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F

e d e r a l

R

e se r ve

b a n k

DALLAS, TEXAS

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D

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75222

American Revolution Bicentennial

C ircular No. 75-145
September 30, 1975

REGULATION Z
Amendment Regarding Disclosures
On Cash Advance Checks
Proposed Amendment on Disclosure
Of Real Estate Closing Costs

TO ALL BANKS, OTHER CREDITORS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Following is the text of a statement issued September 15, 1975 by the Board of
Governors of the Federal R eserve System:
The Board of Governors of the Federal Reserve System today issued
an amendment to its T ru th -in -L e n d in g Regulation Z that re q u ir e s cred ito rs
to disclose in a clear and conspicuous manner the credit terms involved in
the use of cash advance check s.
The amendment is effective J a n u a ry 1, 1976. The Board proposed such
an amendment last December 18 and clarifying changes were made in the
light of comment received from the pu blic.
A num ber of banks operating credit ca rd plans have been sending blank
checks to credit card holders that can be used to obtain cash advances on a
cred it card account.
Under the amendment, disclosu res specifically related to the ch a rg es
imposed when th ese checks a r e used will be re q u ire d the first time the
cash advance check or other similar cr e d it device is sent to a customer.
This proposal was sent to you with our C ircu lar No. 74-355, dated December 31,
1974. Enclosed is a copy of the amendment, and the FEDERAL REGISTER document relating
to this matter is prin ted on the following pages.
Closing Costs
Following is the text of a statement issued September 16, 1975 by the Board of
Governors of the Federal Reserve System:
The Board of Governors of the Federal R eserve System today proposed
to amend its Regulation Z—T r u t h - i n - L e n d i n g —to r e q u ir e d is clo s u re of the

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

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closing costs in certain real p ro p e rty transactions not c overed by the Real
Estate Settlement P rocedu res Act (RESPA) .
Comment will be received by the Board through October 15, 1975.
The amendment would apply to cred it transactions w here the lender r e ­
tains or ac q uires an interest in the real p ro p e rty involved as collateral, e x ­
cept for mortgages covered by RESPA.
An example of the type of credit extension covered is a loan for home
improvements, when the home is used as secu rity for the loan.
The proposed amendment to Regulation Z would implement a section of
the recently passed Public Law 93-495 that calls for a statement of closing
costs to be made in accordance with the requirem ents of the T r u t h - i n Lending Act. Closing costs a r e defined in the draft amendment as any fee
or c h a rg e, other than a down payment, paid in cash by the customer at the
time of, or before, settlement of a real p ro p e rty tran saction , whether or
not the fee constitutes a finance cha rg e u n d e r the Regulation. The d isclo­
s u r e requirem ent is intended to provide the customer with knowledge of
the total of the custom er's closing costs.
In c red it sales tran sactio ns, the proposed amendment would re q u ir e the
d isclo su re to be made before the customer makes any down payment. In
other transactio ns, d is clo s u re would be re q u ire d at the time a lender makes
a commitment.
The text of the proposed amendment is p rin ted on the following pages.
Interested p ersons a r e invited to submit relevant data, view s, or argum ents con­
cernin g this proposal in writing to the S e c re ta ry , Board of Governors of the Federal Reserve
System, Washington, D . C . 20551, to be received not later than October 15, 1975.
Sincerely yours,
T . W. Plant
First Vice President
Enclosure

E xtract From
FEDERAL REGISTER,
V O L . 40, NO. 183,
F r id a y , September 19, 1975,
pp. 43199 - 43200
[R eg. Z]

PART 226— TRUTH IN LENDING
Open End Credit Accounts— Specific
Disclosures

On December 27, 1974, the Board of
Governors published for comment in the
F e d e r a l R e g i s t e r (39 FR 44779) a pro­
posed amendment to the open-end credit
disclosure requirements of Regulation Z
(§ 226.7 (f) ) . The proposal required openend creditors sending to their credit
cardholders blank checks or other credit
devices which are intended to be used in
connection with such open-end credit
accounts to include a clear disclosure
statement of the charges and other per­
tinent credit information specifically
related to the use of blank checks or
other credit devices delivered. The pro­
posed amendment required such dis­
closure only the first time the blank
checks or other credit devices were sent
to the customer, but not when later
renewed or resupplied.
Following consideration of 44 comment
letters received on this proposal, the
Board revised the proposed language and
hereby promulgates it in final form. Two
significant clarifications have been made
to the regulatory requirement as pro­
posed: The language of the regulation
has been clarified to indicate that the
term “credit devices” does not apply to
credit cards and to indicate that the dis­
closure requirement is not applicable to
checks used in conjunction with a de­
mand deposit account, even though such
checks may also activate a cash advance
under an open-end credit account.
In response to concerns over the need
for such disclosures where these blank
checks have been provided to a cus­
tomer shortly after the opening of an ac­
count, the regulation has been revised to
Indicate that the disclosures need not
be made unless the blank checks are
mailed or delivered to the customer sub­
sequent to 30 days after the delivery of
the initial open-end credit disclosures.
In response to questions concerning the
location of the disclosures accompany­
ing the blank checks, the revised regula­
tion stipulates that the disclosure con­
sist of a single written statement which
shall not appear on any promotional
material mailed or delivered at the same
time. The disclosure statement may be
printed on a separate sheet or printed on
a booklet containing the checks; the
statement need not be repeated on each
blank check. Questions also were raised
concerning which disclosures of § 226.7
(a) should be made in connection with
these blank checks. The pertinent dis­

closure provisions are those contained in
§§ 226.7(a) (1), (2), (3), and (4). The
revised regulation provides that the dis­
closure statement accompanying the
blank checks may be limited to the provi­
sions of § 226.7(a) (1), (2), (3), and (4).
Alternatively, the revised regulation
provides that a full statement of the re­
quirements of § 226.7(a) be provided
with the provisions of subsections (1),
(2), (3), and (4) clearly and conspicu­
ously referenced on or accompanying
that statement. For example, if the full
statement of the provisions of § 226.7(a)
is (subdivided into terms covering credit
sale and cash advance transactions, ref­
erence may be made in the accompany­
ing material to the terms covering cash
advance transactions. Likewise, if the
terms covering cash advance transac­
tions are numbered, the accompanying
material may refer to the appropriate
numbered terms.
The provisions of § 226.7(f) are to be­
come effective January 1,1976.
§ 2 2 6 .7 O p en-end credit accounts— sp e­
c ific disclosu res.

(f)
Supplemental credit devices for
use in open-end credit accounts. If, sub­
sequent to 30 days after delivering the
disclosures required under paragraph (a)
of this section, a creditor of an open-end
credit account mails or delivers, other
than as a renewal or resupply, a blank
check, payee designated check, blank
draft or order or other similar credit de­
vice other than a credit card, to an ex­
isting customer or cardholder for use In
connection with such account, such de­
vice shall be accompanied by a single
written statement setting forth clearly
and conspicuously those disclosures of
paragraph (a) of this section which spe­
cifically relate to the use of such device.
Such disclosure statement shall either be
limited to the disclosures of paragraphs
(a) (1), (2), (3), and (4) of this section
or contain aU disclosures required of such
paragraph with the pertinent disclosures
clearly and conspicuously referenced on
or accompanying that disclosure state­
ment. Such disclosure statement shall not
appear on any promotional material
mailed or delivered at the same time. The
requirements of this paragraph shall not
be applicable to checks to be used in con­
junction with a checking account even
though such checks may also activate a
cash advance under an open-end credit
account.
By order of the Board of Governors,
September 10, 1975.
[s e a l]

T h e o d o re E. A llis o n ,

Secretary of the Board.
[FR D oc.75-24961 F iled 9-1 8 -7 5 ;8 :4 S a m ]

Ex tract From
FEDERAL REGISTER,
VOL. 40, NO. 184,
Monday, Sep te m b e r 22, 1975,
p. 43516
FEDERAL RESERVE SYSTEM
[ 12 CFR Part 226 ]
[R eg . Z ]

DISCLOSURE OF CLOSING COSTS
Notice of Proposed Rulemaking

permitted on a separate form, or could
be given with the other Truth in Lend­
ing disclosures if they are given at the
time disclosure of closing costs would
otherwise be required.
Where disclosures are required to be
made but exact information is not known,
estimates may be used under the provi­
sions of § 226.6(f).
The proposed regulations include five
new definitions to bs included in § 226.2.
Since the Board is currently adding
several other definitions in this section,
the paragraph letters have been left
blank at this time.
Should the Board adopt the proposed
amendment after considering the com­
ments received on it, an effective date
would be set far enough in advance to
allow for the orderly change of forpis
where necessary.
Pursuant to the authority granted in
15 U.S.C. 1604 (1970), the Board pro­
poses to amend Regulation Z, 12 CFR
Part 226, as follows:
1. Section 226.2 would be amended by
adding the following definitions:

S e p t e m b e r 16, 1975.
On October 28, 1974, Congress enacted
Public Law 93-495 containing several
amendments to the Truth in Lending
Act. Section 409 of Public Law 93-495
provides for the disclosure of “closing
costs” to be incurred by the customer in
consumer credit transactions. The Board
of Governors is today publishing for pub­
lic comment certain amendments to § 2 2 6 .2 D e fin itio n s and ru les o f c o n ­
Regulation Z designed to implement
struction.
section 409.
*
*
*
*
*
Section 226.8 (r), the section proposed
“Closing” means the date on which
to require disclosure of closing costs, ap­ the bargained for consideration is ex­
plies only to real property transactions, changed between the parties to any
i.e., transactions in which a security in­ transaction, irrespective of when the
terest in real property is or will be re­ transaction is consummated.
tained or acquired by the creditor. The
“Closing cost” means any fee, charge
Board believes that this limitation is ap­ or other expense, other than a downpay­
propriate at this time because in other ment, paid in cash by the customer, or
types of transactions closing costs are on the customer’s behalf, at, or prior to,
generally either not present at all or are a closing, as a condition to the transac­
minimal in amount and not subject to tion, whether or not such fee, charge or
change among creditors. The Board, expense constitutes a finance charge.
however, specifically invites comments on
“Commitment” means an agreement,
the restriction of the section to real prop­ whether or not in writing, by a creditor
erty transactions.
to enter into a specified consumer credit
The term “closing cost” is defined to transaction with a customer, whether or
include any charge or fee, other than not such agreement is subject to any
downpayment, which is paid in cash by conditions and Whether or not such
the customer at or prior to closing. “Clos­ agreement is binding upon the customer.
ing” is defined as the date “bargained for
“Downpayment” means a payment
consideration” is exchanged between the made at or prior to consummation of a
parties to the transaction.
transaction which is or will be applied
Section 226.8(r) also excludes any
wholly to the cash price of property or
transaction subject to the Real Estate services purchased.
Settlement Procedures Act and the regu­
“RESPA” means the Real Estate Set­
lations adopted thereunder by the De­ tlement Procedures Act of 1974 together
partment of Housing and Urban Devel­ with the regulations promulgated there­
opment, since disclosure of closing costs under by the Secretary of Housing and
is already required in such transactions. Urban Development.
The disclosure of closing costs is re­
2. Section 226.8(a) would be revised
quired to be made, in connection with
real property credit sales, prior to the and paragraph (r) added as follows:
making of any downpayment. With re­
§ 2 2 6 .8 Credit oth er than o p e n en d — '
spect to other transactions, disclosure is
sp ec ific disclosu res.
required at the time a lender commit­
(a) General rule. Any creditor when
ment is given. Commitment is defined to
extending credit other than open end
mean an oral or written creditor agree­
ment to enter into a specific transaction, credit shall, in accordance with § 226.6
whether or not such agreement is con­ and to the extent applicable, make the
disclosures required by this section with
ditioned or binding on the customer.
respect to any transaction consummated
With respect to the way in which dis­
closures are made, the Board proposes on or after July 1,1969. Except as other­
to adhere to its general policy of not wise provided in this section, such dis­
specifying forms but allowing creditors closures shall be made before the trans­
to design their own forms subject only action is consummated. At the time dis­
to Regulation Z’c requirements as to closures are made, the creditor shall
clarity and sequence. Disclosure would be furnish the cusomer with a duplicate of

the instrument or a statement by which
the required disclosures are made and
on which the creditor is identified. Ex­
cept as provided in paragraph (r) of this
section, all of the disclosures shall be
made together on either:
(1) The note or other instrument evi­
dencing the obligation on the same side
of the page and above the place for the
customer’s signature; or
(2) One side of a separate statement
which identifies the transaction.
9

*

*

*

*

(r) Disclosure of closing costs. The
creditor in any real property transac­
tion subject to this section shall dis­
close to the customer all closing costs to
be paid by the customer in connection
with such transaction in accordance
with the following provisions:
(1) The disclosure required by this
paragraph shall include the total amount
of closing costs using the term “closing
costs” and, where there is more than
one component cost, a description of
each. Such disclosures shall be made:
(1) On one side of a separate state­
ment, or
(ii)
Together with the other disclo­
sures required by this section, in which
case the disclosures required by this par­
agraph shall, if required to be itemized,
either be listed separately, or to the ex­
tent that they are itemized elsewhere on
such disclosure statement, referenced as
being a closing cost by use of an asterisk
or other appropriate means.
(2) In the case of any credit sale, the
disclosures required by this paragraph
shall be made prior to the making of
any downpayment.
(3) In the case of any extension of
credit other than a credit sale, the dis­
closures required by this paragraph shall
be made at the time the creditor makes
a commitment in connection with that
transaction.
(4) Notwithstanding the provisions of
§ 226.8(r) (2) and (3), the disclosures
required by this paragraph shall be made
before the transaction is consummated.
(5) This paragraph does not apply to
any transaction to which the disclosure
requirements of RESPA are applicable.
3.
This notice is published pursuant to
section 553(b) of Title 5, United States
Code, and § 262.2(a) of the Rules of Pro­
cedure of the Board of Governors of the
Federal Reserve System (12 CFR 262.3
(a)).
Interested persons are invited to sub­
mit relevant data, views, or arguments
concerning this proposal. Any such ma­
terial should be submitted in writing to
the Secretary, Board of Governors of the
Federal Reserve System, Washington,
D.C. 20551, to be received not later than
October 15, 1975. Such material will be
made available for inspection and copy­
ing upon request, except as provided in
§ 261.6(a) of the Board’s Rules regard­
ing availability of information.
[s e a l]
T h e o d o r e E. A l l i s o n ,
Secretary of the Board.
IF R JD o c.T S -2 6 1 8 7 F ile d 9 -1 9 -V 7 5 ;8 :4 5 .a m .]

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

TRUTH IN LENDING
A M E N D M E N T T O R E G U L A T IO N Z f

be accompanied by a single written statement
setting forth clearly and conspicuously those dis­
closures of paragraph (a) of this section which
SECTION 226.7 — OPEN-END CREDIT
specifically relate to the use of such device. Such
ACCOUNTS — SPECIFIC DISCLOSURES
disclosure statement shall either be limited to the
disclosures of paragraphs (a)(1), (2), (3), and (4) of
* * * * *
this section or contain all disclosures required of
(f) Supplemental credit devices for use in open- such paragraph with the pertinent disclosures
clearly and conspicuously referenced on or ac­
end credit accounts. If, subsequent to 30 days after
companying that disclosure statement. Such dis­
delivering the disclosures required under para­
closure statement shall not appear on any pro­
graph (a) of this section, a creditor of an open-end
motional material mailed or delivered at the same
credit account mails or delivers, other than as a
time. The requirements of this paragraph shall not
renewal or resupply, a blank check, payee desig­
be applicable to checks to be used in conjunction
nated check, blank draft or order, or other
with a checking account even though such checks
similar credit device other than a credit card, to
may also activate a cash advance under an openan existing customer or cardholder for use in
connection with such account, such device shall
end credit account.
Effective January 1, 1976, § 226.7(f) is added
as set forth below:

t For this Regulation to be complete as amended, retain the following:
1) Printed pamphlet as amended dated September 30, 1974;
2) Amendments effective August 8, 1975, Section 226.10(f), Section 226.3(c), Section 226.1(b)(1),
Section 226.9(h), Section 226.13(i), Section 226.9(g)(5), Section 226.7(a)(1) and 226.7(b)(9), and
Section 226.1(c); and
3) This slip sheet effective January 1, 1976.