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F ed er a l r e s e r v e Ba n k o f Dallas DALLAS, TEXAS 75222 Circular Ro. 7^-355 December 31? 197^+ REGULATION Z (Proposed Amendments to the Truth in Lending Regulation) To All Member Banks and Others Concerned in the Eleventh Federal Reserve District: On December 18, 197*+, the Board of Governors of the Federal Reserve System proposed two amendments to its Truth in Lending Regula tion. These amendments would: (l) Require creditors to disclose in a clear and conspicuous manner the finance charge and terms involved in the use of cash advance checks, and (2) Require disclosure to the cus tomer— prior to the signing of a loan agreement— of any variable rate interest clause that is part of the contract. To aid in the consideration of these matters by the Board, interested persons are invited to submit in writing relevant data, views, or arguments to the Secretary, The Board of Governors of the Federal Reserve System, Washington, D. C. 20551s or to any Federal Reserve Bank for transmittal to the Board, to be received at the Board not later than January 31? 1975. A copy of the Board's press release and proposed amendments are attached for your information. Y o u rs v e r y t r u l y , Ernest T. Baughman P r e s id e n t Attachments This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERA L RESERVE SYSTEM [12 CFR PART 226] [Reg. Z] TRUTH IN LENDING C red it O ther Than Open E n d --S p e c ific D is c lo s u r e s 1. P ursuant to the authority contained in the Truth in Lending A ct (15 U .S . C. § 1601 et s e q . ), the Board of G overn ors p r o p o se s to am end P a r t 226 (R egulation Z). The p rop o sed a m en d m en t would req u ire c r e d ito r s to d is c lo s e to c u s to m e r s , in advance of th e ir b eco m in g obligated on a c r e d it co n tract, a v a r ia b le in te r e s t rate c la u se if the co n tra ct, n ote, or other in stru m en t so p ro v id es. Am end § 2 26 .8 (b ) to read a s follow s: § 2 2 6 .8 — CREDIT OTHER THAN O PE N E N D --S P E C IF IC DISCLOSURES * * * (b) D is c lo s u r e s in s a le and n o n sa le c r e d it. * * * * (8) If the con tra ct, note, or other in stru m en t s o p ro v id es, the fa ct that the annual p ercen ta g e rate i s p r o sp e c tiv e ly su b ject to change; the con d ition s under w h ich su ch rate m ay be changed; and if a p p licab le, the m axim u m and m in im u m lim it s of su ch r a te s stipulated in the n o te, co n tra ct, or other in stru m en t evid en cin g the ob ligation . * 4* 2. * * The p ro p osed am endm ent to § 22 6 .8 (b ) stip u la tes d i s c lo s u r e req u irem en ts fo r oth er than open end c r e d it when the c o n tra ct, n o te, or other in stru m en t p ro v id es that the annual p ercen tage rate is p r o sp e c tiv e ly su b ject to ch an ge. That p o so ib ility of change, the conditions under w hich the change m a y occur» and any m axim u m o r m in im u m r a te s m u st be included w ith the oth er Truth in Lending -2 - dia c lo s u r e s to be given to the co n su m er p r io r to consum m ation of the o rig in a l ex ten sio n of c red it. 3. Should the Board adopt the p rop osed am endm ent a fter co n sid er in g the co m m en ts r e c e iv e d on it, an e ffe c tiv e date would be s e t fa r enough in advance to allow fo r the o r d e r ly change of fo r m s w h ere n e c e s s a r y . This n o tic e is published pursuant to se c tio n 553 (b) of T itle 5 United S tates Code, and § 2 6 2 .2 (a ) of the R ules of P ro ced u re of the Board of G overn ors o f the F e d e r a l R e s e r v e S y stem (12 C. F . R. 262. 2(a)). To aid in the co n sid er a tio n o f th e s e m a tte r s by the Board, in te r e ste d p e r so n s a r e invited to subm it r elev a n t data, v ie w s , or arg u m en ts. Any such m a te r ia l should be subm itted in w ritin g to the S e c r e ta r y , the Board of G o vern ors of the F e d e r a l R e s e r v e S ystem , W ashington, D. C. 20551, or to any F e d e r a l R e s e r v e Bank for tr a n sm itta l to the Board, to be r e c e iv e d a t the Board not la te r than Jan-. 31,1975. Such m a te r ia ls w ill be m ade a v a ila b le for in sp ectio n and copying upon req u est, ex cep t a s provided in § 2 6 1 .6 (a ) of the B oard's r u le s R egarding A v a ila b ility of Inform ation. By ord er of the B oard o f G ov ern o rs, Decembey.J.8, 1974. (Signed) T heodore E . A lliso n " T h eod ore E . Al&Sson S e c r e ta r y to the Board [SEAL] FEDERAL press RESERVE release For Immediate Release December 18, 1974 The Board of Governors of the Federal Reserve System today proposed two amendments to its Truth in Lending Regulation Z that would: 1. Require creditors to disclose in a clear and conspicuous manner the finance charges and terms involved in the use of cash advance checks. 2. Require disclosure to the customer -- prior to the signing of a loan agreement — of any variable rate interest clause that is part of the contract. Comment on the proposals should be jreceiwed by the Board not later than January 31, 1975. A number of banks operating credit card plans have been sending blank checks to credit card holders that can be used to obtain cash advances on a credit card account. Under the proposed amendment, a disclosure state ment specifically related to the charge imposed when these checks are used would be required the first time the cash advance check or other similar credit device was sent to a customer. The proposed amendment on variable rate clauses would require disclosure of the fact that the annual percentage rate is subject to change, the conditions under which the rate may be changed, and the range of rates that may apply in a specific case. This disclosure would be required prior to the signing of a loan agreement to make it possible for the customer to compare the variable rate contract with alternative sources of credit that contain no such provision. A copy of each of the proposed amendments is attached. FEDERAL RESERVE SYSTEM BOARD CF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [12 C . F . R . P art 226] [Reg. Z] TRUTH IN LENDING Open End C red it A c c o u n ts--S p e c ific D is c lo s u r e s 1• P ursu an t to the authority contained in the Truth in Lending Act (15 U .S .C . § 1604), the B oard of G overnors p r o p o se s to am end P a rt 226 (R egulation Z ). The p rop osed am endm ent would req u ire c r e d ito r s sending blank ch eck s or other c r e d it d e v ic e s to cred it ca rd h o ld ers w hich are intended to be u sed in con n ection with such accounts to include a c le a r d isc lo s u r e statem en t of the c h a r g e s and other p ertin en t c r e d it in form ation s p e c ific a lly related to the u se of the blank ch eck s or other cr e d it d e v ic e s d e liv e r e d . Such a d is c lo s u r e statem en t would be req u ired only the f ir s t tim e the blank ch eck s or other c r e d it d e v ic e s a re se n t to the c u sto m e r , but not when la te r renew ed o r resu p p lied . 2. The B oard p r o p o se s to am end § 2 2 6 .7 by the addition of a new paragraph (f) to read a s fo llow s: § 226. 7 --O P E N END CREDIT ACCOUNTS--SPECIFIC DISCLOSURES * * * * * (f) D e liv e r y of new c r e d it d e v ic e s for u se in open end a ccou n ts. If a c r e d ito r of an open end c r e d it account m a ils or d e liv e r s , other than as a ren ew al or resu p p ly, a blank ch eck , draft, o r o rd er or other c r e d it d ev ice to a c u sto m er or card h old er for u se in connection with such accou nt, such blank ch eck , draft, or order or other cred it d ev ice sh a ll be accom p an ied by a sin g le w ritten statem en t settin g forth c le a r ly and c o n s p ic -2 - u o u sly th o se d is c lo s u r e s in paragraph (a) of th is se c tio n which sp e c ific a lly rela te to the u se of the c r e d it d e v ic e s d e liv e r e d . Such d is c lo s u r e statem en t sh a ll be sep arate from any other d is c lo s u r e s or prom otion al m a te r ia l d eliv ered at the sam e tim e . 3. The p rop osed am endm ent to § 226. 7 adds new d is c lo s u r e r e q u ir e m en ts in the even t that c r e d ito r s d e liv e r to th eir open end account c u sto m e r s blank ch e c k s for u se in activatin g the c a s h advance featu re of such acco u n ts. Such d is c lo s u r e s m u st be sen t at the tim e such blank ch eck s are f ir s t is s u e d to the c u sto m e r and m u st c le a r ly state the c h a r g e s and te r m s in volved in th eir u s e . S im ilar d is c lo s u r e s would a ls o be req uired to accom pany the f ir s t d e liv e r y of any other c r e d it d ev ice for u se in con n ection with open end c r e d it a ccou n ts. Should the Board adopt the p rop osed am endm ent after con sid erin g the co m m en ts r e c e iv e d on it, an e ffe c tiv e date would be s e t far enough in advance to allow for the o rd erly change of fo r m s w here n e c e s s a r y . T h is n otice i s pu b lish ed pursuant to S ection 553(b) of T itle 5 United S tates Code, and § 2 6 2 .2 (a ) of the R u les of P ro ced u re of the B oard of G overn ors of the F e d e r a l R e s e r v e S y stem ( i2 C . F . R . 2 6 2 .2 (a ). To aid in the co n sid er a tio n of th e se m a tte r s by the B oard, in te r e s te d p e r s o n s a re in vited to subm it relev a n t data, v ie w s , or a rg u m en ts. Any such m a te r ia l should be subm itted in w ritin g to the S e c r e ta r y , the B oard of G o vern ors of the F e d e r a l R e s e r v e S y stem , W ashington, D .C . 20551, or to any F e d e r a l R e s e r v e Bank for tra n sm itta l to the B oard, to be r e c e iv e d at the B oard not la te r than J a n ., 31, 1975. Such m a te r ia ls w ill be m ad e a v a ila b le for in sp ectio n and copying upon re q u e st, ex cep t as -3 - provided in § 2 6 1 .6 (a ) of the B o a rd 's ru les R egarding A v a ila b ility of Inform ation. B y order of the B oard of G ov ern ors, D ecem b er 18, 1974 (Signed) T heodore E. A lliso n T heodore E. A lliso n S e c r e ta r y of the Board [SEAL]
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