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F ederal Reserve Ba n k o f D allas DALLAS. TEX A S 75222 Circular No. 77-12 January 19, 1977 R E G U LA TIO N Z— T R U T H - IN - L E N D IN G Proposed Am endm ent on D is clo s u res of D e a le r P a rtic ip a tio n T O A L L B A N K S , O T H E R C R E D IT O R S , A N D O TH E R S CO NCERNED IN T H E E LE V E N TH F E D E R A L RESERVE D IS T R IC T : T h e Board of G o v e rn o rs of the Federal R e s e rv e System has proposed a m ending its R egu lation Z to r e q u i r e d is c lo s u re of a d e a le r p a rtic ip a tio n in a consum er c r e d it c o n tra c t. Comments on the proposed am endm ent should be d ir e c te d to the S e c r e t a r y , B oard of G o v e rn o rs of the Fed eral R e s e rv e S ys te m , W a s h in g to n , D . C . 20551 , to be r e c e iv e d not la te r than F e b r u a r y 4 , 1977. A ll m aterial should in c lu d e the docket n u m b e r R -0 0 5 3 . Copies of the B o a rd 's p re s s rele a se and te x t of the proposed am endm ent a r e p r in te d on the fo llo w in g p a g e s . S in c e r e ly y o u r s , R o b e rt H . B o y k in F ir s t V ic e P re s id e n t This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERAL k 9 press RESERVE release •••••• F o r inanediate r e l e a s e December 30, 1976 The B o a r d o f Governors of the F e d e r a l R e s e r v e S y s t e m today Issued for c o m m e n t a proposal to a m e n d Its T r u t h In L e n d i n g r e g u l a t i o n to requ i r e d i s c l o s u r e o f a dealer p a r t i c i p a t i o n in a c o n s u m e r c r e d i t contract. Comment should be received by the Board by February 4. Last A u g u s t the Board p r o p o s e d a n i n t e r p r e t a t i o n o f the Regulation stating that the a m o u n t of a d e a l e r p a r t i c i p a t i o n n eed not b e s e p a r a t e l y i t e m i z e d in Truth in L e n d i n g d i s c l o s u r e s p r e s e n t e d to a customer. The d e a l e r participation, if any, is a l r e a d y a p a r t o f the finance charge a n d a n n u a l percentage rate. In a p a r t i c i p a t i o n , the s e l l e r o f a p r o d u c t suc h as a n a u tomobile shares a p o r t i o n of the finance charge w i t h the c r e d i t o r w h o finances the p u r c h a s e . C o m m e n t s r e c e i v e d o n the i n t e r p r e t a t i o n i n d i c a t e d to the Board that some c o n s u m e r b e n e f i t m i g h t be d e r i v e d fro m d i s c l o s u r e o f the existence of a d e a l e r p a r t i c i p a t i o n . The p r o p o s e d a m e n d m e n t does n o t r e q u i r e a separate i t e m i z a t i o n o f the amount of a d e a l e r p a r t i c i p a t i o n . It w o u l d requ i r e that the d i s c l o s u r e s t atement g i v e n a c u s t o m e r n o t i f y the customer that the seller o f the product ma y r e c e i v e a p o r t i o n of the f i n a n c e charge i n v o l v e d in the transaction. Final a c t i o n o n the p r o p o s e d i n t e r p r e t a t i o n w i l l b e t a k e n w h e n the Board c o n siders final action on the p r o p o s e d amendment. A c o p y o f the Board's o r d e r i n this m a t t e r is att a c h e d . tion of allocations by creditors to sellers of a portion of the finance charge on credit used to finance th e purchase of consumer goods. The am ount of seller participation typically represents a por tion of th e Interest component of a fi nance charge which is paid by a creditor to the seller for arranging or referring a direct loan from the second creditor. For convenient reference, th e proposed in terpretation is republished below* § 2 2 6 .8 2 1 tio n . E x tr a c t From FEDERAL R E G IS T E R , V O L . 4 2, N O . 4, T h u r s d a y , J a n u a r y 6, 1977 p . 1268 FEDERAL RESERVE SYSTEM [ 1 2 CFR Part 2 2 6 ] [B eg. Z ; D o c k e t N o. R -00 53 ) TRUTH IN LENDING Proposed Amendment on Disclosure of Dealer Participation The Board of Governors of the Fed eral Reserve System has published for comment a proposed interpretation of Regulation Z relating to the separate disclosure of th e portion of th e finance charge which is allocated to sellers of consumer goods by a second creditor of a consumer credit transaction. Com ments on th a t proposal have led the Board to believe th a t separate itemiza tion of th e portion of th e finance charge payable to th e dealer is probably not a necessary disclosure for consumers. However, disclosure of the fact th a t the seller will receive a portion of th e fi nance charge may be meaningful to con sum ers wishing to shop for credit or bargain for a better price and possibly should be made a requirem ent under Regulation Z. To solicit comments cm this issue, th e Board hereby publishes a proposed am endm ent to Regulation Z to require disclosure of the fact th a t a sell e r may share in the finance charge im posed on consumer credit transactions. On August 23, 1076, proposed Inter pretation 1 226.821 was published for comment in the Fedeeal R e g i s t e r (41 HR 85536). The interpretation relates to th e requirements of f 226.8(c) (8)‘(1> of Regulation Z with respect to identifica D isc lo su re o f d e a le r p a r tic ip a (a ) S e c tio n 2 26.8(c) (8 ) (1) r e q u ire s th e Ite m iz a tio n o f e a c h c o m p o n e n t o f a fin a n c e c h a rg e c o n s is tin g o f m o re t h a n o n e ty p e o f ch a rg e . S e c tio n 22 6 .4 (a) (3) lis ts a m o n g th e ty p e s o f c h a rg e s t o b e In c lu d e d In th e fi n a n c e c h a rg e a “fin d e r's fe e o r s im ila r c h a rg e .” I n c e r ta in c r e d it tr a n s a c tio n s , s u c h a s th e sa le o f a u to m o b ile s a n d o th e r c o n s u m e r goods, w h e re t h e fin a n c e c h a rg e Is d e te r m in e d b y a p p lic a tio n o f a p e rc e n ta g e r a te o r r a te s to th e a m o u n t fin a n c e d , a p o r tio n o f t h a t c h a rg e m a y b e a llo c a te d to th e d e a le r b y t h e fin a n c ia l I n s titu tio n a s a d e a le r p a r tic ip a tio n . T h e q u e s tio n a ris e s w h e th e r s u c h a llo c a tio n s m u s t b e Ite m iz e d a s a s e p a ra te c o m p o n e n t o f t h e t o t a l fin a n c e c h a rg e In th e n a t u r e o f a fin d e r's fee. <b) T h e r e q u ire m e n t fo r I te m iz a tio n o f a fin a n c e c h a rg e w h ic h In c lu d e s a fin d e r's fee o r o th e r e le m e n ts In a d d itio n to a n in te r e s t c o m p o n e n t is In te n d e d to a s s u re t h a t th e t o ta l fin a n c e c h a rg e d isc lo sed to t h e c u s to m e r p ro p e rly re fle c ts a ll c o m p o n e n ts w h ic h m u s t b e In c lu d e d In t h a t a m o u n t. A ny co m p o n e n t o f th e fin a n c e c h a rg e w h ic h Is c o m p u te d b y t h e a p p lic a tio n o f a p e rc e n ta g e r a t e o r r a te s t o t h e a m o u n t fin a n c e d c o n s ti t u t e s a sin g le c h a rg e o f t h e ty p e d e s c rib e d in S 22 6 .4 (a) ( 1 ). As s u c h . I t m u s t b e i n c lu d e d In t h e fin a n c e c h a rg e c a lc u la tio n a n d d isc lo su re . A p o r tio n o f s u c h s in g le co m p o n e n t o f t h e fin a n c e c h a rg e w h ic h is d is tr ib u te d to a d e a le r Is n o t c o n s id e re d a " fin d e r 's fe e o r s im ila r c h a r g e ” a n d n e e d n o t b e s e p a ra te ly Id e n tifie d o r d isc lo sed . T h e c o n c e p t o f a ‘‘fin d e r ’s fe e ,” a s t h a t te r m Is u se d In i 2 2 6 .4 (a) ( 3 ) , is In te n d e d to co v e r c e r ta in c h a rg e s I n t h e n a t u r e o f b ro k e ra g e fees w h ic h a re Im p o sed In a d d itio n t o t h a t p o r t i o n o f th e fin a n c e c h a rg e a t t r i b u ta b l e to t h e a p p lic a tio n o f a p e rc e n ta g e r a te o r r a te s to t h e a m o u n t fin a n c e d . A n y s u c h s e p a ra te fe e m u s t, o f c o u rse , b e s e p a ra te ly ite m iz e d . ( I n te r p r e ts a n d a p p lie s 12 C F R P a r t 226.8) The Board has received more th a n 250 comments on this proposal. Comments from several Federal agencies and con sumer representatives have indicated to the Board th a t certain consumer benefits m ight be derived from disclosure of the existence of a seller participation. These comments contend th a t consumer aware ness of this element m ight encourage fu r th e r comparison of credit term s and greater competition among credit sources. Because these comments suggest th a t the prim ary goals of the T ruth in Lending Act m ight be better served by disclosure of this factor, th e Board has determ ined th a t an am endm ent to Reg ulation Z, requiring such disclosure In th e future, should be considered. The amendment which the Board now proposes does not require separate item ization of the am ount of a dealer p a r ticipation. The Board believes th a t such an additional requirem ent would be un duly burdensome and would not sig nificantly enhance consumers’ awareness of th e credit terms. Instead, th e am end m ent would require th a t th e disclosure statem ent simply notify the consumer th a t th e seller or some other party to the transaction may receive a portion of the finance charge from the transaction. In the Board’s view, disclosure of th e fact of a seller participation could alert con sumers to the possible benefits of fu rth er comparison shopping w ithout unduly complicating th e m athem atical disclo sures now required, and m ay be of as sistance to consumers' in evaluating the price offered by th e seller. For the reasons stated above, the Board proposes to am end Regulation Z to require disclosure of the fact th a t a seller arranging consumer credit may receive a portion of th e finance charge imposed on the transaction from a credi tor of th a t transaction. The Board in vites w ritten comments on th e proposal, to be received not later th a n February 4, 1977. Comments should be addressed to the Secretary, Board of Governors of the Federal Reserve System, W ashington, D.C. 20551, and should Include a refer ence to Docket No. R-0053. The Board will take final action on the proposed Interpretation § 226.8211 in connection with its final determ ination on this proposed amendment. Pursuant to th e authority granted in 15 IXS.C. 1604 (1970), th e Board pro poses to amend Regulation Z, 12 CFR P a rt 226 by adding a new § 226.8(c) (9) to read as follows: § 2 2 6 .8 C re d it O th e r T h a n O p e n E n d — S p e c ific D isc lo su re s. » • • * • (c) Credit sales. * * * (9) A statem ent th a t th e seller or other party to the transaction arranging credit may receive from another creditor in the transaction a portion of th e finance charge imposed on th a t transaction. • • * • • By order of the Board of Governors, December 30,1976. T h e o d o r e E . A l l is o n , Secretary o f the Board. [F R D oc.77— 451 F ile d 1 -5 -7 7 :8 :4 5 a m ]
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