’ purpose in enacting th e rig h t of rescission to p erm it consumers to re consider im p o rta n t credit transactions in w hich a security interest is taken in th e ir homes. Accordingly, Congress provided consum ers w ith a th ree-d ay cooling-off period in which to reconsider such credit decisions. T he Board believes th a t th is purpose will be served by providing the rig h t to rescind and notice of th a t rig ht in a n open end credit context upon th e opening of such an account an d upon any subsequent increase in th e un derly ing line of credit associated w ith the a c count. As a technical m a tte r, the pro posal also calls for providing th e rig h t of rescission and notice of the rig h t a t th e tim e a security in terest is taken cov ering a n open end account if a security in terest was n o t taken a t th e tim e th e account was opened. A requirem ent th a t the rig h t of rescis sion notice be given w ith each tra n sa c tion und er an account, in th e B oard’s view, would unduly fru stra te an d com plicate th e ad m in istratio n of open end credit plans w ithout substantially in creasing the custom er’s awareness of th e significance of pledging his or h er home as security for such credit. P u rsu a n t to th e a u th o rity granted in 15 UJS.C. Section 1604 (1970), th e Board proposes to am end R egulation Z, 12 CFR P a r t '226, as follows: § 2 2 6 .9 R ig h t to rc&cind pertain t r a n s a c tions. (g) Exceptions to general rule. * * * (6) Individual tran sactio n s under an open end credit account provided th a t th e disclosure required un der p ara g ra p h (b) of th is section is m ade a t th e time th e disclosures required u n d er § 226.7(a) are required to be made, or, if th e secu rity in terest is n o t retain ed or acquired a t th e time the § 226.7(a) disclosures are required to be made, prior to the tim e a security interest is retained or acquired, and in any case prior to the time of any subsequent increase in the line of credit. To aid in the consideration of the pro posal by th e Board, interested persons are invited to subm it relevant data, com m ents or argum ents. All such m aterials should be subm itted in w riting to Secre tary, Board of Governors of the Federal Reserve System, W ashington, D.C. 20551, and should be received n o t later th a n February 1, 1978. All m aterials subm itted should include the Docket Number R 0134. Such inform ation will be made available for inspection and copying upon request, except as provided in 8 261.6(a) of the B oard’s rules regarding availabil ity of inform ation (12 CFR 261.6(a)). This notice is published p u rsu an t to section 553(b) of Title 5 U nited S tates Code and § 262.2(a) of the rules of pro cedure of th e Board of G overnors of th e F ederal Reserve System (12 CFR 262.2 ( a ) ). By order of the Board of Governors. December 5, 1977. T h e o d o r e E. A l l i s o n , Secretary of the Board. [FR Doc.77-35233 Filed 12-8-77,8:45 am ]
@FedFRASER