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F ederal R eserve Bank
O F DALLAS
R O B E R T D. M c T E E R , J R .
PRESIDENT
AND CH IE F E X EC U TIV E O F F IC E R
JanUaty 4 1995
DALLAS, TEXAS
75265-5906
Notice 95-09
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Proposed Revisions to the
Official Staff Commentary to Regulation Z
(Truth in Lending)
DETAILS
The Board of Governors of the Federal Reserve System has requested public
comment on proposed revisions to the official staff commentary to Regulation Z (Truth
in Lending). The proposed revisions would clarify regulatory provisions or provide
further guidance on issues of general interest, such as the treatment of various fees and
taxes associated with real estate-secured loans, including charges by third parties, and a
creditor’s responsibilities when investigating a claim of unauthorized use of a credit card.
The Board must receive comments by February 1, 1995. Comments should
be addressed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551.
All comments should refer to Docket No. R-0863.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 64351-59, Vol. 59, No.
239, of the Federal Register dated December 14, 1994, is attached.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston
Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
MORE INFORMATION
For more information, please contact Eugene Coy at (214) 922-6201. For
additional copies of this Bank’s notice, please contact the Public Affairs Department at
(214) 922-5254.
Sincerely yours,
64351
Proposed Rules
Federal Register
Vol. 59, No. 239
W ednesday December 14, 1994
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
Commission has now concluded that it
would be appropriate to extend the
comment period until January 9,1995 to
allow commenters sufficient time after
the elections to prepare their comments
and suggestions.
Dated: December 9 ,1 9 9 4 .
FEDERAL ELECTION COMMISSION
[Notice 1994—18]
Trevor Potter,
Chairman.
1FR Doc. 94-30692 Filed 1 2 -1 3 -9 4 , 8:45 am)
BILUNG CODE 6 7 1 5-01 -M
11 CFR Parts 9003,9004, 9006, 9007,
9033,9034, 9037, and 9038
Public Financing of Presidential
Primary and General Election
Candidates
AGENCY: Federal Election Commission.
ACTION: Extension of comment period.
On October 6,1994, the
Federal Election Commission published
a Notice of Proposed Rulemaking
seeking comments on proposed
revisions to its regulations governing
publicly financed Presidential primary
and general election candidates. The
Commission has now decided to extend
the comment period until January 9,
1995.
DATES; Comments must be received on
or before January 9,1995.
ADDRESSES: Comments must be in
writing and addressed to: Ms. Susan E.
Propper, Assistant General Counsel, 999
E Street, NW„ Washington, DC 20463.
FOR FURTHER INFORMATION CONTACT: Ms.
Susan E. Propper, Assistant General
Counsel, 999 E Street, NW.,
Washington, DC 20463, (202) 219-3690
or (800) 424-9530.
SUPPLEMENTARY INFORMATION: The
Commission has initiated a rulemaking
to determine what changes should be
made to its regulations at 11 CFR Parts
9001 et seq. and 9031 et seq. governing
public financing of Presidential
campaigns. See 59 FR 51006 (October 6,
1994). These regulations implement the
provisions of the Presidential Election
Campaign Fund Act and the
Presidential Primary Matching Payment
Account Act. The Notice of proposed
rulemaking indicated that comments
were due on December 5 ,1994. Two
requests for an extension of the
comment period have been received.
Commenters who are engaged in
winding down 1994 election activities
are finding it difficult to submit timely
comments. Accordingly, the
SUMMAflY:
Jane Jensen Gell or Obrea O Poindexter
Staff Attorneys; for Subparts A and C
(closed-end credit), Kyung Cho-Miller
Sheilah A. Goodman, or Natalie E.
Taylor, Staff Attorneys, Division of
Consumer and Community Affairs
Board of Governors of the Federal
Reserve System, at (202) 452-3667 or
452-2412; for the hearing impaired
only, Dorothea Thompson,
Telecommunications Device for the
Deaf, at (202) 452-3544
SUPPLEMENTARY INFORMATION:
FEDERAL RESERVE SYSTEM
I. Background
The purpose of the Truth in Lending
12 CFR Part 226
Act (TILA, 15 U.S.C. 1601 et seq.) is to
[Regulation Z; Docket No. R-0863]
promote the informed use of consumer
credit by requiring disclosures about its
Truth in Lending
terms and cost. The act requires
AGENCY: Board of Governors of the
creditors to disclose credit terms and
Federal Reserve System.
the cost of credit as an annual
ACTION: Proposed rule; official staff
percentage rate (APR). The act requires
interpretation.
additional disclosures for loans secured
by a consumer’s home, and permits
SUMMARY: The Board is publishing for
consumers to cancel certain transactions
comment proposed revisions to the
that involve their principal dwelling It
official staff commentary to Regulation
also imposes limitations on some credit
Z (Truth in Lending). The commentary
transactions secured by a consumer s
applies and interprets the requirements
principal dwelling. The act is
of Regulation Z. The proposed revisions
implemented by the Board’s Regulation
would clarify regulatory provisions or
Z (12 CFR part 226). The regulation
provide further guidance on issues of
authorizes
the issuance of official staff
general interest, such as the treatment of
interpretations of the regulations (See
various fees and taxes associated with
real estate-secured loans and a creditor’s Appendix C to Regulation Z )
The Board is publishing proposed
responsibilities when investigating a
amendments to the commentary to
claim of unauthorized use of a credit
Regulation Z. The commentary is
card.
designed to provide guidance to
DATES: Comments must b*e received on
creditors in applying the regulation to
or before February 1,1995.
specific transactions and is a substitute
ADDRESSES: Comments should refer to
for individual staff interpretations It is
Docket No. R-0863, and may be mailed
updated periodically to address
to William W Wiles, Secretary, Board of significant questions that arise It is
Governors of the Federal Reserve
expected that this update will be
System, 20th Street and Constitution
adopted in final form in March 1995
Avenue, NW., Washington, DC 20551
with compliance optional-until October
Comments also may be delivered to
I,1995, the effective date for mandatorv
Room B—2222 of the Eccles Building
compliance
between 8:45 a.m. and 5:15 p.m.
II.
Proposed Commentary
weekdays, or to the guard station in the
Eccles Building courtyard on 20th
Subpart A—General
Street, NW. (between Constitution
Avenue and C Street) at any time.
Section 226.2— Definitions and Pules o
Comments may be inspected in Room
Construction
MP-500 of the Martin Building between
2(a) Definitions
9 a.m. and 5 p.m. weekdays, except as
provided in 12 CFR 261.8 of the Board’s 2(a)(17) Creditor
rules regarding the availability of
Paragraph 2(a)(17)(i)
information.
FOR FURTHER INFORMATION CONTACT: For
Comment 2(a)(17)(i)-8 would be
Subparts A and B (open-end credit).
revised to provide further guidance on
64352
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
the identity of the creditor for
participant loans from an employee
savings plan, such as 401(k) plans.
Under applicable law, it is the plan that
extends the credit, not the trust or
trustee receiving and disbursing plan
funds. Therefore, for purposes of the
TILA, the plan is deemed to be the
creditor.
Section 226.4—Finance Charge
4(a) Definition
Comment 4(a)-l would be revised to
indicate to creditors that section 12 of
the Real Estate Settlement Procedures
Act (RESPA; 12 U.S.C. 2610) prohibits
fees from being charged for preparing
TILA disclosure statements in RESPAcovered transactions.
Comment 4(a)-3 would be revised to
provide additional guidance on when
fees charged by a third party are finance
charges.
4(c) Charges Excluded From the Finance
Charge
Paragraph 4(c)(7)
Comment 4(c)(7}-l would be revised
to clarify the interplay of the fourth and
fifth sentences, dealing with a lump
sum charge for services. Proposed new
language makes clear that a lawyer's
attendance at a closing or a charge for
conducting the closing is entirely
excluded from the finance charge, even
though fees for the incidental services
might not be excluded if they were
imposed separately; this is an exception
to the general rule on the treatment of
lump sum fees.
Proposed comment 4(c)(7)-2 would
clarify that real estate or residential
mortgage transaction charges excludable
under § 226.4(c)(7) are those charges
imposed in connection with the initial
decision to grant credit and paid prior
to or at consummation or loan closing—
for example, a fee to search for tax liens
on the property or to determine if flood
insurance is required. Additional fees
assessed during the loan term to
monitor a consumer’s continued
compliance with contract provisions,
such as paying property taxes or
purchasing flood insurance, are not
excludable under § 226.4(c)(7). These
recurring administrative fees, paid by
the consumer to protect the creditor’s
security interest, are finance charges.
4(e) Certain Security Interest Charges
Comment 4(e)-l would be revised to
clarify that the security interest charges
excludable as finance charges are those
that relate to the agreement between the
creditor and the consumer. When a
creditor sells or otherwise assigns the
consumer’s obligation to a third party
investigate claims in a reasonable
and the fee to record the assignment is
imposed on the consumer, that fee is not manner.
Proposed comment 12(b}-3 lists some
excludable from the finance charge
of the steps that card issuers may take
under § 226.4(e).
in the investigation of a claim. For
Subpart B—Open-End Credit
example, card issuers may request that
a cardholder provide information
Section 226.5—General Disclosure
needed to resolve the claim. But a card
Requirements
issuer cannot automatically deny a
claim based on a cardholder’s failure,
(5b) Time of Disclosures
for instance, to submit a signed
5(b)(1) Initial Disclosures
statement or notarized document, or to
file a police report. The steps
Comment 5(b)(1)—1 provides that
appropriate for investigating particular
initial disclosures must be provided
claims may differ, and card issuers are
before the consumer makes the first
not required to take certain minimum
purchase under an open-end plan; the
proposed revision provides an example steps on all claim investigations
Specific comment is solicited on the
to illustrate that when a consumer
makes a purchase and opens an account proposed approach for providing
guidance that identifies, by example,
contemporaneously with a retailer, for
actions that card issuers may take in a
example, disclosures must be given to
reasonable investigation of a claim of
the consumer at that time.
unauthorized use.
Proposed comment 5(b)(1)—5
addresses the timing of disclosures for
Section 226.15—Right o f Rescission
open-end credit plan solicitations that
15(a) Consumer’s Right To Rescind
offer consumers an option to transfer
outstanding balances with other
Paragraph 15(a)(1)
creditors.
Comments 15(a)(l)-5 and -6 would
be revised to provide further guidance
Section 226.6—Initial Disclosure
on the right to rescind a transaction
Statement
secured by a consumer’s principal
6(b) Other Charges
dwelling. The right of rescission does
not apply to residential mortgage
Comment 6(b)-l would be revised to
transactions. (See § 226.15(f)(1).)
state that a fee imposed for terminating
Proposed comment 15(a)(l)-5 adds
an open-end credit plan must be
examples of transactions that are and
disclosed as an “other charge.” Under
are not rescindable.
§ 226.6(b) of the regulation, significant
Comment 15(a)(l)-6—which contains
charges related to the plan (that are not
an
exception to the “one principal
finance charges) must be disclosed.
dwelling” rule of comment 15(a)(l)-5—
While a termination fee might
would be revised to clarify that a credit
technically meet the definition of a
transaction secured by the equity in the
finance charge, there is no detriment to
consumer’s current principal dwelling,
the consumer for a creditor to disclose
not by the new home, is subject to the
this fee as a significant charge under
rescission requirements of § 226.15.
§ 226.6(b)—other charges—rather than a
15(d) Effects of Rescission
finance charge under § 226.4. There
seems to be little benefit to the
Consumers who rescind transactions
consumer’s receiving an APR
are refunded any fees that they paid to
(disproportionately high in some cases)
obtain the loan. Comment 15(d)(2)—1
on what might be the last periodic
would be revised to clarify that broker
statement under an active plan for a fee fees, although paid by the consumer to
imposed when the consumer closes the
a third party, must be refunded by the
account
creditor to the consumer if the
consumer rescinds the transaction.
Section 226.12—Special Credit Card
Rules
Section 226.16—Advertising
12(b) Liability of Cardholder for
Unauthorized Use
Proposed comments 12(b)—2 and -3
address a card issuer’s rights and
responsibilities in responding to a claim
of unauthorized use under § 226.12.
Proposed comment 12(b)-2 clarifies that
card issuers are not required to impose
any liability. Proposed comment
12(b)-3 clarifies that a card issuer
wishing to impose liability must
16(d) Additional Requirements for
Home Equity Plans
Proposed comment 16(d)-7 would
clarify disclosure requirements for
balloon payments in home equity plan
advertisements. Commentary to
§ 226.5b(d)(5)(ii) provides that for plans
in which a balloon payment will occur
if the consumer makes only the
minimum payments, the disclosure
must state that feet. The proposed
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
comment would apply this requirement
to advertisements, since the regulatory
provisions on treatment of balloon
payments in home equity advertising
and in disclosures are generally parallel.
Subpart C—Closed-end Credit
Section 226.17—General Disclosures
17(a) Form of Disclosures
Paragraph 17(a)(1)
Comment 17(a)(1)—5 would be revised
to include a late payment fee on a single
payment loan as information directly
related to the segregated disclosures.
Section 226.18(1) requires disclosure of
a late payment fee only if a dollar or
percentage charge may be imposed
before m aturity due to a late payment,
other than a deferral or extension
charge. Creditors suggest that the only
distinction between requiring the fee to
be reflected on a loan that has not
matured, as compared with a loan that
has matured, is of a technical nature.
Disclosure of a late payment fee is
information valuable to a consumer
obligated on a single payment loan that
would not distract from or obscure the
segregated disclosures.
17(c) Basis of Disclosures and Use of
Estimates
Paragraph 17(c)(4)
Section 226.17(c)(4) allows creditors
to disregard in the payment schedule
and other calculations small variations
in the first payment due to a long or
short first period. Proposed comment
17(c)(4)—4 clarifies that prepaid finance
charges, such as odd days interest paid
at or prior to closing, may not be
considered as the first payment on a
loan. Thus, creditors cannot disregard
any irregularity in disclosing such
finance charges in the payment
schedule.
17(f) Early Disclosures
Comment 226.17(f)-l would be
revised to clarify that redisclosure is not
only required if the annual percentage
rate in the consummated transaction
differs from the disclosed rate by more
than the allowable 1/8 or 1/4 of 1
percent tolerance, but also if the early
disclosures were not indicated as
estimates, and consummated terms
other than the rate differ from the terms
disclosed.
Section 226.1B—Content o f Disclosures
18(c) Itemization of Amount Financed
Paragraph 18(c)(l)(iv)
Proposed comment 18(c)(l)(iv}-2
clarifies disclosure requirements under
the TILA that are affected by new rules
under the Real Estate Settlement
Procedures Act (RESPA; 12 U.S.C.
2601). In October 1994, the Department
of Housing and'Urban Development
(HUD), which implements RESPA
through Regulation X (24 CFR Part
3500), amended its regulation to
implement new procedures for
calculating the amount consumers must
pay into escrow accounts associated
with RESPA-covered home mortgage
loans (59 FR 53890, October 26,1994).
These procedures are being phased in
over time for existing escrow accounts;
all new escrow accounts established on
or after April 24,1995 must comply
with the new procedures. Eventually, all.
lenders will be required to use an
aggregate accounting method instead of
a single-item method for RESPA
transactions. The use of the aggregate
method will affect disclosure
requirements under Regulation Z.
Currently, in calculating the amounts
required to be paid into escrow accounts
at closing, lenders use what is referred
to as the single-item analysis. (Property
taxes, insurance, and mortgage
insurance premiums are common
examples of escrow items.) Under
single-item analysis, lenders account
separately for each item to be collected
at closing and held in escrow.
Under the aggregate accounting
method, rather than accounting for each
item separately, die amount for escrow
is determined as a whole. This will
make it difficult for a creditor to
determine how much of the aggregate
amount is actually allocated to each
escrow item.
Regardless of how they collect the
funds under RESPA, lenders will
continue to disclose escrow items on the
HUD settiement statement using the
single-item analysis. If the amount
actually collected at settlement is
affected by the aggregate accounting
method, the settlement statement will
reflect the adjustment on a separate line
in the 1000 series. Mortgage insurance
premiums, one of the items typically
paid at settlement and included in the
escrow account, are listed on line 1002
of the HUD statement. This amount is
also a prepaid finance charge under
Regulation Z.
If a creditor is collecting the
settlement charges using aggregate
analysis the amount actually collected
may be less than the amount listed on
line 1002. Guidance has been requested
on what amount lenders should use as
the prepaid finance charge, since the
amount disclosed is not precisely the
amount collected. Various alternatives
have been considered to ensure as
accurate and uniform a disclosure as
possible. The proposed comment
64353
provides that creditors may use the
amount on line 1002, without
adjustment, to calculate the prepaid
finance charge under the TILA This
approach will ease compliance and
provide consumers with an easily
identifiable amount for the mortgage
insurance. While this method does
slightly overstate the amount of the
prepaid finance charge for mortgage
insurance, nonetheless this method
seems to provide the more accurate and
equitable treatment possible given the
problems associated with identifying
the amount of any single item in an
aggregate accounting analysis. Comment
is solicited on the use of the figure in
line 1002 as the amount for the prepaid
finance charge for mortgage insurance
along with any other concerns the shift
to aggregate accounting raises for
lenders under Regulation Z.
18(d) Finance Charge
Proposed comment 18(d)-2 states that
although there is no specific tolerance
for the amount financed, an error in that
figure—resulting from an error in a
finance charge that is a component part
of the amount financed—does not
violate the act or the regulation
provided the finance charge disclosed
under § 226.18(d) is within the
permissible tolerance provided in
footnote 41 of the regulation. The same
interpretation would apply to other
disclosures for which the regulation
provides no specific tolerance, such as
the total of payments.
Section 226.19— Certain Residential
Mortgage Transactions
19(b) Certain Variable-Rate Transactions
Paragraph 19(b)(2)(vii)
Proposed comment 19(b)(2)(vii)-2
states that loans with more than one
way to trigger negative amortization are
separate variable-rate loan programs
requiring disclosures under
§ 226.19(b)(2) (viii) and (x) to the extent
they vary from each other For example,
a loan that provides for monthly interest
rate changes but only annual payment
changes, or automatic payment caps for
a set period of time, or an option for the
borrower to cap the amount of monthly
payments whenever the new payment
would exceed the old payment by more
than a certain margin, consists of three
separate variable-rate programs. Each
program may trigger negative
amortization. For the program that gives
the borrower an option to cap monthly
payments, the creditor must fully
disclose the rules relating to the
payment cap option, including the
effects of exercising it (such as negative
amortization occurs and the principal
64354
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
balance will increase), except that the
disclosure in § 19(b)(2)(vii) need not be
given for the option.
Appendix J—Annual Percentage Rate
Computations for Closed-end Credit
Transactions
Section 226.22—Determination o f the
Annual Percentage Rate
22(a) Accuracy of the Annual
Percentage Rate
Paragraph 22(a)(1)
Comment 22(a)(1)—5 would be revised
to correct an erroneous footnote
reference.
In the reference section, the 1981
changes paragraph would be revised to
make a technical correction to the
second sentence. Paragraph (b)(5)(vi)
does not permit creditors to use either
the 12-month or the 365-day unit period
methods “in all cases” where th e.
transaction term equals a whole number
of months, but only in a single-advance,
single-payment.transaction in which the
term is less than a year and is equal to
a whole number of months.
Section 226.23—Right o f Rescission
23(a) Consumer’s Right To Rescind
Paragraph 23(a)(1)
The right of rescission does not apply
to residential mortgage transactions.
(See § 226.23(f)(1).) Comments 23(a)(1)—
3 and —4 would be revised to provide
further guidance on the right to rescind
a transaction secured by a consumer’s
principal dwelling. Proposed comment
23(a)(l)-3 adds examples of transactions
that are and are not rescindable.
Comment 23(a)(1)—4—which contains
an exception to tbe “one principal
dwelling” rule in comment 23(a)(l)-3—
would be revised to clarify that a credit
transaction secured by the equity in the
consumer’s current principal dwelling,
not by the new home, is subject to the
rescission requirements of § 226.23.
III. Form o f Comment Letters
Comment letters should refer to
Docket No. R-0863, and, when possible,
should use a standard courier typeface
with a type size of 10 or 12 characters
per inch. This will enable the Board to
convert the text in machine-readable
form through electronic scanning, and
will facilitate automated retrieval of
comments for review. Also, if
accompanied by an original document
in paper form, comments may be
submitted on 3Vz inch or 5V4 inch
computer diskettes in any IBMcompatible DOS-based format.
List o f Subjects in 12 CFR Part 226
23(d) Effects o f Rescission
Advertising, Banks, banking,
Consumer protection, Credit, Federal
Paragraph 23(d)(2)
Reserve System, Mortgages, Reporting
Consumers who rescind transactions
and recordkeeping requirements, Truth
are refunded any fees that they paid to
in lending.
obtain the loan. Comment 23(d)(2)-l
Certain conventions have been used
would be revised to clarify that broker
to
highlight the proposed revisions to
fees, although paid by the consumer to
the regulation. New language is shown
a third party, must be refunded by the
inside bold-faced arrows, while
creditor to the consumer if the
language that would be deleted is set off
consumer rescinds the transaction.
with bold-faced brackets. Comments are
23(f) Exempt Transactions
numbered to comply with new Federal
Register publication rules.
Paragraph 23(f)(4)
For the reasons set forth in the
Section 226.23(f)(2) exempts
preamble, the Board proposes to amend
refinancings by the original creditor, to
12 CFR part 226 as follows:
whom the obligation was originally
payable. (See definition of a creditor
under TILA in §226.2(a)(17).) Comment PART 226—TRUTH IN LENDING
(REGULATION Z)
23(f)-4 would be revised to clarify that
in a merger, consolidation, or
1. The authority citation for part 226
acquisition, the successor institution is
continues to read as follows:
considered the original creditor for
purposes of the exemption in
Authority: 12 U.S.C. 3 8 0 6 ,1 5 U.S.C. 1604
§ 226.23(f)(2). For example, if two
and 1637(c)(5).
lending institutions merge, the resulting
institution is considered the original
Subpart A—General
creditor for refinancings of any mortgage *
*
*
*
loans that were made by either of the
two institutions. In refinancing
2. In supplement I to part 226, under
transactions, any creditor that is not the § 226.2—Definitions and rules of
original creditor for the obligation being construction, under Paragraph
refinanced must deliver the general
2(a)(17)(i)., paragraph 8. would be
rescission notice (model form H-8).
revised to read as follows:
Supplement I—Official Staff
Interpretations
Definitions and rules of
construction.
§ 226.2
★
*
*
*
*
Paragraph 2(a)(17)(i)
*
*
*
** *
8. Loans from employee savings plan.
Some employee savings plans permit
participants to borrow money up to a
certain percentage of their account
balances!.] ► , and use a trust to
administer the receipt and disbursement
of funds. The plan (not the trust or the
trustee) is the creditor for purposes of
this regulation. Thus, unless**! [Unless]
each participant’s account is an
individual ► p l a n a n d ^ trust ► , such
as an individual retirement ac co u n ts,
the numerical tests should be applied to
the plan as a whole rather than to the
individual accounts, even if the loan
amount is determined by reference to
the balance in an individual account
and the repayments are credited to the
individual account.
* * * * *
3. In Supplement I to part 226,
§226.4—Finance Charge, the following
amendments would be made:
a. Under 4(a) Definition., paragraphs
1. and 3. would be revised;
b. Under Paragraph 4(c)(7).,
paragraph 1. would be revised and a
new paragraph 2. would be added; and
c. \Jnder (4)(e) Certain security
interest charges., paragraph 1. would be
revised.
The revisions and additions would
read as follows:
*
*
*
*
*
§ 226.4 Finance charge.
4(aJ Definition
1. Charges in comparable cash
transactions. Charges imposed
uniformly in cash and credit
transactions are not finance charges. In
determining whether an item is a
finance charge, the creditor should
compare the credit transaction in
question with a similar cash transaction.
A creditor financing the sale of property
or services may compare charges with
those payable in a similar cash
transaction by the seller of the property
or service.
► i . - ^ For example, the following
items are not finance charges:
► A . ^ Taxes, license fees, or
registration fees paid by both cash and
credit customers;
► B . " ^ Discounts that are available to
cash and credit customers, such as
quantity discounts;
►C .-*< Discounts available to a
particular group of consumers because
Federal Register / VoL 59, No. 239 J Wednesday, December 14, 1994 / Proposed Rules
they meet certain criteria, such as being the creditor (for example, the consumer
members of an organization or having
is offered a loan for 8 percent only by
using a broker; otherwise, theparticular
accounts at a particular financial
loan is offered at 9 percent).-^ [Charges
institution. This is the case even if an
imposed on the consumer by someone
individual must pay cash to obtain the
other than the creditor for services not
discount, provided credit customers
who are members of the group and don’t required by the creditor are not finance
charges, as long as the creditor does not
qualify for the discount pay no more
retain the charges.
than the non-member cash customers.
In contrast, charges imposed on the
► D . - ^ Charges for a service policy,
consumer by someone other than the
auto club membership, or policy of
creditor are finance charges (unless
insurance against latent defects offered
otherwise excluded) if the creditor
to or required of both cash and credit
requires the services of the third party.
customers for the same price.
For example;
► i i . " ^ In contrast, the following
• A fee charged by a loan broker if the
items are finance charges:
►( A ) " ^ Inspection and handling fees consumer cannot obtain the same credit
terms from the creditor without using a
for the staged disbursement of
broker.
construction loan proceeds;
For example:
► ( B ) - ^ Fees for preparing a Truth in
• A fee charged by a loan broker to a
Lending disclosure statement ► , if
permitted by law (for example, the Real consumer, provided the creditor does
not require the use of a broker (even if
Estate Settlement Procedures Act
the creditor knows of the loan broker’s
(RESPA) prohibits such charges in
involvement or compensates the
certain transactions secured by real
broker).
property).
• A tax imposed by a state or other
► ( C ) ^ Charges for a required
governmental body on th e credit
maintenance or service contract
transaction that is payable by the
imposed only in a credit transaction.
consumer (even if the tax is collected by
► i i i . * ^ If the charge in a credit
the creditor). 3
transaction exceeds the charge imposed * * * * *
in a comparable cash transaction, only
the difference is a finance charge. For
Paragraph 4(c)(7)
example;
1. Real estate or residential mortgage
► ( A ) - * If an escrow agent is used in
transaction charges. The list of charges
both cash and credit sales of real estate
in § 226.4(c)(7) applies both to
and the agent’s charge is $100 in a cash
residential mortgage transactions (which
transaction and $150 in a credit
may include, for example, the purchase
transaction, only $50 is a finance
of a mobile home) and to other
charge.
transactions secured by real estate. The
* * * * *
fees are excluded from the finance
3. Charges by third parties, ► i . Third charge even if the services for which the
party charges paid by the consumer are
fees are imposed are performed by the
not finance charges if the creditor does
creditor’s employees rather than by a
not retain the charges or require the
third party. In addition, credit report
service. For example;
fees include not only the cost of the
A. A state or local tax on the credit
report itself, but also the cost of
transaction paid by the consumer, even
verifying information in the report. If a
if the tax is collected by the creditor;
lump sum is charged for several services
and
and includes a charge that is not
B. A fee for a courier charged by an
excludable, a portion of the total should
independent closing agent to send a
be allocated to that service and included
document to the title company or some
in the finance charge. ►H o w ev e r, a ^
other party, provided that the creditor
(A) charge for a lawyer’s attendance at
has not required the use of the courier.
the closing or a charge for conducting
ii. In contrast, third party charges are the closing (for example, by a title
finance charges (unless otherwise
company) is excluded from the finance
excluded) if the creditor requires the
charge if the charge is primarily for
service as a condition of making the
services related to items listed in
loan, even if the consumer can choose
§ 226.4(c)(7) (for example, reviewing or
the service provider. Examples are;
completing documents), even if other
A. The cost of required mortgage
incidental services such as explaining
insurance, even if the consumer is
various documents or disbursing funds
allowed to choose the insurer; and
for the parties, are performed. ► T h e
B. A mortgage broker fee when the use entire charge is excluded even though a
of a broker is required, such as when a
fee for the incidental services would be
consumer cannot get the same loan
a finance charge if it was imposed
terms and conditions directly through
separately.-^ In all cases,.charges
64355
excluded under § 226.4(c)(7) must be
bona fide and reasonable.
► 2 . Charges assessed during the loan
term. The exclusion in § 226.4(c)(7) for
charges imposed in real estate or
residential mortgage transactions is not
available for fees to be assessed
periodically during the loan term. For
example, a fee to be assessed at intervals
during a 30-year loan (whether collected
at closing or when the service is
rendered) for determining current tax
lien status or flood insurance
requirements is a finance charge. In
contrast, where such fees are imposed
solely in connection -with the creditor’s
initial decision to grant credit, the fees
are excluded from the finance charge
under § 226.4(c)(7).
* * * * *
4(e) Certain Security Interest Charges
1. Examples. ► O n l y sums actually
paid to public officials are excludable
from the finance charge under
§ 226.4(e)(1).^ Examples of
►e x c lu d a b le -^ charges ► a r e - ^
[excludable from the finance charge
under § 226.4(e)(1) include]:
► i . ^ Charges for filing or recording
security agreements, mortgages,
continuation statements, termination
statements, and similar docum ents^
that evidence the obligation between the
creditor and the consum er^;
► i i . - ^ Stamps evidencing payment of
taxes on property if the stamps are
required to file a security agreement on
the property; and
► i i i . An intangible tax on the
property if the payment of the tax is
required to file a security agreement on
the property.-^
{Only sums actually paid to public
officials are excludable under
§ 226.4(e)(1).]
* * * * *
Subpart B—Open-End Credit
4. in Supplement I to part 226, under
§ 226.5— General Disclosure
Requirements, under 5(b)(1) Initial
disclosures., in paragraph 1., the first
and second sentences would be revised,
and a new paragraph 5. would be added
to read as follows;
* * * * *
§226.5
*
*
General disclosure requirements.
*
*
*
5(b)(1) Initial Disclosures
1. Disclosure before the first
transaction. The rule that the initial
disclosure statement must be furnished
“before the first transaction" requires
delivery of the initial disclosure
statement before the consumer becomes
64356
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
obligated on the plan. For example, the
► v i i . Charges imposed for the
initial disclosures must be given before
termination of an open-end credit
the consumer makes the first purchase
plan.-^
► ( s u c h as when consumers open credit * * * * *
plans and ipake purchases
6. In Supplement I to part 226, under
contemporaneously at retail stores)-^,
26.12—Special credit card provisions,
receives the first advance, or pays any
t under 12(b) Liability o f cardholder for
fees or charges under the plan other
unauthorized use., new paragraphs 2.
than an application fee or refundable
and 3. would be added to read as
membership fee (see below).* * *
follows:
*
*
*
*
*
* * * * *
► 5 . Balance transfers. A creditor that
solicits the transfer by a consumer of
outstanding balances from an existing
account to a new open-end plan must
comply with § 226.6 before the
consumer authorizes the balance
transfer. Card issuers that are subject to
the requirements of § 226.5a may
establish procedures that comply with
both sections in a single disclosure
statement.-^
* * * * *
§ 226.12
Special credit card provisions.
*
*
*
*
*
12(b) Liability o f Cardholder for
Unauthorized Use
* * * * *
► 2 . Imposing liability. A card issuer
is not required to impose liability on a
cardholder for the unauthorized use of
a credit card; if the card issuer does not
seek to impose liability, the issuer need
not conduct any investigation of the
5. In Supplement I to part 226, under cardholder’s claim.
3. Reasonable investigation. If a card
§ 226. 6—Initial disclosure statement,
issuer seeks to impose liability when a
under 6(b) Other charges., paragraph 1
claim of unauthorized use is made by a
would be revised to read as follows:
cardholder, the card issuer must
* * * * *
conduct a reasonable investigation of
the claim. In conducting its
§ 226.6 Initial disclosure statement.
* * * * *
investigation, the card issuer may
reasonably request the cardholder’s
6(b) Other Charges
cooperation, but the card issuer may not
1. General; examples o f other charges. automatically deny a claim based solely
on the cardholder’s failure or refusal to
Under § 226.6(b), significant charges
comply with a particular request. The
related to the plan (that are not finance
steps necessary for investigating claims
charges) must also be disclosed. For
may differ, but actions such as the
example:.
following represent steps that a card
► i . - ^ Late payment and over-theissuer may take, as appropriate, in
credit-limit charges.
conducting a reasonable investigation:
► i i . - ^ Fees for providing
i. Reviewing the types or amounts of
documentary evidence of transactions
purchases made in relation to the
requested under § 226.13 (billing error
cardholder’s previous purchasing
resolution).
pattern.
ii. Reviewing where the purchases
► i i i . ^ Charges imposed in
connection with real estate transactions were delivered in relation to the
such as title, appraisal, and credit report cardholder’s residence or p}ace of
business.
fees. (See § 226.4(c)(7).)
iii. Reviewing where the purchases
► i v . - ^ A tax imposed on the credit
were made in relation to where the
transaction by a state or other
cardholder resides or has normally
governmental body, such as a
shopped.
documentary stamp tax on cash
iv. Comparing any signature on credit
advances. (See the commentary to
slips
for the purchases to the signature
§ 226.4(a).)
of the cardholder or an authorized user
► v . - ^ Membership or participation
in the card issuer’s records including
fees for a package of services that
other credit slips.
includes an open-end credit feature,
v. Requesting a written, signed
unless the fee is required whether or not statement from the cardholder or
the open-end credit feature is included.
authorized user.
For example, a membership fee to join
vi. Advising the cardholder that an
a credit union would not be an “other
appearance may be required in a court
charge,” even if membership is required action against the person who allegedly
to apply for credit.
used the card without authority.
vii. Requesting a copy of a police
► v i . - ^ Automated teller machine
report, if one was filed.-^
(ATM) charges described in comment
* * * * *
4(a)-5 that are not finance charges.
7. In Supplement I to part 2 2 6 , under
§226.15—Right o f rescission, the
following amendments would be made:
a. Under Paragraph 15(a)(1)., in
paragraph 5., the third sentence is
revised, and two new sentences are
added following the third sentence;
b. Under Paragraph 15(a)(1).,
paragraph 6. would be revised; and
c. Under Paragraph 15(d)(2)., in
paragraph 1., the third sentence would
be revised.
The additions and revisions would
read as follows:
* * * * *
§ 226.15 Right of Rescission.
*
*
*
*
*
Paragraph 15(a)(1)
* * * * *
5. Principal dwelling. * * * When a
consumer buys or builds a new dwelling
that will become the consumer’s
principal dwelling within one year or
upon completion of construction, the
new dwelling is considered the
principal dwelling [when] ► i f ^ it
secures the open-end credit line. ► I n
that case, the transaction secured by the
new dwelling is a residential mortgage
transaction and is not rescindable. For
example, if a consumer whose principal
dwelling is currently A builds B, to be
occupied by the consumer upon
completion of construction, an advance
on an open-end line to finance B and
secured by B is a residential mortgage
transaction."^ * * *
6. Special rule for principal dwelling
When the consumer is acquiring or
constructing a new principal dwelling,
[ a n y j^ a ^ credit plan or extension
► t h a t is subject to Regulation Z and
is*^ secured by the equity in the
consumer’s current principal dwelling
(for example, an advance to be used as
a bridge loan) is still subject to the right
of rescission. ► F o r example, if a
consumer whose principal dwelling is
currently A builds B, to be occupied by
the consumer upon completion of
construction, a loan to finance B and
secured by A, is subject to the right of
rescission. But a credit transaction
secured by both A and B is a residential
mortgage transaction and is not
rescindable."^
*
*
*
x
*
Paragraph 15(d)(2)
1. Refunds to consumer. * * * “Any
amount” includes finance charges
already accrued, as well as other charges
such as ^ b ro k e r fees,^ application
and commitment f e e s ^ , ^ or fees for a
title search or appraisal, whether paid to
the creditor, paid directly to a third
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
party, or passed on from the creditor to
the third party. * * *
* * * * *
8. In Supplement I to part 226, under
§ 226.16—Advertising, under 16(d)
Additional Requirements for Home
Equity Plans, a new paragraph 7. would
be added to read as follows:
* * * * *
future event, the creditor may indicate
that the disclosures assume that events
will occur at a certain time.
► i v . - ^ The conditions under which
a demand feature may be exercised. For
example, in a loan subject to demand
after five years, the disclosures may
state that the loan will become payable
on demand in five years.
► v . - ^ An explanation of the use of
pronouns or other references to the
§226.16 Advertising.
* * * * *
parties to the transaction. For example,
the disclosures may state, “ ‘you’ refers
16(d) Additional Requirements for
to the customer and ‘we’ refers to the
Home Equity Plans
creditor.”
* * * * *
► v i . - ^ Instructions to the creditor or
its employees on the use of a multiple► 7 . Balloon paym ent. In programs
purpose form. For example, the
where a balloon payment will occur if
disclosures may state, “Check box if
only the minimum payments under the
applicable.”
plan are made, the advertisement must
► v i i . - ^ A statement that the
state that a balloon payment will result.
borrower may pay a minimum finance
(See comment 5b(d)(5)(ii)-3 regarding
charge upon prepayment in a simpledisclosure requirements for a balloon
interest transaction. For example, when
payment.)-^
state law prohibits penalties, but would
*
*
*
*
Ik
allow a minimum finance charge in the
9. In Supplement I to part 226, under
event to prepayment, the creditor may
§226.17—General disclosure
make the § 226.18(k)(l) disclosure by
requirements, the following
stating, “You may be charged a
amendments would be made:
minimum finance charge.”
a. Under Paragraph 17(a)(1).,
► v i i i . - ^ A brief reference to negative
paragraph 5. would be revised;
amortization in variable-rate
b. Under Paragraph 17(c)(4)., a new
transactions. For example, in the
paragraph 4 would be added; and
variable-rate disclosure, the creditor
c. Under 17(f) Early disclosures.,
may include a short statement such as
paragraph 1. would be revised.
“Unpaid interest will be added to
The revisions and additions would
principal.” (See the commentary to
read as follows:
§226.18(f)(l)(iii).)
* * * * *
► i x . ^ A brief caption identifying the
disclosures. For example, the
Subpart C—Closed-end Credit
disclosures may bear a general title such
§226.17 General disclosure requirements.
as “Federal Truth in Lending
* * * * *
Disclosures” or a descriptive title such
as “Real Estate Loan Disclosures.”
Paragraph 17(a)(1)
► x . - ^ A statement that a due-on-sale
* * * * *
clause or other conditions on
5. Directly related. The segregated
assumption are contained in the loan
disclosures may, at the creditor’s option, document. For example, the disclosure
include any information that is directly
given under § 226.18(q) may state,
related to those disclosures. Directly
“Someone buying your home may,
relation information includes, for
subject to conditions in the due-on-sale
example, the following:
clause contained in the loan document,
► i . -^ A description of a grace period assume the remainder of the mortgage
after which a late payment charge will
on the original terms.”
be imposed. For example, the disclosure
► x i . - ^ If a state or Federal law
given under § 226.18(1) may state that a
prohibits prepayment penalties and
late charge will apply to “any payment
excludes the charging of interest after
received more than 15 days after the due prepayment from coverage as a penalty,
date.”
a statement that the borrower may have
► i i . - ^ A statement that the
to pay interest for some period after
transaction is not secured. For example, prepayment in full. The disclosure
the creditor may add a category labelled given under § 226.18(k) may state, for
“unsecured” or “not secured” to the
example, “If you prepay your loan on
security interest disclosures given under other than the regular installment date,
§226.18(m).
you may be assessed interest charges
► i i i . -^ The basis for any estimates
until the end of the m onth.”
used in making disclosures. For
► x i i . - ^ More than one hypothetical
example, if the maturity date of a loan
example under § 226.18(f)(l)(iv) in
depends solely on the occurrence of a
transactions with more than one
64357
variable-rate feature. For example, in a
variable-rate transaction with an option
permitting consumers to convert to a
fixed-rate transaction, the disclosures
may include an example illustrating the
effects on the payment terms of an
increase resulting from conversion in
addition to the example illustrating an
increase resulting from changes in the
index.
► x i i i ." ^ The disclosures set forth
under § 226.18(f)(1) for variable-rate
transactions subject to § 226.18(f)(2).
► x i v . ^ A statement whether or not
a subsequent purchaser of the property
securing an obligation may be permitted
to assume the remaining obligation on
its original terms.
► x v . A late-payment fee disclosure
under § 226.18(1) on a single payment
loan.-^
* * * * *
Paragraph 17(c)(4)
* * * * *
► 4 . Relation to prepaid finance
charges. Prepaid finance charges paid
prior to or at closing may not be treated
as the first payment period on a loan.
Thus, creditors may not disregard an
irregularity in disclosing such finance
charges.-^
* * * * *
17(f) Early Disclosures
1. Change in rate ► o r other te rm s ^
[No redisclosure] ►R e d isc lo su re-^ is
required for changes that occur between
the time disclosures are made and
consummation, [unless] * ^ i^ - the
annual percentage rate in the
consummated transaction exceeds the
limits prescribed in section 226. 22(a)
(Vs of 1 percentage point in regular
transactions and V* of 1 percentage
point in irregular transactions).
►R edisclosure is also required, even if
the APR is within the permitted
tolerance, if the disclosures were not
based on estimates in accordance with
section 226.17(c)(2) and labelled as
such.-^ To illustrate:
► i . ^ If disclosures are made in a
regular transaction on July 1, the
transaction is consummated on July 15,
and the actual annual percentage varies
by more than Va of 1 percentage point
from the disclosed annual percentage
rate, the creditor must either redisclose
the changed terms or furnish a complete
set of new disclosures before
consummation. Redisclosure is required
even if the disclosures made on July 1
are based on estimates and marked as
such; and
► i i . If disclosures are made on
January 15, the transaction is
consummated on February 10, and the
64358
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
finance charge increased by $35 but the
disclosed annual percentage rate is
w ithin the permitted tolerance, the
creditor must at least redisclose the
changed terms. (See § 226.18(d) and
footnote 41 of this part.)-^
* * * * *
10. In Supplement I to part 226, under
§226.18—Content o f disclosures, the
following amendments would be made:
a. Under Paragraph 18(c)(l)(iv)., a
new paragraph 2. would be added; and
b. Under 18(d) Finance charge.,
paragraph 2 would be revised.
The additions and revisions would
read as follows:
* * * * *
§ 226.18
Content of disclosures.
*
*
*
*
*
Paragraph 18(c)(l)(iv)
* * * * *
► 2 . Prepaid mortgage insurance
premiums. RESPA requires creditors to
give consumers a settlement statement
disclosing the costs associated with
mortgage loan transactions. Included on
the settlement statement are mortgage
insurance premiums collected at
settlement, which are prepaid finance
charges. In calculating the total amount
of prepaid finance charges, creditors
should use the amount for mortgage
insurance that is listed on the line for
mortgage insurance on the settlement
statement, without adjustment, even if
the actual amount collected at
settlement varies because of RESPA’s
escrow accounting rules.
Certain residential mortgage and
variable-rate transactions.
§226.19
*
*
*
*
*
Paragraph 19(b)(2)(vii)
* * * * *
2. Negative amortization and interest
rate carryover. * * * ►L o a n s that
provide for more than one way to trigger
negative amortization are separate
variable-rate programs requiring
separate disclosures. (See the
commentary to § 226.19(b)(2) and
226.19(b)(3) for a discussion on the
definition of variable-rate loan programs
and the format for disclosure.) If a
consumer is given the option to cap
monthly payments that may result in
negative amortization, the creditor must
fully disclose the rules relating to the
option, including the effects of
exercising the option (such as negative
amortization will occur and the
principal loan balance will increase);
however, the disclosure in
§ 226.19(b)(2)(viii) need not be
p ro v id ed .^ * * *
*
*
*
*
*
secured by the new dwelling is a
residential mortgage transaction and is
not rescindable. For example, if a
consumer whose principal dwelling is
currently A builds B, to be occupied by
the consumer upon completion of
construction, an construction loan to
finance B and secured by B is a
residential mortgage transaction.-^
*
*
*
4. Special rule for principal dwelling
When the consumer is acquiring or
constructing anew principal dwelling,
[any] ► a - ^ loan ►(s u b je c t to
Regulation Z)-^ secured by the equity in
the consumer’s current principal
dwelling (for example, a bridge loan) is
still subject to the right of rescission
[regardless of the purpose of that loan)
► F o r example, if a consumer whose
principal dwelling is currently A builds
B, to be occupied by the consumer upon
completion of construction, a
construction loan to finance B and
secured by A is subject to the right of
rescission. But a credit transaction
secured by both A and B is a residential
mortgage transaction and is not
rescindable.*^
* * * * *
12. In Supplement I to part 226, under
§ 226.22—Determination o f the annual
percentage rate, under Paragraph
22(a)(1)., in paragraph 5., the reference
Paragraph 23(d)(2)
to footnote “45a” is revised to read
“45d”.
1 Refunds to consumer. * * * “Any
13. In Supplement I to part 226, under
amount” includes finance charges
§ 226.23—Right o f Rescission, the
following amendments would be made: already accrued, as well as other charges
such as ^-broker fees,^ application
a. Under Paragraph 23(a)(1)., in
and commitment fe e s ^ .^ l or fees for a
paragraph 3., the fourth sentence is
title search or appraisal, whether paid to
revised and two new sentences are
the creditor, paid directly to a third
added following the fourth sentence;
party, or passed on from the creditor to
b. Under Paragraph 23(a)(1).,
18(d) Finance Charge
the third party. * * *
paragraph 4. is revised;
* * * * *
* * * * *
c. Under Paragraph 23(d)(2)., in
paragraph 1., the third sentence is
2.
Tolerance. A tolerance for the
23(f) Exempt Transactions
revised; and
finance charge is provided in footnote
* * * * *
d. Under 23(f) Exempt transactions.,
41 ► o f this part. When a miscalculation
of the amount financed, or of some other in paragraph 4., two new sentences are
4. New advances. * * * ► T h e
added following the first sentence, and
numerical disclosure for which the
creditor
to whom the obligation was
a
new
sentence
is
added
at
the
end
of
regulation provides no specific
initially made payable is the original
theparagraph.
tolerance, results from an error in a
creditor In a merger, consolidation, or
The revisions and additions would
finance charge that constitutes a part of
acquisition, the successor institution is
read
as
follows:
that amount, the miscalculated amount
considered the original creditor for
* * * * *
financed or other numerical disclosure
purposes of the exemption in
does not violate the act or the regulation
§ 2 2 6 .2 3 (f)(2 ).* * * ► i n refinancing
§ 226.23 Right of rescission.
if the finance charge disclosed under
* * * * *
transactions,
any creditor that was not
§ 226.18(d) is within the permissible
the original creditor for the obligation
tolerance under footnote 41 of this
Paragraph 23(a)(l)
being refinanced must deliver the
part-^.
* * . * * *
general rescission notice (model form
* * * * *
3. Principal dwelling. * * * When a
H -8).-^
11. In Supplement I to part 226, under consumer buys or builds a new dwelling * * * * *
§226.19—Certain residential mortgage
that will become the consumer’s
14. In Supplement I to part 226, under
and variable-rate transactions, under
principal dwelling within one year or
Appendix J, under the subheading
Paragraph 19(b)(2)(vii).t in paragraph 2., upon completion of construction, th e'
References, under 1981 changes:, the
three new sentences are added
new dwelling is considered the
second sentence would be revised to
following the second sentence to read as principal dwelling [when] ► i f - ^ it
follows:
read as follows:
secures the acquisition or construction
* * * * *
* * * * *
loan, ► i n that case, the transaction
Federal Register / Vol. 59, No. 239 / Wednesday, December 14, 1994 / Proposed Rules
Appendix J—Annual Percentage Rate
Computations for Closed-End Credit
Transactions
*
*
*
*
*
References
m
* * * * *
1981 changes: * * * Paragraph
(b)(5)(vi) has been revised to permit
creditors ► i n single-advance, single
payment transactions in which the term
is less than a year and is equal to a
whole number of months*^ [in all cases
where the transaction term equals a
whole number of months], to use either
the 12-month method or the 365-day
method to compute the number of unitperiods per year.
By order of the Board of Governors of the
Federal Reserve System, acting through the
Secretary of the Board under delegated
authority, December 8,1994.
W illiam W. W iles,
Secretary of the Board.
[FR Doc. 94-30606 Filed 12-13-94; 8:45 am]
BILUNG CODE 6210-01-P
COMMODITY FUTURES TRADING
COMMISSION
meaningful comments, the Commission
has determined to extend the period for
public comment concerning only those
issues involving swap agreements. This
extension would not affect the closing
date for commenting on proposed Part
36.
DATES: Written comments concerning
swap agreements must be received by
the Commission by the close of business
on January 31,1995.
ADDRESSES: Comments should be sent to
Jean A. Webb, Secretary, Commodity
Futures Trading Commission, 2033 K
Street, NW., Washington, DC 20581.
Reference should be made to section
4(c) contract market transactions and/or
swap agreements.
FOR FURTHER INFORMATION CONTACT:
Ellyn S. Roth, Attorney, Office of the
General Counsel, Commodity Futures
Trading Commission, 2033 K Street,
NW., Washington DC 20581. Telephone:
(202) 254-9880.
Issued in Washington, DC, this 8th day of
December, 1994, by the Commission.
Jean A. Webb,
Secretary of the Commission.
(FR Doc. 94-30690 Filed 12-13-94; 8:45 am]
BILUNG CODE 6351-01-M
17 CFR,Parts 35 and 36
Section 4(c) Contract Market
Transactions; Swap Agreements
DEPARTMENT OF THE TREASURY
64359
between the hours of 8 a.m. and 5 p.m.
to: CC:DOM:CORP:T:R (EE-48-90),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Cynthia Morton or Paul Accettura, (202)
622-6070 (not a toll-free number).
s u p p l e m e n t a r y in f o r m a t io n :
Background
This document provides proposed
amendments to the Income Tax
Regulations to supply rules under
sections 4955, 6852, and 7409 of the
Internal Revenue Code of 1986 (Code).
Sections 4955, 6852, and 7409 were
enacted by the Omnibus Budget
Reconciliation Act of 1987 (OBRA),
Public Law 100—203.
In addition, proposed amendments
were made to regulations under other
sections in order to reflect the effects of
sections 4955, 6852, and 7409. Proposed
amendments were made to the
following regulations sections:
§§ 1.6091-2, 53.4963-1, 53.6011-1,
53.6071-1, 53.6091-1, 301.6211-1,
301.6212-1, 301.6213-1, 301.6861-1,
301.6863-1, 301.6863-2, 301.7422-1.
and 301.7611-1.
These regulations will be effective
upon publication of the final regulations
in the Federal Register.
Explanation of Provisions
Section 501(a) exempts from income
26 CFR Parts 1,53 and 301
tax any organization described in
[E E -48-90]
section 501(c). Section 501(c)(3)
describes organizations that are
SUMMARY: On October 2 8 , 1 9 9 4 , the
RIN 1545-A077
organized and operated exclusively for
Commission published in the Federal
charitable purposes. An organization is
Register a notice proposing rules in a
Political Expenditures by Section
not described in section 501(c)(3) if it
new Part 3 6 which would permit certain 501(c)(3) Organizations
participates or intervenes in any
contract market transactions meeting
specified criteria to trade pursuant to an AGENCY: Internal Revenue Service (IRS), political campaign on behalf of (or in
opposition to) any candidate for public
exemption from certain requirements of Treasury.
ACTION: Notice of proposed rulemaking.
office (political intervention).
the Commodity Exchange Act and
Before sections 4955, 6852, and 7409
Commission regulations. The notice also
SUMMARY: This document contains
were enacted in 1987, revocation of the
seeks comment on whether Part 35
proposed regulations regarding excise
recognition of exemption was the sole
(Exemption of Swap Agreements)
taxes,
accelerated tax assessments, and
sanction available against political
should be amended to include stand
injunctions imposed for certain political intervention by public charities. In
alone prohibitions of fraud and price
expenditures made by organizations that contrast, private foundations have been
manipulation similar to those being
(without regard to any political
subject since 1969 to the section 4945
proposed in new Part 3 6 , and whether
expenditure)
would be described in
excise tax on taxable expenditures such
the proposed requirements for eligible
section 501(c)(3) and exempt from
as political expenditures. The sanctions
participants in new Part 3 6 should be
taxation
under section 501(a). These
in sections 4955, 6852, and 7409 apply
applied to the Commission’s previouslysanctions were enacted as part of the
to all organizations described in section
granted exemptions, including the
Revenue Act of 1987
501(c)(3) (public charities and private
exemption for swap agreements in Part
DATES: Written comments and requests
foundations).
3 5 . 5 9 FR 5 4 1 3 9 .
for a public hearing must be received by
Congress enacted sections 4955, 6852
The applicable comment period
March 14,1995.
expires on December 1 2 , 1 9 9 4 . The
and 7409 because it determined that
Commission has received a number of
revocation of exemption was not a
ADDRESSES: Send submissions to:
requests for an extension of.the
sufficient sanction to enforce effectively
CC:DOM:CORP:T:R (EE-48-90), room
comment period, particularly with
the prohibition on political intervention
5228, Internal Revenue Service, POB
regard to amendments to Part 3 5 . In
7604, Ben Franklin Station, Washington, by section 501(c)(3) organizations. For
example, if an organization engaged in
order to ensure that all interested parties DC 20044. In the alternative,
have an opportunity to submit
significant, uncorrected political
submissions may be hand delivered
Commodity Futures Trading
Commission.
ACTION: Extension of comment period.
AGENCY:
Internal Revenue Service
FEDERAL RESERVE BANK OF DALLAS
P.O. BOX 655906
DALLAS, TX 75265-5906
BULK RATE
U.S. P OSTA GE
PAI D
DALL AS, TEXAS
Permit No. 151
@FedFRASER