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F ederal


Ba n k





Circular No. 69-31
February 11, 19^9


To Banks, Other Financial Institutions, Trade Associations, and
Others Concerned in the Eleventh Federal Reserve District:
On February 10, 19&9* the Board of Governors of the Federal
Reserve System made public the regulation to be followed by the nation’s
creditors in complying with the Federal Truth in Lending Act. The Act
and the implementing regulation will go into effect July 1, 1969 . The
regulation will be designated "Regulation Z".
Attached is a copy of a press release which describes some of
the more important features of the new regulation.
Administrative supervision of the Truth in Lending program as
to particular types of creditors has been assigned to nine different
Federal agencies, as more fully set out on pages 2 and 3 of the press
release. These agencies will soon begin mailing copies of the regula­
tion, along with explanatory material, to persons and firms who appear
to qualify as creditors under the regulation.
Creditors should address inquiries, including requests for
additional copies of the regulation, to their particular supervisory
agency, in accordance with the table found on the reverse of this cir­
cular .
Yours very truly,

P. E. Coldwell
Enclosure (l)

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (


Any inquiry relating to this regulation should be addressed
the appropriate office of the enforcing agencies as listed below.
National Banks.
Comptroller of the Currency,
United States Treasury Department,
Washington, D. C. 20220
State Member Banks.
Federal Reserve Bank serving the area in which the State
member bank is located.
Nonmember Insured Banks.
F.D.I.C. Supervising Examiner for the District in
which the nonmember insured bank is located.
Federally Insured Savings and Loan Associations.
The FHLBB 1s Supervisory Agent in the Federal Home Loan
Bank District in which the association is located.
Federal Credit Unions.
Regional Office of the Bureau of Federal Credit Unions, serving
the area in which the Federal Credit Union is located.
Creditors Subject to Civil Aeronautics Board.
Director, Bureau of Enforcement,
Civil Aeronautics Board,
1825 Connecticut Avenue, N.W.,
Washington, D. C. 20428
Creditors Subject to Interstate Commerce Cotapission.
Office of Proceedings,
Interstate Commerce Commission,
Washington, D. C. 20523
Creditors Subject to Packers and Stockyards Act.
Office of Administration,
Packers and Stockyards Administration,
3048 South Building,
United States Department of Agriculture,
Washington, D. C. 20250
All Other Creditors Except as Directed Above.
Truth in Lending,
Federal Trade Commission,
Washington, D. C, 20580


p re




For release in morning papers,
Monday, February 10, 1969.

February 7, 1969

The Board of Governors of the Federal Reserve System today
made public the final regulation the nation's creditors must follow
in carrying out provisions of the Truth in Lending Act adopted by
Congress last year.

Regulation Z, as it is formally designated, will

require disclosure of credit terms on virtually all types of consumer
credit beginning July 1, 1969, the date specified in the law.
The regulation spells out not only the disclosures--including
the finance charge and annual percentage rate--that must be made by
creditors but also the manner in which they must be made.

It covers

the right of a customer to cancel some types of consumer credit arrange­
ments within three business days if his residence is used as collateral,
and sets standards for advertising credit terms.
In approving the Truth in Lending Act, Congress said the
informed use of credit stems from awareness of its cost.
Lending fixes no maximum or minimum charges for credit.

Truth in
Purposes of

the law and the regulation implementing it are to make customers aware
of the cost of credit and to permit them to compare the terms available
from a variety of credit sources.
Regulation Z applies to banks, savings and loan associations,
department stores, credit card issuers, credit unions, automobile

-2 -

dealers, consumer finance companies, residential mortgage brokers,
craftsmen such as plumbers and electricians, doctors, dentists,
hospitals and any other individuals or groups which extend or arrange
for consumer credit.
The final regulation parallels the proposed regula­
tion published by the Board for comment on October 16, 1968.


additions and language changes were made in the proposed regulation on
the basis of comments received by the Board.

The basic disclosures,

which are required by the law itself remain intact in the final
A Federal Reserve task force drafted the regulation aided
by outside consultants and the 20 men and women who are members of
the Advisory Committee on Truth in Lending provided for in the law.
As part of an informational campaign to acquaint creditors
with the regulation they must follow beginning July 1, printed copies
of the regulation and statute together with an explanatory questionand-answer series on Truth in Lending, will be sent to creditors soon
through the agencies enforcing the law.

Inquiries from creditors

should be addressed to the agency charged by Congress with enforce­
ment for that particular group of creditors.
Although Congress assigned the job of writing the regulation
to the Board, enforcement will be spread throughout nine different
Federal agencies as follows:

The Federal Reserve Board for State banks


which are members of the Federal Reserve System; the Federal Deposit
Insurance Corporation for other insured State banks which are not
members of the Federal Reserve System; the Comptroller of the Currency
for national banks; the Federal Home Loan Bank Board for federally
insured savings and loan associations; the Bureau of Federal Credit
Unions; the Interstate Commerce Commission for industries it regulates;
the Civil Aeronautics Board for airlines, and the Agriculture Depart­
ment for creditors under the Packers and Stockyards Act.


assigned enforcement for all other creditors, including department
storesand other retailers,

to the Federal Trade Commission.

A creditor who willfully and knowingly violates the

Truth in

Lending law or the regulation faces a maximum criminal penalty, upon
conviction, of a $5,000 fine, a year in jail, or both.

At the same

time, the customer could sue for civil penalties of twice the amount
of the finance charge (but not less than $100 or more than $ 1 ,000 ),
court costs, and a reasonable attorney's fee.
Truth in Lending is a key portion of the Consumer Credit
Protection Act which was signed into law on May 29, 1968.

Other parts

of that Act--for which the Federal Reserve was not assigned responsibility--crack down on extortionate credit transactions, restrict the
garnishment or attachment of a person's wages by a creditor beginning
on July

1, 1970, and set up a National Commission on Consumer


In redrafting its proposed regulation, the Board transferred
into a supplement the complex and highly technical formulas and


computations which are not needed by moat creditors.

These formulas

and computations are available without charge upon written request to
the Board.
At the same time, the Board prepared sets of tables which
may be used by creditors to determine the annual percentage rate for
a transaction.

Table FRB--100-M covers up to 60 monthly payments;

table FRB--200-M covers 61 to 120 monthly payments; table FRB--300-M
covers 121 to 480 monthly payments and table FRB--100-W covers up to
104 weekly payments.

These four tables, bound in one volume, will be

available for $1.00 from the Board or any of the 12 Federal Reserve

Another volume of tables with instructions on their usage, also

available for $ 1 .0 0 , can be used in conjunction with the first volume
to compute annual percentage rates for transactions with irregular pay­
ments or those involving multiple advances.

(Each volume of tables

will be available for 85 cents per copy in orders of 10 or more).
Consumer Credit
Consumer credit is defined in the regulation as credit
offered or extended to a person primarily for personal, family, house­
hold or agricultural purposes and for which a finance charge is or
may be imposed or which is repayable in more than four instalments.
The regulation divides all transactions into two types--open end credit,
which includes the revolving charge accounts offered by many department
stores and transactions through credit cards; and credit other than
open end, which is primarily the instalment type used by consumers to
buy big ticket items such as automobiles, refrigerators, washing machines
and television sets.

-5 -

Not all credit is covered by Truth in Lending, however.
Business and commercial credit, other than for agricultural purposes,
is exempt, as are credit transactions of more than $25,000 (other than
real property transactions which are covered regardless of amount).
Other exemptions include transactions in securities or commodities
with a broker-dealer registered with the Securities and Exchange
Commission and some types of transactions under regulated public
utility tariffs.

This latter provision was broadened in the final

regulation to exempt transactions with any company or cooperative
which files its tariffs with any State or with agencies of the Federal
government, including the Rural Electrification Administration.
State Disclosures
The law says that the Board shall exempt from Federal dis­
closure requirements classes of transactions within a State if it
determines that State law imposes substantially similar requirements,
and adequate enforcement is provided.

The Board will soon publish a

proposed set of guidelines to be used in ruling on State applications
for exemption from Federal disclosure.

When adopted in final form,

possibly in the spring, the guidelines will become "Supplement II"
to the regulation.
Regulation Z itself, however, details the procedures a
creditor must use if he decides to comply with any provision of State
law which is inconsistent with Federal disclosure requirements.


-6 -

such a case, the inconsistent State disclosures must be separated
from the Federal disclosures.

This may be done on a separate state­

ment or on the same statement if the Federal disclosures are listed
first and the State disclosures are identified as inconsistent with
Federal law and are listed below a conspicuous dividing line.
Finance Charge and Annual Percentage Rate
The finance charge and annual percentage rate are the two
most important concepts embodied in Regulation Z.

They are designed

to tell the consumer at a glance how much he is paying for credit and
the relative cost of that credit in percentage terms.
In general, the finance charge is the total of all costs
imposed by the creditor and paid either directly or indirectly by
the consumer or another party as an incident to the extension of

It includes such costs as interest, time price differential,

and amounts paid as a discount; service, transaction, activity or
carrying charges; loan fees, points, finder's fees or similar charges;
fees for an appraisal, investigation or credit reports (except in
real property transactions), and premiums for credit life insurance
that are required by the creditor as a condition to obtaining credit.
Any charges of the following type may be excluded from the
finance charge if they are itemized and disclosed separately to the

taxes not included in the cash price of an article; license,

-7 -

certificate of title and registration fees imposed by law; the premium
paid for insurance in lieu of allowing the creditor a security interest
in the customer's property if the premium does not exceed the amount of
the recording fee that would have been applicable if the security
interest had been given, and fees and charges paid to public officials
under law for such things as title and mortgage searches.
Some charges paid in connection with real property trans­
actions need not be included in the finance charge if they are bona
fide, reasonable in amount and don't destroy the purpose of Truth in

These include fees for title examination, title insurance,

surveys, preparation of deeds, settlement statements, escrow payments
to cover future taxes and insurance and utility costs; notary fees,
appraisal fees and credit reports.
The annual percentage rate represents the relationship of
the total finance charge to the total amount financed.
computed to the nearest one quarter of one per cent.

It must be
The method of

computation depends on whether the credit is open end or the instal­
ment type.
In the case of open end credit--the department store re­
volving charge account, for example--the annual percentage rate is
computed by multiplying the periodic service charge by the number of
periods in a year.

In the case of a typical charge of 1-1/2 per cent

of the unpaid balance with bills

presented monthly, the annual

-8 -

percentage rate would be 18 per cent.

In cases where two or more

periodic rates are used, the annual percentage rate may be computed
at the creditor's option by (1 ) dividing the total finance charge
for the month by the sum of the unpaid balances and (2 ) multiplying
the result by the number of billing cycles in a year.
The regulation also spells out the methods to be used in
open end credit for computing the annual percentage rate when brackets
or a range of balances are used and when the finance charge includes a
minimum or fixed fee.
For credit other than open end, the annual percentage rate
must be computed by the actuarial method.

Here are examples of how

the actuarial method would work:
For a bank loan of $100 for one year at a 6 per cent add-on
charge, the annual percentage rate would be 11 per cent.

This is

because the $100 would be available to the customer only for the first
month of the loan.

When he makes his first repayment, he actually

repays part of the principal and has less money at his disposal.
Using the same set of circumstances but this time with a

6 per cent charge discounted in advance, the annual percentage rate
would be 11-1/2 per cent.

That's because the customer in this case

would receive $94 and must repay $100.
Charts and tables made by private companies may be used to
figure the annual percentage rate so long as they are prepared in line
with provisions spelled out in Regulation Z.


General Disclosure Requirements
Truth in Lending disclosures must be made clearly, con­
spicuously, in meaningful sequence, and at the time and in termi­
nology spelled out in the regulation.

The terms "finance charge" and

’annual percentage rate" must be printed more conspicuously than other

All numbers and percentages must be in figures and shown

in at least 10 point printer's type, .075 inch computer type, elite
size typewriter characters, or in legible handwriting.
Evidence of compliance with Truth in Lending, other than
advertising disclosures, must be preserved by a creditor for at least
two years after the disclosures are made.

These records are subject

to inspection by the enforcing agency.
Before January 1, 1971, the annual percentage rate may be
expressed as dollars per $100 instead of as a percentage.

For example,

an 11 per cent rate may be expressed at the option of the creditor as

$11 finance charge per year per $100 of unpaid balance.
As a temporary measure, creditors may use existing supplies
of printed forms, properly modified, for their disclosures until new
Truth in Lending forms can be obtained.

In no case, however, may the

existing modified forms be used beyond next December 31.
Specific Disclosures
Regulation Z spells out in detail the specific disclosures
a creditor must make depending on whether the credit is open end or

-10of the Instalment type.

For example, a creditor must make these

disclosures to a customer before opening a new open end account:
--The conditions under which a finance charge may be im­
posed and the period when payment may be made without incurring a
finance charge.
--The method of determining the balance upon which a finance
charge may be imposed.
--The method of determining the finance charge.
--The periodic rate or rates used, the range of balances to
which they apply and the corresponding annual percentage rate.
--The conditions under which additional charges may be im­
posed and the method for determining them.
--The conditions under which a creditor may acquire any
security interest in any property owned by the customer and a descrip­
tion of the interest which may be acquired.
--The minimum periodic payment required.
Similar disclosures must be sent to the customer who already
has an open end account--by July 31 if the account had an unpaid
balance on July 1 and by the next billing following use of the account
if no balance was outstanding on July 1.
Similar sets of disclosures are detailed in the regulation
for credit other than open end, including a credit sale and a loan.

-1 1 -

Cancellation Rights
The Truth in Lending law and Regulation Z give a customer
the right to cancel a credit transaction within three business days
when the creditor acquires or retains a security interest in the
customer's principal residence.

No such cancellation right is

afforded for first mortgages to finance purchase of a residence itself.
But the right of rescission does apply when a residence is otherwise
used as collateral for a consumer loan.

The regulation specifies the

notice the creditor must give a customer when the right of rescission
can be exercised.
The regulation also spells out a customer's right to waive
his cancellation right in emergencies.

For the purpose of counting

the "three business days" allowed for cancellation, the regulation
defines a business day as any day except Sunday, New Year's Day,
Washington's Birthday, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving and Christmas.
In general, no advertising offering credit may state that a
specific amount of credit or instalment can be arranged unless the
creditor customarily arranges such types of credit.

No one specific

credit term--that is, the downpayment, finance charge, etc.--can be
advertised unless all the terms are stated clearly and conspicuously.


Advertising refers not only to newspaper, radio and television
advertising but also commercial messages in magazines, leaflets, flyers,
catalogs, public address system announcements, direct mail literature,
window displays, billboards or other media.