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F e d e r a l R e se r ve b a n k DALLAS, TEXAS o f D a lla s 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) - 2 - 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.