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F ederal R eserve Ban k o f D allas DALLAS, TEX A S 75222 C i r c u l a r No. 77-51 A p r i l 26, 1977 REG U LA TIO N Z — T R U T H - IN - L E N D IN G T O A L L B A N K S , O TH E R C R E D IT O R S , AN D O THERS CONCERNED IN T H E E LE VE 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 F e d era l R e s e rv e System has proposed fo r comment an in te r p r e ta tio n of R egulation Z c o n c e rn in g th e a p p l i cation of c e r ta in re q u ire m e n ts to c r e d i t c ard plans in v o lv in g t r a n s a c t io n - b y tra n s ac tio n b il l in g ( r a t h e r than c u m u la tiv e b illin g on an account) and the im position of no finance c h a rg e . Comments on th e p roposed in te r p r e ta tio n should be d ir e c te d to the S e c r e t a r y , Board of G o v e rn o rs of the Federal R e s e rv e S ystem , W as h in g to n , D . C . 20551, to be re c e iv e d not la te r than May 16, 1977. A ll m a teria ls should in c lu d e Docket No. R -0 0 9 4 . P rin te d on the fo llo w in g pages is the B o a rd 's press re lease and the te x t of the proposed in te rp re ta tio n as subm itted fo r p u b lic atio n in the FEDERAL R E G IS T E R . A n y questions about the proposed in te r p r e ta tio n should be d ir e c te d to R ic h a rd B . West of our R egulations D e p a rtm e n t, E x t. 6171, S in c e r e ly y o u r s , R obert H . B o y k in F i r s t V ic e P re s id e n t Banks and others are encouraged to use the fo llo w in g to ll-fr e e incoming WATS numbers in contacting this Bank: 1 -8 0 0 -49 2 -4 40 3 (in tra s ta te ) and 1 -8 0 0 -5 2 7 -4 9 7 0 (in te rs ta te ). For c a lls placed loc a lly , p lease use 651 p lus 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) April 13, 1977 For immediate release The Board of Governors of the Federal Reserve System today proposed an interpretation of Regulation Z (Truth in Lending) affecting credit card issuers which bill customers in full on a transaction-bytransaction basis and impose no finance charges. The Board will receive comment through May 16, 1977. Most credit cards extend open-end credit, such as the credit available with a bank credit card, or a department store card, and customers are billed, usually monthly, for their purchases. may be left after the customer makes a payment. A balance Certain credit card issuers, however, such as some automobile rental companies,require payment in full for each transaction, and send bills only when there has been a transaction. No finance charges are imposed. The proposal would permit such credit card issuers to continue sending bills to their customers on a transaction-by-transaction basis, and would not require them to send out periodic bills. The proposal would also require such card issuers to make only such disclosures, and conform only to other requirements of Regulation Z,that are consistent with and applicable to their billing systems. The text of the Bo a r d’s proposed interpretation is attached. # * * # # # # # # # # # # This proposed in terp reta tion Is designed to Indicate which of the requirem ents are appropriate for such card issuers. DATE: Comments m ust be received on or bef&re May 16, 1977. ADDRESS: Secretary, Board of Gover nors of th e Federal Reserve System, W ashington. D.C. 20551. All m aterial subm itted should include th e docket num ber R-0094. FOR FURTHER INFORMATION CON TACT: D. Edwin Schmelzer, Chief, F air Credit Practices Section, Division of Con sum er Affairs, Board of Governors of the Federal Reserve System, W ash ington, D.C. 20551 (202-452-2412). SUPPLEMENTARY INFORMATION: Section 103(f) of the T ruth in Lending Act, as implemented by § 226.2 (s) and (x) of Regulation Z, requires all credit card issuers to comply with certain pro visions of th e Act and Regulation Z even though those provisions are generally applicable only to creditors of open end credit plans. There are certain tw o-party credit cards which are issued in connec tion with which no finance charge is im posed and billing for paym ent in full is accomplished on a transaction-by-transaction basis, ra th e r th an on an account basis using periodic statem ents. This proposed interpretation is designed to indicate, as perm itted by section 103(f) of the Act, th e Board’s opinion regard ing which sections of the regulation are applicable to such credit card programs. The interpretation would perm it such card issuers to continue sending bills in the form of invoices or other statem ents to each customer for each transaction in which th e card is used. I t would not require th a t the card issuer convert to using a periodic billing statem ent which involves the m aintenance of accounts for each customer. The interpretation would require such card issuers, prior to the first tran sac tion in which the card is used, to dis close any charges (other than a finance charge) which relate to the deferral of paym ent by use of the cards, such as a late paym ent or delinquency charge (5 226.7(a)(6)). The card issuer would be required to make disclosures regard ing any security interest which may be retained (5 226.7(a)(7)). The card is suer would also be required to provide the statem ent of rights and responsi bilities under the F air Credit Billing Act prior to th e first use of the card (5 226.7 ( a ) (9 )). The proposal would no t require a dis closure regarding minimum payments (I 226.7(a) (8 )). Since the only types of credit cards considered herein are ones which require paym ent in full for each transaction a t the time of billing, th a t disclosure is, by definition, inapplicable. The proposal would n o t require such card issuers to disclose the “previ ous balance” (5 226.7(b) (1) (i)), the am ounts of “paym ents” and “credits” (5 226.7(b) (1) (ill)), or th e closing date and “new balance” (§ 226.7(b) (1) (ix>). Those disclosures relate mainly to sys tems which periodically Mil th eir cus tomers on an account basis a n d do not a p p ro p ria te .” E x tr a c t From FEDERAL R E G IS T E R , V O L . 4 2, N O . 76, W e d n e s d a y , A p r i l 2 0 , 1977 p p . 20478 - 20479 [ 12 CFR Part 226 ] [R eg . Z; D o c k e t N o. R -0 0 9 4 ] APPLICATION OF CERTAIN REQUIRE MENTS TO CREDIT CARD PLANS IN VOLVING TRANSACTION-BY-TRANSACTION BILLING AND THE IMPOSITION OF NO FINANCE CHARGE AGENCY: Board of Governors of the Federal Reserve System. ACTION: Proposed rule. SUMMARY: This proposed Interpreta tion of Regulation Z indicates the provi sions applicable to certain tw o-party credit card plans in connection with which the card issuers bill th eir custom ers in full on a transaction-by-transaction basis, ra th e r th an on an account basis using periodic statem ents, and in connection w ith which no finance charge is imposed. These credit card issuers are subject to th e Act and Regulation Z sim ply because th e F air Credit Billing Act am endm ents adjusted the definition of “creditor” to impose certain require m ents upon all card issuers even though those requirem ents are generally appli cable only to open end creditors. The Board is directed to apply those require m ents to such card issuers “to th e extent appear to be germane to the type of sys tem under ccnsideration in this proposal. The requirem ents to provide an iden tification of each transaction (§ 226.7 (b )(1 )(ii)) and to provide an address for receipt Of billing error inquiries (§ 226.7(b) (1) (x )) would be deemed to apply to such systems. The proposal would perm it the card issuer to comply w ith those sections by placing the rele vant inform ation on the invoice or other statem ent sent to the customer for each transaction. The proivsions requiring the card is suer to send a periodic statem ent at least 14 days prior to th e end of a “free period” (§ 226.7(b) (2)) would be deemed inapplicable to such credit card systems since there are no finance charges im posed under the credit card systems cov ered by this interpretation and, conse quently, no “free periods.” The proposal would perm it the card issuer to make use of the exceptions from the general requirem ent th a t all disclo sures appear on the fro n t of the periodic statem ent (§ 226.7(c)). All references to a “periodic statem ent” in § 226.7(c) would be read to indicate the invoice or other statem ent sent to the customer for each transaction. This proposal would require the card isuer to send the statem ent prescribed by § 226.7(a) (9) ' to each customer on a sem iannual basis (§ 226.7(d)). The in terpretation would perm it the card is suer to comply w ith th a t section by send ing the statem ent required by § 226.7 (a) (9) w ithin the time periods provided in 5 226.7(d), or by sending either the statem ent prescribed by § 226.7(a) (9) or the statem ent prescribed by 5 226.7 (d) (5) with every invoice or other bill ing statem ent sent to its customers. The tim ing of this disclosure would be com puted w ithout reference to billing cycles and periodic statem ents, which do not exist in such program s. Consequently, if the card issuer decided to give the state m ent semiannually instead of w ith every invoice, this proposal would perm it send ing the statem ent only to those custom ers who receive a transaction invoice during the chosen months. This proposal would require the card issuer to notify customers of changes in term s (§ 226.7(f)). However, since there are no billing cycles or periodic sta te m ents used in such plans, the time pe riod for notifying customers of changes in the term s of the plan would be 15 days prior to the date th e change is to be instituted, rath er th an 15 days prior to the first billing cycle in which the change is to take place. Additionally, the interpretation would require ad vance notice only of those types of changes in term s which, if undertaken by open end creditors generally, would require notice to all customers prior to imposition of the change on the cus tom ers’ accounts. The proposal would exempt such card issuers from complying w ith the require ments which call for prom pt crediting of paym ents (5 226.7(g)), unless the plan Includes th e possibility of the im position of a specific charge for late pay m ent, delinquency, or default. The proposal would apply th e provi sions regarding crediting and refunding excess paym ents <§ 226.7(h)) to such credit plans. However, compliance with those requirem ents m ay be achieved by such credit card issuers by accounting for the am ount received in excess of th e required paym ent by a credit m em oran dum or other reasonable means, ra th e r th a n by crediting to an account. Since no periodic statem ent is required for such systems, this interpretation would require th e card issuer to notify the customer of th e existence of an excess paym ent, unless a refund is sent w ithin 5 business days of its receipt. The card issuer would be required to comply w ith all relevant portions of § 226.13, except 5 226.13 (k) which is in applicable to tw o-party credit card sys tem s generally. The proposal would require the card issuer to comply with the error resolu tion requirem ents of the regulation (§ 226.14). However, the proposal would also provide th a t all references therein to a “periodic statem ent” should be read to indicate th e invoice or other billing statem ent for th e relevant transaction. All actions referenced in 5 226.14 with regard to correcting and adjusting a custom er’s account would be perm itted to be taken by issuing a refund or new invoice to the customer, or by other ap propriate means consistent with th e pu r poses of th e section. Since there are no accounts to be adjusted, and no periodic statem ent upon which any such adjust m ents can be reflected, this change in th e regulation’s requirem ent with re spect to this type of credit card is deemed necessary to the purposes of the Act and regulation. To aid in the consideration of this m aterial by the Board, interested per sons are invited to submit relevant data, views, comments, or argum ents. Any such m aterial should be subm itted in writing to the Secretary, Board of Gov ernors of the Federal Reserve System, W ashington, D.C. 20551 to be received not later th a n May 16, 1977. All m ate rials subm itted should Include the docket num ber R-0094. Such inform a tion will be made available for inspec tion and copying upon request, except as provided in 5 261.6(a) of the Board’s Rules Regarding Availability of Infor m ation (12 CFR 261.6(a)). P ursuant to 15 U.S.C. 1602(f) and 15 U.S.C. 1604, the Board hereby publishes for comment the following proposed in terpretation of Regulation Z. § 226.709 Application of limited re quirements to card issuers which bill customers o n a transaction-by-transaction basis. (a) I t has come to the Board’s a tte n tion th a t certain credit cards are issued, th e card issuer and the seller being the same person or related persons, in con nection with which no finance charge is imposed and customers are billed in full for each use of the card on a tran saction-by-transaction basis by sending an invoice or other statem ent to the customer. No cumulative account which reflects th e transactions by each cus tom er dining a period of time, such as a m onth, is m aintained. (b) Section 103(f) of the Act requires all credit card Issuers to comply with certain provisions even though those provisions are generally applicable only to creditors of open end credit plans and requires th e Board to apply these pro visions to all card Issuers “to the extent appropriate.” The question arises as to which of those provisions, as imple m ented by this P art, appropriately apply to such card issuers. (c) Such card issuers may bill cus tomers on a transaction-by-transaction basis, and need not m aintain a cum ula tive account for each custom er for which a periodic statem ent m ust be sent. (d) Prior to th e first use of the credit card th e card issuer shall provide the customer w ith a statem ent setting forth th e disclosures required by 5 226.7(a) (9) and, as applicable, 5 226.7(a)(6) and 5 226.7(a) (7). Tfhe disclosure required by 5 226.7(a)(6) shall be lim ited to those charges th a t are or may be imposed as a result of th e deferral of paym ent by use of th e card, such as late paym ent or delinquency charges. Such card issuers need not provide the disclosure required by 5 226.7(a)(8). (e) The disclosures required by 5 226.7 (b)(1) (i), (iii) and (ix) need not be given by such credit card issuers. The re quirem ents of 5 226.7(b) (1) (ii) and 5 226.7(b) (1) (x) are applicable to such card issuers and compliance may be achieved by placing the required disclo sures on the invoice or statem ent sent to th e customer for each transaction. Sec tion 226.7(b) (2) does not apply to these credit card issuers. (f) The provisions of 5 226.7(c), in cluding those which perm it certain re quired disclosures to be m ade other than on the fro n t of a periodic statem ent, shall apply. All references to the “peri odic statem ent” in 5 226.7(c) shall be read to indicate the invoice or other bill ing document sent to the customer for each transaction. (g) The provisions of 5 226.7'd) shall apply to such credit card issuers. Com pliance therew ith may be achieved (1) by mailing or delivering the statem ent required by 5 226.7(a)(9) to each cus tom er who receives a transaction invoice during a one-m onth period chosen by the card issuer which meets the timing requirem ents of 5 226.7(d) (2), (3), and (4), or (2) by sending either the sta te m ent prescribed by 5 226.7(a) (9) or the statem ent prescribed by 5 226.7(d)(5) w ith each invoice sent to a customer. (h) The provisions of 5 226.7(f) apply to these credit card issuers, except th a t (1) notice of the change in term s shall be given a t least 15 days prior to the date upon which the change takes effect, rath e r th a n 15 days prior to the begin ning date of the billing cycle in which it takes effect, and (2) the card issuer need notify cardholders in advance of only those changes in term s which, if under taken by creditors of open end credit plans generally, would necessitate notice to all customers prior to imposing the change on th eir accounts. (i) The provisions of 5 226.7(g) shall apply to such credit card issuers if th e credit card plan includes th e possible im position of a specific charge for late pay ment, default, or delinquency. O ther wise, they do not apply to such credit card issuers. ' (j) The provisions of 5 226.7(h) shall apply to such credit card issuers, except th a t all requirem ents to credit am ounts to an account may be complied w ith by other reasonable means, such as by a credit-- memorandum. Since no periodic statem ents are provided or required for the credit card systems subject to this interpretation, a notice of excess pay m ent should be sent to th e custom er w ithin a reasonable period of tim e fol lowing its occurrence unless a refund of th e excess paym ent is mailed or de livered to the custom er w ithin 5 business days of its receipt by the card issuer. (k) The card issuer shall comply with all the provisions of 5 226.13, including 5 226.13 (i) and (j) to the extent th a t they are applicable to the credit card plan, except th a t 5 226.13(k) is in applicable. (1) The card issuer shall comply with the provisions of $ 226.14, as applicable. All references in 5 226.14 to the “periodic statem ent” shall be read to indicate the invoice or other statem ent for the rel evant transaction. All actions referenced in 5 226.14 with regard to correcting and adjusting a customer’s account may be taken by issuing a refund or a new in voice, or by other appropriate means, consistent with the purposes of the section. By order of the Board of Governors of the Federal Reserve System, April 11, 1977. G riffith L. G arw o o d , Deputy Secretary of the Board. | F R D o c . 77-11349 P ile d 4 -1 9 -7 7 :8 :4 5 am ]
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