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Federal Reserve Bank of Dallas
2200 N. PEARL ST.
DALLAS, TX 75201-2272

April 15, 2004

Notice 04-18
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Revisions to Regulation Z
(Truth in Lending)
DETAILS
The Board of Governors has published revisions to Regulation Z, which implements the
Truth in Lending Act, and to the staff commentary to the regulation. Regulation Z is revised to add an
interpretative rule of construction providing that where the word “amount” is used in the regulation
to describe disclosure requirements, it refers to a numerical amount. The staff commentary is revised
to provide guidance on consumers’ exercise of the right to rescind certain home-secured loans. In
addition, several technical revisions to the staff commentary are being published.
The rule became effective April 1, 2004; however, compliance is mandatory beginning
October 1, 2004.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 16769–75, Vol. 69, No. 62 of the
Federal Register dated March 31, 2004, is attached.
MORE INFORMATION
For more information, please contact Eugene Coy, Banking Supervision Department,
(214) 922-6201. Paper copies of this notice or previous Federal Reserve Bank notices can be printed
from our web site at www.dallasfed.org/banking/notices/index.html.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

16769

Rules and Regulations

Federal Register
Vol. 69, No. 62
Wednesday, March 31, 2004

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R–1167]
Truth in Lending
Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
AGENCY:

SUMMARY: The Board is publishing
revisions to Regulation Z, which
implements the Truth in Lending Act,
and to the staff commentary to the
regulation. Regulation Z is revised to
add an interpretative rule of
construction providing that where the
word ‘‘amount’’ is used in the regulation
to describe disclosure requirements, it
refers to a numerical amount. The staff
commentary is revised to provide
guidance on consumers’ exercise of the
right to rescind certain home-secured
loans. In addition, several technical
revisions to the staff commentary are
being published.
DATES: The rule is effective April 1,
2004. Compliance is mandatory
beginning October 1, 2004.
FOR FURTHER INFORMATION CONTACT:
Elizabeth A. Eurgubian, Attorney, and
Krista P. DeLargy, Senior Attorney,
Division of Consumer and Community

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Federal Register / Vol. 69, No. 62 / Wednesday, March 31, 2004 / Rules and Regulations

Affairs, Board of Governors of the
Federal Reserve System, at (202) 452–
3667 or 452–2412; for users of
Telecommunications Device for the Deaf
(‘‘TDD’’) only, contact (202) 263–4869.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending
Act (TILA), 15 U.S.C. 1601 et seq., is to
promote the informed use of consumer
credit by providing for disclosures about
its terms and cost. The act requires
creditors to disclose the cost of credit as
a dollar amount (the finance charge) and
as an annual percentage rate (APR).
Uniformity in creditors’ disclosures is
intended to assist consumers in
comparison shopping for credit. TILA
requires additional disclosures for loans
secured by consumers’ homes and
permits consumers to rescind certain
transactions that involve their principal
dwelling. In addition, the act regulates
certain practices of creditors.
TILA is implemented by the Board’s
Regulation Z (12 CFR part 226). An
official staff commentary interprets the
requirements of Regulation Z (12 CFR
part 226 (Supp. I)), and is updated
annually.
In December 2003, the Board
published for comment proposed
revisions to Regulation Z and to the staff
commentary. 68 FR 68793, December
10, 2003. The revisions sought to add a
rule of construction to clarify that the
word ‘‘amount’’ represents a numerical
amount throughout Regulation Z and
the staff commentary; and to provide
guidance on consumers’ exercise of
rescission rights for certain homesecured loans. Several technical
revisions to the staff commentary were
proposed. In addition, the staff
requested information regarding debt
cancellation and debt suspension
products. Finally, as part of a
rulemaking under several of the Board’s
consumer financial services and fair
lending regulations, the Board sought to
establish a more uniform standard for
providing clear and conspicuous
disclosures and provide guidance on
how to meet that standard.
The Board received approximately
150 comment letters; about 140 letters
were from financial institutions, other
creditors and their representatives, and
insurance providers. Eight letters were
received from consumer representatives,
and two letters from government
officials. Most comment letters focused
on the proposed definition of ‘‘clear and
conspicuous’’ and related guidance.
About 30 comment letters discussed the
other proposed revisions to Regulation
Z and the staff commentary.

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The proposed amendment to
Regulation Z defining ‘‘clear and
conspicuous’’ and the related guidance
in the proposed staff commentary are
not being adopted in this rulemaking, as
discussed below. With respect to the
other proposed revisions to Regulation
Z and the staff commentary,
commenters generally supported the
proposed revisions. Accordingly, the
final rule and remaining staff
interpretations are being adopted
substantially as proposed, although
some changes have been made for
clarity in response to the commenters’
suggestions, as discussed below.
Comments on the ‘‘Clear and
Conspicuous’’ Standard
Under the consumer financial services
and fair lending laws administered by
the Board, consumer disclosures
generally must be ‘‘clear and
conspicuous.’’ Assuming that most
institutions already provide consumer
disclosures that satisfy the clear and
conspicuous standard, the Board’s
proposals were intended to articulate a
more precise standard that could be
used as a baseline to determine when an
institution may not be meeting the legal
standard. Currently, there is little
guidance on what that standard means.
Moreover, the laws and regulations
contain standards that are similar but
not identical. Regulation P, which
implements the financial privacy
provisions of the Gramm-Leach-Bliley
Act, articulates more precisely than the
other consumer regulations the standard
for providing clear and conspicuous
disclosures that consumers will notice
and understand. Accordingly, the
standard and the compliance guidance
in Regulation P was used as the model
for the December 2003 proposal, which
also included compliance guidance in
the form of examples of how institutions
could satisfy the standard.
Although the Board’s effort to
establish a more uniform ‘‘clear and
conspicuous’’ standard is supported by
many commenters, almost all industry
commenters strongly oppose the Board’s
proposal based on Regulation P. They
assert that the revisions would establish
more burdensome standards that would
be costly to implement and expose them
to litigation. For example, industry
commenters stated that providing
‘‘conspicuous’’ disclosures that are
‘‘designed to call attention to the nature
and significance of the information in
the disclosure’’ would not be workable
for disclosures contained in credit card
or deposit account agreements. These
commenters asserted that the proposal
could mandate fundamental changes in

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how institutions comply with the ‘‘clear
and conspicuous’’ standard.
Consumer advocates generally
support the proposals’ goals, but they
believe the proposals do not set a high
enough standard. For example, some
consumer advocates said that
disclosures in a type size less than 10point should be deemed too small.
Some believe that the proposed
guidance is too broad and could be
interpreted to allow institutions to
include unrelated information amid
disclosures that are currently required
to be segregated.
The proposed amendment to
Regulation Z defining ‘‘clear and
conspicuous’’ and the related guidance
in the proposed staff commentary are
not being adopted in final form in this
rulemaking. Board staff is continuing to
review the issues raised by the comment
letters concerning the clear and
conspicuous standard and is
considering options to address the
commenters’ concerns.
Comments on Debt Cancellation and
Debt Suspension Agreements
In the December 2003 proposal, the
Board requested information regarding
debt cancellation and debt suspension
agreements. Under a debt cancellation
agreement or debt suspension
agreement, a creditor agrees to cancel, or
temporarily suspend, all or part of the
borrower’s repayment obligation upon
the occurrence of a specified event, such
as death, disability, or unemployment.
About 25 commenters, mostly creditors,
insurance companies, consultants, and
trade associations, responded to the
Board’s request for information and
views about those products. They
generally confirmed that the products
are being made available by an
increasing number of creditors in
connection with many types of credit,
on a wide and growing variety of terms.
The Board expressly solicited
comment on the need, if any, for
additional guidance about the
application of TILA and Regulation Z to
the sale of debt cancellation and debt
suspension products. Most industry
commenters generally favored
expanding the current rule that allows
charges for certain types of optional
coverage to be excluded from TILA’s
finance charge and APR, if certain
disclosures are provided. These
commenters stated that the exclusion in
the current rule should encompass all
types of debt cancellation and debt
suspension agreements. In contrast, a
consumer group favored repeal of the
current rule.
Most industry commenters requested
that the Board adopt procedures for

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creditors to follow when seeking to
convert borrowers’ credit insurance
coverage to a debt cancellation or debt
suspension agreement. Most
commenters stated that creditors should
be permitted to use the same procedures
used by credit card issuers when
notifying consumers of a change in the
provider of credit insurance pursuant to
§ 226.9(f). A few commenters asserted
that other applicable laws make the
adoption of additional conversion rules
or guidance under TILA unnecessary for
debt cancellation and debt suspension
products.
The Board solicited comment but did
not propose any specific revisions to the
regulation or commentary concerning
debt cancellation or debt suspension
agreements. Accordingly, today’s final
rule does not address these issues.
Board staff will continue to gather
information about debt cancellation and
debt suspension products before
determining whether to recommend
proposing new rules or guidance.
II. Revisions
Subpart A—General
Section 226.2—Definitions and Rules of
Construction
2(b) Rules of Construction
The Board proposed adding an
interpretative rule of construction in
§ 226.2(b)(5) stating that, wherever the
word ‘‘amount’’ is used in Regulation Z
and the staff commentary to describe a
disclosure requirement, it refers to a
numerical amount. Examples
illustrating how the interpretative rule
of construction for ‘‘amount’’ applies to
certain required disclosures were
proposed in the staff commentary. The
proposed interpretation addresses a
recent court decision permitting
narrative descriptions of amounts rather
than numerical amounts to disclose the
payments scheduled to repay a closedend credit transaction. See Carmichael
v. The Payment Center, Inc., 336 F. 3d
636 (7th Cir. 2003); 5 U.S.C. 1638(a)(6);
12 CFR 226.18(g).
A broad interpretation of the term
‘‘amount,’’ suggesting that narrative
descriptions may replace numerical
amounts, is contrary to TILA’s mandate
to provide consumers with clear and
conspicuous credit disclosures. The
Carmichael court’s decision could lead
to confusing disclosures that are not
uniform.
Commenters uniformly supported the
proposed rule of construction.
Consumer groups expressed concern,
however, that the proposed guidance in
the staff commentary did not state with
sufficient precision when creditors are

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permitted to disclose a numerical
amount other than a dollar amount.
The Board’s rule of construction is
being adopted as proposed. To address
commenters’ concerns, comment 2(b)–2
has been revised for clarity. As adopted,
comment 2(b)–2 provides that the
numerical amount required to be
disclosed must be expressed as a dollar
amount unless the text of the regulation
or commentary indicates otherwise. It
also provides examples of when dollar
amounts must be disclosed, and when
percentages may be disclosed.
Subpart B—Open-End Credit
Section 226.15—Right of Rescission
15(a) Consumer’s Right To Rescind
15(a)(2)
Section 125(a) of TILA provides that,
in certain credit transactions in which
the consumer’s principal dwelling
secures an extension of credit, the
consumer may rescind the transaction
within three business days after
becoming obligated on the debt (and for
open-end plans, after opening or
increasing the credit limit on the plan),
and in some cases has the right to
rescind for up to three years. See 15
U.S.C. 1635(a); 12 CFR 226.15(a)(1). The
right of rescission allows consumers
time to reexamine their credit contracts
and cost disclosures and to reconsider
whether to place a lien on their homes.
A consumer exercises the right to
rescind by notifying the creditor of the
rescission by mail, telegram, or other
written communication. Creditors must
provide consumers with a form to use
to exercise the right to rescind, which
must include the name and address of
the creditor or agent of the creditor to
receive the written communication. See
§ 226.15(b). A consumer’s notice is
considered given when mailed, when
filed for telegraphic transmission, or, if
sent by other means, when delivered to
the creditor’s designated place of
business. See § 226.15(a)(2).
Comment 15(a)(2)–1 states that
creditors may designate an agent to
receive the notification so long as the
agent’s name and address appear on the
rescission form provided to the
consumer. The Board proposed to revise
the comment to address situations
where a creditor fails to provide the
required form or to designate an address
for sending the notice. The proposal
provided that, in such cases, if a
consumer sent the notice to someone
other than the creditor or assignee—
such as a third-party loan servicer acting
as the creditor’s agent—the consumer’s
notice of rescission is effective if
applicable law deems delivery to that
person to be delivery to the creditor or

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16771

assignee. The comment is being adopted
with revisions in response to the public
comments.
Commenters generally favored
guidance about delivery of a notice of
rescission when a creditor has not
provided the required form or an
address for sending the notice.
Consumer groups and industry
representatives, including major trade
associations, generally agreed that, in
such cases, delivering the rescission
notice to the loan servicer (the person to
whom, or the address to which,
payments are sent) should be deemed
delivery to the creditor or assignee. In
their view, in this circumstance reliance
on state law is unnecessary to determine
that the loan servicer is the creditor’s or
assignee’s agent. Some industry
commenters expressed concern about
relying on state law to determine
whether delivery to some entity other
than the loan servicer might also
constitute delivery to the creditor or
assignee.
In response to commenters’
suggestions, comment 15(a)(2)–1 is
being revised to state expressly that
where the creditor fails to provide the
consumer an address for sending the
notification of rescission, the
consumer’s delivery of notification to
the person or address to which the
consumer has been directed to send
payments constitutes delivery to the
creditor or assignee. This bright-line
guidance provides clarity for creditors
and a practical outcome for consumers.
As proposed, however, the comment
recognizes the possibility that the
creditor or assignee also may have
allowed some other entity to serve as its
agent for this purpose, which must be
determined by the particular
circumstances under the applicable
state law. Reliance on state law is
appropriate to avoid penalizing
consumers who were not instructed to
send the rescission notice to the loan
servicer and who may send the notice
to another party acting on behalf of the
creditor (for example, an attorney
representing the creditor).
Some consumer representatives
suggested that the comment be revised
to clarify that rescission is effective if
the creditor or assignee receives actual
notice from any source, for example
from legal pleadings. The suggested
revision is beyond the scope of the
proposal.
15(d) Effects of Rescission
When a consumer exercises the right
to rescind a mortgage transaction, the
consumer is not liable for any finance
charges or other charges, and any
security interest in the consumer’s home

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becomes void. See 15 U.S.C. 1635(b);
§ 226.15(d)(1). After the transaction is
rescinded, the creditor must tender any
money or property given to anyone in
connection with the transaction within
a specified time frame. The creditor’s
tender triggers the consumer’s duty to
return any money or property that the
creditor delivered to the consumer. A
court may modify these tender
procedures. See § 226.15(d)(2)–(4).
Under the proposal, comment
15(d)(4)–1 was revised to state expressly
that the sequence of procedures under
§ 226.15(d)(2) and (3), or a modification
of those procedures by a court, does not
affect consumers substantive right to
rescind. Thus, where the consumer’s
right to rescind is contested by the
creditor, a court would normally
determine whether the consumer has a
right to rescind and determine the
amounts owed before establishing the
procedures for the parties to tender any
money or property.
Commenters generally supported the
proposed revision. Nevertheless, a few
industry representatives and consumer
groups asked Board staff to address an
issue not raised in the proposal. These
industry representatives requested
revisions to the commentary to support
court decisions that affirmed the court’s
authority to impose equitable conditions
to ensure that consumers meet their
financial obligations before the
creditor’s security interest is declared
void. Consumer groups requested
revisions that would support other court
decisions holding that the voiding of the
security interest under TILA’s rescission
provision is automatic and independent
of the consumer’s ability to tender
money or property.
Comment 15(d)(4)–1 is adopted as
proposed, with some modifications for
clarity, and does not address the
additional issue raised by the
commenters. The comment clarifies
only that the sequence of procedures
under § 226.15(d)(2) and (3), or a court’s
modification of those procedures under
§ 226.15(d)(4), does not affect
consumers’ substantive right to rescind
and to have the loan amount reduced,
which may be necessary before the
consumer is able to establish how the
consumer will refinance or otherwise
repay the loan.
Subpart C—Closed-End Credit
Section 226.18—Content of Disclosures
18(c) Itemization of Amount
Financed.
A technical revision is made to
comment 18(c)(1)(iii)–1, to conform a
citation to footnote 41 of Regulation Z.
No substantive change is intended.

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Section 226.19—Certain Residential
Mortgage and Variable-Rate
Transactions
19(b) Certain Variable-Rate
Transactions.
Section 226.19(b) applies to all
closed-end variable-rate transactions
that are secured by the consumer’s
principal dwelling and have a term
greater than one year. Guidance about
the applicability of § 226.19 to
construction loans was published in
comment 19(b)–1. 54 FR 9422, March 7,
1989. That guidance has been
inadvertently appended to comment
19(b)(1)–1 in the Code of Federal
Regulations. The two comments are
restated in their correct form for
reprinting in the Code of Federal
Regulations. No substantive change is
intended.
Section 226.23—Right of Rescission
23(a) Consumer’s Right to Rescind.
For the reasons discussed above,
comment 23(a)(2)–1 is revised to state
the rule for effective delivery of a
rescission notice when the creditor fails
to provide the required form or
designate an address for sending the
notice. (See SUPPLEMENTARY
INFORMATION to comment 15(a)(2)–1.)
Section 226.23—Right of Rescission
23(d) Effects of Rescission.
For the reasons discussed above,
comment 23(d)(4)–1 is revised to state
expressly that the sequence of
procedures under § 226.23(d)(2) and (3),
or a modification of those procedures by
a court under § 226.23(d)(4), does not
affect consumers’ substantive right to
rescind and to have the loan amount
adjusted accordingly, which may be
necessary before consumers are able to
establish how they will refinance or
otherwise repay the loan. (See
supplementary information to comment
15(d)(4)–1.)
Subpart D—Miscellaneous
Section 226.27—Language of
Disclosures
In March 2001, the Board revised
§ 226.27 to permit creditors to provide
disclosures in languages other than
English as long as disclosures in English
are available to consumers who request
them. 66 FR 1739, March 30, 2001.
Technical revisions are made to
comment 27–1, and comment 27–2 is
deleted to conform the commentary to
§ 226.27, as amended. No substantive
change is intended.

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Subpart E—Special Rules for Certain
Home Mortgage Transactions
Section 226.32—Requirements for
Certain Closed-End Home Mortgages
32(a) Coverage.
Rules for certain closed-end mortgage
loans in § 226.32 are triggered, in part,
by the amount of ‘‘points and fees’’
payable by the consumer at or before
loan closing and by the ‘‘total loan
amount.’’ See § 226.32(a)(1)(ii).
Comment 32(a)(1)(ii)–1, which was
added in 1996, provides examples for
calculating the ‘‘total loan amount.’’ 61
FR 14952, April 4, 1996. A technical
revision is made to comment
32(a)(1)(ii)–1, to correct a dollar amount
given in one of the examples. No
substantive change is intended.
III. Regulatory Flexibility Analysis
In accordance with section 3(a) of the
Regulatory Flexibility Act, the Board
has reviewed the amendment to
Regulation Z. The amendment adds an
interpretative rule of construction to
state that the word ‘‘amount’’ represents
a numerical amount throughout
Regulation Z. In addition, revisions to
the staff commentary provide guidance
on consumers’ exercise of the right to
rescind certain home-secured loans. The
amendment does not have any
significant impact on small entities.
IV. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3506;
5 CFR 1320 Appendix A.1), the Board
reviewed the rule under the authority
delegated to the Board by the Office of
Management and Budget. The Federal
Reserve may not conduct or sponsor,
and an organization is not required to
respond to, this information collection
unless it displays a currently valid OMB
control number. The OMB control
number is 7100–0199.
The collection of information that is
revised by this rulemaking is found in
12 CFR part 226. This collection is
mandatory (15 U.S.C. 1601 et seq.) to
evidence compliance with the
requirements of TILA and Regulation Z.
The respondents and recordkeepers are
for-profit financial institutions,
including small businesses. Institutions
are required to retain records for twentyfour months. This regulation applies to
all types of creditors, not just state
member banks; however, under
Paperwork Reduction Act regulations,
the Federal Reserve accounts for the
burden of the paperwork associated
with the regulation only for state
member banks. Other agencies account
for the paperwork burden on their

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respective constituencies under this
regulation.
The revisions provide that the term
‘‘amount’’ represents a numerical
amount throughout Regulation Z. The
revisions to the staff commentary also
provide guidance on consumers’
exercise of rescission for certain homesecured loans. These revisions are not
expected to increase the paperwork
burden of creditors.
With respect to state member banks,
there are 1,312 respondents and
recordkeepers. Current annual burden
under Regulation Z is estimated to be
618,398 hours.
Because the records would be
maintained at state member banks and
the notices are not provided to the
Federal Reserve, no issue of
confidentiality arises under the
Freedom of Information Act.
The Board has a continuing interest in
the public’s opinion of the Federal
Reserve’s collections of information. At
any time, comments regarding the
burden estimated, or any other aspect of
this collection of information, including
suggestions for reducing the burden
estimate, may be sent to the Office of
Management and Budget, Paperwork
Reduction Project (7100–0199),
Washington, DC 20503, with copies of
such comments sent to Cynthia Ayouch,
Federal Reserve Board Clearance
Officer, Division of Research and
Statistics, Mail Stop 41, Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
List of Subjects in 12 CFR Part 226
Advertising, Consumer protection,
Federal Reserve System, Reporting and
recordkeeping requirements, Truth in
Lending.

(b) Rules of construction. For
purposes of this regulation, the
following rules of construction apply:
*
*
*
*
*
(5) Where the word ‘‘amount’’ is used
in this regulation to describe disclosure
requirements, it refers to a numerical
amount.
*
*
*
*
*
I 3. In Supplement I to part 226:
I a. Under Section 226.2 Definitions and
Rules of Construction, under 2(b) Rules
of Construction, a new paragraph 2. is
added.
I b. Under Section 226.15 Right of
Rescission, under Paragraph 15(a)(2),
paragraph 1. is revised, and under
Paragraph 15(d)(4), paragraph 1. is
revised.
I c. Under Section 226.18 Content of
Disclosures, under Paragraph
18(c)(1)(iii), paragraph 1. is revised.
I d. Under Section 226.19 Certain
Residential Mortgage and Variable-Rate
Transactions, under 19(b) Certain
variable-rate transactions, paragraph 1.
is revised, and under Paragraph 19(b)(1),
paragraph 1. is revised.
I e. Under Section 226.23 Right of
Rescission, under Paragraph 23(a)(2),
paragraph 1. is revised, and under
Paragraph 23(d)(4), paragraph 1. is
revised.
I f. Under Section 226.27, the section
title is revised, paragraph 1. is revised,
and paragraph 2. is removed and
reserved.
I g. Under Section 226.32 Requirements
for Certain Closed-End Home Mortgages,
under Paragraph 32(a)(1)(ii), paragraph
1.ii. is revised.
Supplement I To Part 226—Official
Staff Interpretations
*

*

*

*

*

Subpart A—General

For the reasons set forth in the
preamble, the Board amends Regulation
Z, 12 CFR part 226, as set forth below:

*

PART 226—TRUTH IN LENDING
(REGULATION Z)

*

I

*

*

*

*

Section 226.2—Definitions and Rules of
Construction

*
*
*
*
2(b) Rules of Construction.
*
*
*
*
*
I 1. The authority citation for part 226
2. Amount. The numerical amount
continues to read as follows:
must be a dollar amount unless
otherwise indicated. For example, in a
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604
and 1637(c)(5).
closed-end transaction (Subpart C), the
amount financed and the amount of any
I 2. Section 226.2 is revised by adding
payment must be expressed as a dollar
a new paragraph (b)(5) to read as follows: amount. In some cases, an amount
should be expressed as a percentage. For
Subpart A—General
example, in disclosures provided before
the first transaction under an open-end
*
*
*
*
*
plan (Subpart B), creditors are permitted
§ 226.2 Definitions and rules of
to explain how the amount of any
construction.
finance charge will be determined;
where a cash advance fee (which is a
*
*
*
*
*

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finance charge) is a percentage of each
cash advance, the amount of the finance
charge for that fee is expressed as a
percentage.
*
*
*
*
*
Section 226.15—Right of Rescission
15(a) Consumer’s right to rescind.
*
*
*
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Paragraph 15(a)(2).
1. Consumer’s exercise of right. The
consumer must exercise the right of
rescission in writing but not necessarily
on the notice supplied under
§ 226.15(b). Whatever the means of
sending the notification of rescission—
mail, telegram or other written means—
the time period for the creditor’s
performance under § 226.15(d)(2) does
not begin to run until the notification
has been received. The creditor may
designate an agent to receive the
notification so long as the agent’s name
and address appear on the notice
provided to the consumer under
§ 226.15(b). Where the creditor fails to
provide the consumer with a designated
address for sending the notification of
rescission, delivery of the notification to
the person or address to which the
consumer has been directed to send
payments constitutes delivery to the
creditor or assignee. State law
determines whether delivery of the
notification to a third party other than
the person to whom payments are made
is delivery to the creditor or assignee, in
the case where the creditor fails to
designate an address for sending the
notification of rescission.
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15(d) Effects of rescission.
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Paragraph 15(d)(4).
1. Modifications. The procedures
outlined in § 226.15(d)(2) and (3) may
be modified by a court. For example,
when a consumer is in bankruptcy
proceedings and prohibited from
returning anything to the creditor, or
when the equities dictate, a
modification might be made. The
sequence of procedures under
§ 226.15(d)(2) and (3), or a court’s
modification of those procedures under
§ 226.15(d)(4), does not affect a
consumer’s substantive right to rescind
and to have the loan amount adjusted
accordingly. Where the consumer’s right
to rescind is contested by the creditor,
a court would normally determine
whether the consumer has a right to
rescind and determine the amounts
owed before establishing the procedures
for the parties to tender any money or
property.
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Federal Register / Vol. 69, No. 62 / Wednesday, March 31, 2004 / Rules and Regulations

Subpart C—Closed-End Credit
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Section 226.18—Content of Disclosures
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18(c) Itemization of amount financed.
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Paragraph 18(c)(1)(iii).
1. Amounts paid to others. This
includes, for example, tag and title fees;
amounts paid to insurance companies
for insurance premiums; security
interest fees, and amounts paid to credit
bureaus, appraisers or public officials.
When several types of insurance
premiums are financed, they may, at the
creditor’s option, be combined and
listed in one sum, labeled ‘‘insurance’’
or similar term. This includes, but is not
limited to, different types of insurance
premiums paid to one company and
different types of insurance premiums
paid to different companies. Except for
insurance companies and other
categories noted in footnote 41, third
parties must be identified by name.
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Section 226.19—Certain Residential
Mortgage and Variable-Rate
Transactions
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Section 226.23—Right of Rescission

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19(b) Certain variable-rate
transactions.
1. Coverage. Section 226.19(b) applies
to all closed-end variable-rate
transactions that are secured by the
consumer’s principal dwelling and have
a term greater than one year. The
requirements of this section apply not
only to transactions financing the initial
acquisition of the consumer’s principal
dwelling, but also to any other closedend variable-rate transaction secured by
the principal dwelling. Closed-end
variable-rate transactions that are not
secured by the principal dwelling, or are
secured by the principal dwelling but
have a term of one year or less, are
subject to the disclosure requirements of
§ 226.18(f)(1) rather than those of
§ 226.19(b). (Furthermore, ‘‘sharedequity’’ or ‘‘shared-appreciation’’
mortgages are subject to the disclosure
requirements of § 226.18(f)(1) rather
than those of § 226.19(b) regardless of
the general coverage of those sections.)
For purposes of this section, the term of
a variable-rate demand loan is
determined in accordance with the
commentary to § 226.17(c)(5). In
determining whether a construction
loan that may be permanently financed
by the same creditor is covered under
this section, the creditor may treat the
construction and the permanent phases
as separate transactions with distinct
terms to maturity or as a single

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combined transaction. For purposes of
the disclosures required under § 226.18,
the creditor may nevertheless treat the
two phases either as separate
transactions or as a single combined
transaction in accordance with
§ 226.17(c)(6). Finally, in any
assumption of a variable-rate transaction
secured by the consumer’s principal
dwelling with a term greater than one
year, disclosures need not be provided
under §§ 226.18(f)(2)(ii) or 226.19(b).
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Paragraph 19(b)(1).
1. Substitute. Creditors who wish to
use publications other than the
Consumer Handbook on Adjustable
Rate Mortgages must make a good faith
determination that their brochures are
suitable substitutes to the Consumer
Handbook. A substitute is suitable if it
is, at a minimum, comparable to the
Consumer Handbook in substance and
comprehensiveness. Creditors are
permitted to provide more detailed
information than is contained in the
Consumer Handbook.
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23(a) Consumer’s right to rescind.
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Paragraph 23(a)(2).
1. Consumer’s exercise of right. The
consumer must exercise the right of
rescission in writing but not necessarily
on the notice supplied under
§ 226.23(b). Whatever the means of
sending the notification of rescission—
mail, telegram or other written means—
the time period for the creditor’s
performance under § 226.23(d)(2) does
not begin to run until the notification
has been received. The creditor may
designate an agent to receive the
notification so long as the agent’s name
and address appear on the notice
provided to the consumer under
§ 226.23(b). Where the creditor fails to
provide the consumer with a designated
address for sending the notification of
rescission, delivering notification to the
person or address to which the
consumer has been directed to send,
payments constitutes delivery to the
creditor or assignee. State law
determines whether delivery of the
notification to a third party other than
the person to whom payments are made
is delivery to the creditor or assignee, in
the case where the creditor fails to
designate an address for sending the
notification of rescission.
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23(d) Effects of rescission.
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Paragraph 23(d)(4).

PO 00000

Frm 00006

Fmt 4700

Sfmt 4700

1. Modifications. The procedures
outlined in § 226.23(d)(2) and (3) may
be modified by a court. For example,
when a consumer is in bankruptcy
proceedings and prohibited from
returning anything to the creditor, or
when the equities dictate, a
modification might be made. The
sequence of procedures under
§ 226.23(d)(2) and (3), or a court’s
modification of those procedures under
§ 226.23(d)(4), does not affect a
consumer’s substantive right to rescind
and to have the loan amount adjusted
accordingly. Where the consumer’s right
to rescind is contested by the creditor,
a court would normally determine
whether the consumer has a right to
rescind and determine the amounts
owed before establishing the procedures
for the parties to tender any money or
property.
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Subpart D—Miscellaneous
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Section 226.27—Language of
Disclosures
1. Subsequent disclosures. If a
creditor provides initial disclosures in a
language other than English, subsequent
disclosures need not be in that other
language. For example, if the creditor
gave Spanish-language initial
disclosures, periodic statements and
change-in-terms notices may be made in
English.
2. [Removed and reserved.]
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Subpart E—Special Rules for Certain
Home Mortgage Transactions
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Section 226.32—Requirements for
Certain Closed-end Home Mortgage
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Paragraph 32(a)(1)(ii).
1. Total loan amount. For purposes of
the ‘‘points and fees’’ test, the total loan
amount is calculated by taking the
amount financed, as determined
according to § 226.18(b), and deducting
any cost listed in § 226.32(b)(1)(iii) and
§ 226.32(b)(1)(iv) that is both included
as points and fees under § 226.32(b)(1)
and financed by the creditor. Some
examples follow, each using a $10,000
amount borrowed, a $300 appraisal fee,
and $400 in points. A $500 premium for
optional credit life insurance is used in
one example.
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ii. If the consumer pays the $300 fee
for the creditor-conducted appraisal in
cash at closing, the $300 is included in

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the points and fees calculation because
it is paid to the creditor. However,
because the $300 is not financed by the
creditor, the fee is not part of the
amount financed under § 226.18(b). In
this case, the amount financed is the
same as the total loan amount: $9,600
($10,000, less $400 in prepaid finance
charges).
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By order of the Board of Governors of the
Federal Reserve System regarding the rule of
construction, and acting through the Director
of the Division of Consumer and Community
Affairs under delegated authority regarding
the official staff interpretations, March 25,
2004.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 04–7150 Filed 3–30–04; 8:45 am]
BILLING CODE 6210–01–P

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