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F ederal r es er v e Ba n k o f D allas DALLAS. TEXAS 75222 C i r c u l a r No. 75-4 J a n u a r y 8, 1975 TRUTH IN LENDING REPRINT OF REGULATION Z TO ALL BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e Board of G o v e rn o rs of the Federal R e s e rv e System has r e p r i n t e d its Regulation Z, " T r u t h in L e n d i n g , " in c o rp o ra tin g the a m e n d ments to a n d in te r p r e ta tio n s of th at Regulation th r o u g h S e p te m b e r 30, 1974. T h is booklet should re p la c e the e x is t in g booklet a s am ended on Sep te m b e r 11, 1969, and s u b s e q u e n t am endm ents and i n te r p r e ta tio n s t h e r e to should be removed from y o u r b i n d e r and may be d e s t r o y e d . A copy of the new pam phle t is en clo se d . S in c e re ly y o u r s , T . W. Plant F i r s t Vice P r e s i d e n t En closu re This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS o f the FEDERAL RESERVE SYSTEM TRUTH IN LENDING REGULATION z (12 CFR 226) Effective July 1, 1969 Amended September 30, 1974 CONTENTS R E G U L A T IO N Z Page Sec. 226.1—Authority, Scope, Purpose, etc.......... (a) (b) (c ) A u thority , scope, a n d p u r p o s e .............. A d m in istrativ e enfo rce m e n t .................. Penalties a n d liabilities .......................... 5 5 5 6 Sec. 226 ,2—Definitions and Rules of Construction .. (a) A ct ( b ) A d vertisem ent (c) A gricultural p u rpose .................................. (d) A m o u n t financed ....................................... (e) A nnual percentage rate ........................... ( f ) A rran g e fo r the extension o f credit . . . (g ) Billing cycle ................................................... (h) B o a r d ................................................................. (i) C ash price . . ^ ............................................... ( j) C o m p ara tiv e In dex o f C re d it C ost (k) C o n su m e r cred it o r co n su m er loan . . (1) C re d it ............................................................ (m) C r e d i t o r .......................................................... (n) C re d it s a l e ..................................................... (o) C u sto m er ..................................................... (P ) D w elling ....................................................... (q) F in a n ce charge ........................................... (r) O pen en d c r e d i t ......................................... (s) O rg an izatio n ................................................ ( t) P erio d ............................................................ ( u) Periodic r a t e ................................................ (v) P erson ............................................................ (w ) R eal p ro p e rty .............................................. (x) Real p ro p e rty transaction ...................... (y) R esidence ..................................................... (z) Security in terest a n d s e c u r i t y .............. ( a a ) State ................................................................. ( b b ) O m ission of w o rd “c o n su m er” .......... (c c) C o n su m m atio n of t r a n s a c t i o n ............... ( d d ) C aptions a n d c a t c h li n e s ........................... 6 6 6 6 6 6 6 6 6 Sec. 226.6— General Disclosure Requirements . . (a ) D isclosures; general r u l e .......................... Sec. 226.7—Open End Credit Accounts—Specific Disclosures ............................................................ (a) Opening new a c co u n t............................ (b) Periodic statements re q u ire d ................ (c) Location of disclosures........................ (d) Finance charge imposed at time of transaction............................................ (e) Change in t e r m s ..................................... Sec. 226.9— Right to Rescind Certain Transac tions ........................................................................ (a) General rule ........................................... (b) Notice of opportunity to re s c in d ....... (c) Delay of performance ........................ (d) Effect of rescission................................. (e) Waiver of right of rescission................ (f) Joint ownership ..................................... (g) Exceptions to general r u l e .................... Sec. 226.4— Determination of Finance Charge . . (a) General rule ............................................. (b) Itemized charges excludable................. (c) Late payment, delinquency, default, and reinstatement c h a rg e s.......................... (d) Overdraft charges .................................. (e) Excludable charges, real property trans actions ................................................... (f) Prohibited offsets .................................... (g) Demand obligations................................ (h) Computation of insurance premiums . . ( a ) G en eral rule— open end credit accounts (b ) G en eral ru le— o th er credit ..................... ( c ) C h a rts a n d t a b l e s ........................................ ( d ) M in o r irregularities ................................... (e ) A pp ro x im atio n o f a n n u al p ercentage ra te — o th er c r e d i t .................................... Page 13 13 13 13 13 13 14 Sec. 226.8—Credit Other Than Open End—Spe cific Disclosures ................................................... (a) General rule ........................................... (b) Disclosures in sale and nonsalecredit (c) Credit sales ........................................... (d) Loans and other nonsale c r e d i t......... (e) Finance charge payable separately or withheld; required deposit balance . (f) First lien to finance construction of dwelling ............................................... (g) Orders by mail or telep h on e................ (h) Series of s a le s ......................................... (i) Advances under loan commitments. . . (j) Refinancing, consolidating or increasing (k) Assumption of an obligation ............. (1) Deferrals or extensions........................ (m) Series of single payment obligations . . (n) Permissible periodic statements ......... (o) Discount for prompt payment of sales transactions .......................................... (p) Agricultural credit—information not de terminable ............................................. Sec. 226.3—Exempted Transactions ................... (a) Business or governmental credit ......... (b) Certain transactions in security or com modities a c co u n ts................................ (c) Non-real property credit over $25,000 (d) Certain public utility bills ................... Sec. 226.5— Determination of Annual Percentage Rate .................................................................................. (b) Inconsistent State requirem ents............ (c) Additional information ........................ (d) Multiple creditors; joint disclosure. . . (e) Multiple customers; disclosure to one (f) Unknown information estim ate............ (g) Effect of subsequent occurrence.......... (h) Overstatem ent......................................... (i) Preservation and inspection of evidence of com pliance...................................... (j) Leap year ................................................ 9 9 10 11 12 12 12 12 Sec. 226.10—Advertising Credit Terms ........... (a) General rule ........................................... (b) Catalogs and multi-page advertisements (c) Advertising of open end credit ......... (d) Advertising of credit other than open e n d ......................................................... (e) Advertising of FHA Section 235 fi nancing ................................................. Sec. 226.11—Comparative Index of Credit Cost for Open End Credit ......................................... (a) General r u l e ............................................ (b) Computation of Comparative Index of Credit C o s t ........................................... (c) Form of disclosure................................. 14 14 14 14 14 15 16 16 16 16 16 17 18 18 18 18 19 19 19 19 19 19 20 20 21 22 22 22 23 23 23 23 23 24 24 24 24 24 25 25 25 25 26 Page Page Sec. 226.12— Exemption of Certain State Regu lated Transactions ..................................................... 26 ( a ) E x em p tio n fo r S tate reg u la ted tra n s actions .......................................................... ( b ) P ro c e d u res a n d c r i t e r i a .............................. (c ) Civil l i a b i l i t y .................................................. ( d ) E xem p tions g r a n t e d ................................... 26 26 26 26 Sec. 226.13— Credit Cards— Issuance and Lia bility ................................................................................ (a) ( b ) Issuance o f credit cards .......................... (c ) C on ditions o f liability o f c a rd h o ld e r . . ( d ) O th e r conditions o f l i a b i l i t y .................. (e ) N o tice to c a r d h o l d e r ................................. (f ) N otice to c ard i s s u e r ................................. (g ) A ction to en fo rce liability ..................... ( h ) Effect on o th er applicable law or agreem en t ................................................... 27 27 27 27 28 28 28 26 S up plem ental definitions ap plicable to this section ........................................... 26 T R U T H IN L E N D IN G A C T S T A T U T O R Y A P P E N D IX Page Page § § TITLE I—CONSUMER CREDIT COST DISCLOSURE Chapter 1—General Provisions § § § § § § § § § § § § § § § 101. Short title .......................................... 102. Findings and declaration of pur pose ................................................... 103. Definitions and rules of construc tion ................................................... 104. Exempted transactions .................. 105. Regulations ....................................... 106. Determination of finance charge . 107. Determination of annual percent age rate ........................................... 108. Administrative enforcement . . . . 109. Views of other agencies ................ 110. Advisory Committee .................... 111. Effect on other laws ...................... 112. Criminal liability for willful and knowing violation .......................... 113. Penalties inapplicable to govern mental agencies .............................. 114. Reports by Board and Attorney General ............................................. S 29 § 29 § 29 30 30 30 § § 31 32 32 33 33 33 33 33 Chapter 2— Credit Transactions § 121. General requirement of disclosure § 122. Form of disclosure; additional in formation ......................................... § 123. Exemption for State-regulated transactions .................................... 34 34 34 § § § 124. Effect of subsequent occurrence . 125. Right of rescission as to certain transactions ...................................... 126. Content of periodic statements . . 127. Open end consumer credit plans . . 128. Sales not under open end credit plans ................................................. 129. Consumer loans not under open end credit plans ............................ 130. Civil liability ................................... 131. Written acknowledgment as proof of re c e ip t........................................... 132. Issuance of credit c a r d s .................. 133. Liability of holder of credit card. . 134. Fraudulent use of credit card . . . . Chapter 3—Credit Advertising § 141. Catalogs and multiple-page adver tisements ........................................... § 142. Advertising of downpayments and installments .................................... . § 143. Advertising of open end credit plans ................................................. § 144. Advertising of credit other than open end p l a n s ................................ § 145. Nonliability of media .................... TITLE V— GENERAL PROVISIONS § 501. Severability ....................................... § 502. Captions and catchlines for refer ence only ......................................... § 503. Grammatical u s a g e s ........................ § 504. Effective dates ................................. 34 34 35 35 36 37 37 38 38 38 38 3“ 39 39 39 39 40 40 40 40 IN T E R P R E T A T IO N S O F R E G U L A T IO N Z Section of Regulation Z to Which Interpretation Relates Page Page I. Section 226.1— Authority, Scope, Purpose, Etc. § 226.101 Use o f “a n n u a l percentage ra te ” in oral com m u n icatio n s ............ § 226.202 41 II. Section 226.2—Definitions and Rules of Con struction § 226.201 L ay -A w ay P lans as extensions o f cred it ..................................................... § 226.203 Security interest— confessions o f ju d g m en t— cognovit n o t e s ............ O pen end credit distinguished f ro m o th e r cred it ........................... 41 42 III. Section 226.3—Exempted Transactions § 226.301 41 A g ricu ltu ral purposes— w hen ex em p t fro m the R egulation .......... 42 Page Page § 226.302 Credit for business or commer cial purposes—more than. 4 fam ily u n i t s ........................................... 42 § 226.706 IV. Section 226.4— Determination of Finance Charge § 226.401 Service charges on accounts not paid within a given period of time 42 43 § 226.402 Term of insurance coverage . . . . § 226.403 Disclosure of cost of property insurance when not obtainable from or through the creditor .. . 43 § 226.404 Premiums for vendor’s single in terest insurance required by cred itor ................................................... 43 § 226.405 Property insurance written in connection with a tran sactio n obtained from or through the creditor ........................................... 44 § 226.406 Seller’s points and discounts un der Regulation Z .......................... 44 § 226.407 Charges for membership in open end credit p l a n .............................. 44 § 226.707 V. Section 226.5—Determination of Annual Per centage Rate § 226.501 Use of ranges or brackets to de termine periodic rate of finance charge on open end accounts . . § 226.502 Annual percentage rate on single add-on rate transactions............... § 226.503 Minor irregularities — maximum irregular period lim its ................. § 226.504 Treatment of “Pick-Up Payment” in an instalment contract ........... § 226.505 Application of the minor irregu larities provisions in determining the amount of the finance charge § 226.506 Daily periodic rate; computation of the annual percentage rate. . VI. Section 226.6— General Disclosure Require ments § 226.601 Overstatement of annual percent age rate ........................................... § 226.602 (Rescinded effective 3/1 /74 ) § 226.603 Disclosures in transaction involv ing multiple customers ............... § 226.604 Inconsistent State requirements .. § 226.605 (Rescinded effective 3/1 /7 4) VII. Section 226.7— Open End Credit Accounts— Specific Disclosures § 226.701 Periodic statements — Finance charge resulting from more than one periodic rate ............................ § 226.702 (Revoked effective 6 /1 /7 3 ) § 226.703 Finance charge based on average daily balance in open end credit accounts ........................................ § 226.704 (Revoked effective 6/1 /7 3) § 226.705 Open end credit—change in the method of determining the bal- 45 45 45 45 46 47 47 47 48 48 48 ance on which finance charges are computed ................... ............ Open end credit— allocation of payments ......................................... Disclosures — variable periodic r a t e s ....................... ......................... VIII. Section 226.8— Credit Other Than Open End—Specific Disclosures § 226.801 Location of disclosures.when con tract, security agreement, and evi dence of transaction are combined in a single d o cu m en t................... § 226.802 Disclosures on mail or telephone orders ............................................. § 226.803 Disclosures when discounts apply for prompt p a y m e n t..................... § 226.804 Series of sales— content of agree ment ............................................... § 226.805 Series of sales as distinguished from refinancing, consolidating, or increasing.................................. § 226.806 Deposit balances applied toward satisfaction of customer’s obliga tion ................................................. § 226.807 Assumption of an obligation— disclosures...................................... § 226.808 Disclosure of amount of scheduled payments ........................................ § 226.809 Disclosures for certain student loans ................................................ § 226.810 Disclosures—variable interest rates § 226.811 Renewals of notes ......................... § 226.812 Advances under open end real estate mortgages for agricultural purposes ......................................... § 226.813 Disclosures on multiple advance loans ............................................... § 226.814 Premiums for insurance added to an existing b a la n c e ........................ § 226.815 Disclosure for demand loans . . . § 226.816 Mortgages with demand features § 226.817 Reduction in annual percentage rate ................................................. § 226.818 Refund of unearned finance charge; prepayment penalty . . . . § 226.819 Prepaid finance charges; add-ons and discounts ................................ IX. Section 226.9—Right to Rescind Certain Transactions § 226.901 Waiver of security interests—ef fect on the right of recission . . § 226.902 “Customers” and joint owners of property under the right of rescis sion ................................................. § 226.903 Refinancing and increasing—dis closures and effects on the right of rescission .................................. X. Section 226.10—Advertising Credit Terms § 226.1001 Advertising of credit terms in other than open end credit . . . . § 226.1002 Catalogs—tables or schedules of credit terms .................................. 49 49 49 50 50 50 51 51 51 51 52 52 53 53 53 54 56 56 57 57 57 58 58 59 59 59 60 APPENDICES Appendix A Appendix B Questions and Answers ........................... 61 Appendix C Sample Page from Annual PerForm of Notice of Right of Recentage Rate T a b le s ..................... 71 cission ......................................................... 69Appendix D Federal Enforcement Agencies . . 72 REGULATION Z (12 C F R 226) Effective July 1, 1969 A m e n d ed S ep tem ber 30, 1974 TRUTH IN LENDING R E G U L A T IO N * **SEC T IO N 226.1— A U T H O R IT Y , SCOPE, PU R PO S E , ETC. the custom er m ay readily com pare the various credit term s available to him from different sources and avoid the uninform ed use o f credit. (a) Authority, scope, and purpose. (1) This This P art also implements the provision of the P art comprises the regulations issued by the Act under which a custom er has a right in cer Board of G overnors o f the Federal Reserve Sys tain circumstances to cancel a credit transaction tem pursuant to Title I (Truth in Lending Act) which involves a lien on his residence. A dvertis and Title V (General Provisions) of the C on ing of consum er credit term s m ust comply with sum er Credit Protection Act, as am ended (15 specific requirem ents, and certain credit term s U.S.C. § 1601 et seq.). Except as otherwise p ro may not be advertised unless the creditor usually vided herein, this P art applies to all persons who and customarily extends such terms. This P art in the ordinary course of business regularly ex also contains prohibitions against the issuance of tend, or offer to extend, or arrange, o r offer to unsolicited credit cards and limits on the card arrange, for the extension of consum er credit as holder’s liability for unauthorized use of a credit defined in paragraph (k) of § 226.2, and to all card. N either the Act nor this P art is intended to persons who issue credit cards. control charges for consum er credit, or interfere (2) This P art implements the Act, the purpose with trade practices except to the extent th a t such of which is to assure th at every custom er who practices m ay be inconsistent with the purpose of has need for consum er credit is given meaningful the Act. inform ation with respect to the cost of that credit (b) Administrative enforcement. (1) As set which, in most cases, m ust be expressed in the forth m ore fully in section 108 of the Act, ad dollar am ount of finance charge, and as an an ministrative enforcem ent of the A ct and this P art nual percentage rate com puted on the unpaid bal with respect to certain creditors and credit card ance of the am ount financed. O ther relevant issuers is assigned to the Com ptroller o f the C u r credit inform ation must also be disclosed so that rency, Board of D irectors of the Federal Deposit * This text corresponds to the Code of Federal Regula Insurance C orporation, Federal H om e L oan Bank tions, Title 12, Chapter II, Part 226, cited as 12 CFR B oard (acting directly or through the Federal 226. The words “this Part” , as used herein, mean Regu Savings and Loan Insurance Corporation), A d lation Z. m inistrator of the N ational Credit U nion A dm in ** Amended 1/25/71. REGULATION Z § 226.2 istration, Interstate Com m erce Commission, Civil Aeronautics Board, Secretary of A griculture, and Board of Governors o f the Federal Reserve Sys tem. (2) Except to the extent that administrative en forcem ent is specifically com m itted to other au thorities, compliance with the requirem ents imposed under the Act and this P art will be en forced by the Federal T rade Commission. (c) Penalties and liabilities. Section 112 of the A ct provides for crim inal liability for willful and knowing failure to com ply with any requirem ent imposed under the A ct and this Part, and section 130 of the A ct provides for civil liability on the p art o f any creditor who fails to disclose any in form ation required under C hapter 2 of the Act and un d er the corresponding provisions of this Part. Section 134 provides for criminal liability for the fraudulent use of a credit card to obtain goods or services having a retail value aggregat ing $5,000 or more. Pursuant to section 108 of the Act, violations of the Act or this P art consti tute violations of other Federal laws which may provide further penalties. SEC T IO N 226.2— D E F IN IT IO N S A N D RU L E S O F C O N ST R U C T IO N F o r the purposes of this Part, unless the con text indicates otherwise, the following definitions and rules of construction apply: (a) “Act” refers to the T ru th in Lending Act (Title I of the Consum er Credit Protection Act). (b) “Advertisement” means any commercial message in any newspaper, magazine, leaflet, flyer or catalog, on radio, television or public address system, in direct mail literature or other printed material, on any interior or exterior sign or dis play, in any window display, in any point-oftransaction literature o r price tag which is deliv ered or m ade available to a custom er or prospective customer in any m anner whatsoever. (c) “Agricultural purpose” m eans a purpose re lated to the production, harvest, exhibition, m ar keting, transportation, processing, or m anufacture of agricultural products by a natural person who cultivates, plants, propagates, or nurtures those agricultural products. “Agricultural products” in cludes agricultural, horticultural, viticultural, and dairy products, livestock, wildlife, poultry, bees, forest products, fish and shellfish, and any p ro ducts thereof, including processed and m anufac tured products, and any and all products raised or produced on farm s and any processed or m an ufactured products thereof. (d) “Amount credit of which use determ ined (c)(7) and (d)(1) financed” means the am ount of the custom er will have the actual in accordance with paragraphs of § 226.8. (e) “Annual percentage rate” means the annual percentage rate of finance charge determ ined in accordance with § 226.5. (f) “Arrange for the extension of credit” means to provide or offer to provide consumer credit which is o r will be extended by another person under a business or other relationship p ur suant to which the person arranging such credit receives or will receive a fee, compensation, or other consideration for such service or has knowledge o f the credit terms and participates in the preparation of the contract docum ents re quired in connection with the extension of credit. It does not include honoring a credit card o r sim ilar device where no finance charge is imposed at the time of that transaction. (g) “Billing cycle” means the time interval be tween regular periodic billing statem ent dates. Such intervals may be considered equal intervals of time unless a billing date varies m ore than 4 days from the regular date. (h) “Board” refers to the Board of Governors of the Federal Reserve System. (i) “Cash price” means the price at which the creditor offers, in the ordinary course of business, to sell for cash the property or services which are the subject o f a consum er credit transaction. It may include the cash price of accessories or serv ices related to the sale such as delivery, installa tion, alterations, modifications, and improve ments, and m ay include taxes to the extent imposed on the cash sale, but shall not include any other charges of the types described in § 226.4. (j) “Comparative Index o f Credit Cost” means the relative measure of the cost o f credit under an open end credit account, com puted in accord ance with § 226.11, and is the expression of the “average effective annual percentage rate of re turn” and the “projected rate of retu rn ” which appear in section 127(a)(5) of the Act. (k) “Consumer credit” m eans credit offered or REGULATION Z § 226.2 extended to a natural person, in which the money, property, or service which is the subject of the transaction is primarily for personal, fam ily, household, or agricultural purposes and for w hich either a finance charge is or may be im posed or which, pursuant to an agreement, is or m ay be payable in more than 4 instalments. “C onsum er loan” is one type of “consumer credit.” stalments; and (3) a finance charge m ay be com puted by the creditor from time to tim e on an outstanding unpaid balance. T he term does not include negotiated advances under an open end real estate mortgage or a letter of credit. (s) “Organization” means a corporation, trust, estate, partnership, cooperative, association, gov ernment, or governm ental subdivision, agency, or instrumentality. (1) “Credit” means the right granted by a (t) “Period” means a day, week, month, or creditor to a custom er to defer paym ent of debt, other subdivision o f a year. incur debt and defer its paym ent, or purchase *(u) “Periodic rate” m eans a percentage rate property or services and defer paym ent therefor. of finance charge which is or m ay be imposed by (See also paragraph (bb) of this section.) a creditor against a balance for a period. (See also (m) “Creditor” m eans a person w ho in the o r § 226.5(a)(3).) dinary course of business regularly extends or ar (v) “Person” means a natural person or an or ranges for the extension of consum er credit, or ganization. offers to extend o r arrange for the extension of (w) “Real property” m eans property which is such credit. real property under the law o f the State in which (n) “Credit sale” means any sale with respect it is located. to which consum er credit is extended or arranged (x) “Real property transaction” means an ex by the seller. The term includes any contract in tension of credit in connection with which a se the form of a bailment o r lease if the bailee or curity interest in real property is or will be re lessee contracts to pay as com pensation for use a tained o r acquired. sum substantially equivalent to or in excess of the (y) “Residence” means any real property in aggregate value of the property and services in which the custom er resides or expects to reside. volved and it is agreed that the bailee or lessee T he term includes a parcel of land on which the will become, or for no other or for a nominal custom er resides or expects to reside. consideration has the option to become, the (z) “Security interest” and “security” means owner of the property upon full compliance with any interest in property which secures paym ent his obligations under the contract. (o) “Customer” means a natural person to or perform ance of an obligation. T he term s in clude, but are not limited to, security interests whom consumer credit is offered or to w hom it is under the U niform Com mercial Code, real pro p o r will be extended, and includes a com aker, en erty mortgages, deeds of trust, and other consen dorser, guarantor, or surety for such natural per sual or confessed liens whether o r not recorded, son who is or may be obligated to repay the ex mechanic’s, m aterialm en’s, artisan’s, and other tension of consum er credit. similar liens, vendor’s liens in both real and per (p) “D welling” means a residential-type struc sonal property, the interest o f a seller in a con ture which is real property and contains one tract for the sale of real property, any lien on o r m ore family housing units, or a residential property arising by operation o f law, and any in condom inium unit wherever situated. terest in a lease w hen used to secure paym ent or (q) “Finance charge” m eans the cost of credit perform ance of an obligation. determined in accordance with § 226.4. (aa) “State” means any State, the District of (r) “Open end credit” m eans consum er credit Columbia, the Com m onw ealth of Puerto Rico, extended on an account pursuant to a plan under and any territory or possession of the United w hich (1) the creditor m ay permit the customer States. to m ake purchases or obtain loans, from time to (bb) Unless the context indicates otherwise, time, directly from the creditor or indirectly by “credit” shall be construed to m ean “consumer use o f a credit card, check, o r other device, as credit,” “loan” to m ean “consum er loan,” and the plan m ay provide; (2) the customer has the privilege of paying the balance in full or in in * Amended 11/1/73. § 226.3 “transaction” to m ean “consum er credit transac tion.” (cc) A transaction shall be considered consum m ated at the time a contractual relationship is created between a creditor and a custom er ir respective of the time of perform ance of either party. (dd) Captions and catchlines are intended solely as aids to convenient reference, and no in ference as to the intent of any provision of this part may be draw n from them. SEC T IO N 226.3— E X E M P T E D T R A N SA C T IO N S This P art does not apply to the following: (a) Business or governmental credit. Extensions of credit to organizations, including governments, or for business or com mercial purposes, other than agricultural purposes. (b) Certain transactions in security or com modities accounts. Transactions in securities or commodities accounts with a broker-dealer regis tered with the Securities and Exchange Com m is sion. (c) Non-real property credit over $25,000. Credit transactions, other than real property transactions, in which the am ount financed1 ex ceeds $25,000, or in which the transaction is pur suant to an express written com m itm ent by the creditor to extend credit in excess of $25,000. (d) Certain public utility bills. Transactions under public utility tariffs involving services pro vided through pipe, wire, or other connected fa cilities, if the charges for such public utility serv ices, the charges for delayed paym ent, and any discount allowed for early paym ent are filed with, reviewed by, or regulated by an agency of the Federal G overnm ent, a State, or a political subdi vision thereof. S EC TIO N 226.4— D E T E R M IN A T IO N O F F IN A N C E C H A R G E (a) General rule. Except as otherwise provided in this section, the am ount of the finance charge in connection with any transaction shall be deter1 For this purpose, the amount financed is the amount which is required to be disclosed under § 226.8(c)(7), or (d ) (1 ) , as applicable, or would be so required if the transaction were subject to this Part. REGULATION Z mined as the sum of all charges, payable directly or indirectly by the customer, and imposed di rectly or indirectly by the creditor as an incident to or as a condition of the extension of credit, whether paid or payable by the customer, the seller, o r any other person on behalf of the cus tom er to the creditor or to a third party, includ ing any of the following types of charges: (1) Interest, time price differential, and any am ount payable under a discount or other system of additional charges. (2) Service, transaction, activity, or carrying charge.2 (3) Loan fee, points, finder’s fee, or similar charge. (4) Fee for an appraisal, investigation, or credit report. (5) Charges or prem ium s for credit life, acci dent, health, or loss of income insurance, written in connection with3 any credit transaction unless (i) the insurance coverage is n ot required by the creditor and this fact is clearly and con spicuously disclosed in writing to the customer; and (ii) any custom er desiring such insurance coverage gives specifically dated and separately signed affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance. (6) Charges or premiums for insurance, written in connection with4 any credit transaction, against loss of o r dam age to property or against liability arising out of the ownership or use of property, unless a clear, conspicuous, and specific statement in writing is furnished by the creditor to the cus tom er setting forth the cost o f the insurance if 2 These charges include any charges imposed by the creditor in connection with a checking account to the ex tent that such charges exceed any charges the customer is required to pay in connection with such an account when it is not being used to extend credit. 3 A policy of insurance owned by the customer, which is assigned to the creditor or otherwise made payable to the creditor to satisfy a requirement imposed by the creditor, is not insurance “written in connection with” a credit transaction if the policy was not purchased by the customer for the purpose of being used in connection with that extension of credit. 4 A policy of insurance owned by the customer, which is assigned to the creditor or otherwise made payable to the creditor to satisfy a requirement imposed by the creditor, is not insurance “written in connection with” a credit transaction if the policy was not purchased by the customer for the purpose of being used in connection with that extension of credit. REGULATION Z obtained from or through the creditor and stating that the custom er may choose the person through which the insurance is to be obtained.5 (7) Prem ium or other charge for any other guarantee or insurance protecting the creditor against the custom er’s default or other credit loss. (8) A ny charge imposed by a creditor upon another creditor for purchasing or accepting an obligation of a custom er if the customer is re quired to pay any part of that charge in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation. (b) Itemized charges excludable. If itemized and disclosed to the customer, any charges of the following types need not be included in the finance charge: (1) Fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction. (2) The premium payable for any insurance in lieu of perfecting any security interest otherwise required by the creditor in connection with the transaction, if the prem ium does not exceed the fees and charges described in subparagraph (1) of this paragraph which would otherwise be payable. (3) Taxes not included in the cash price. (4) License, certificate of title, and registration fees imposed by law. (c) Late payment, delinquency, default, and reinstatement charges. A late paym ent, delin quency, default, reinstatement, or other such charge is not a finance charge if imposed for ac tual unanticipated late paym ent, delinquency, de fault or other such occurrence. (d) Overdraft charges. A charge imposed by a bank for paying checks which overdraw or in crease an overdraft in a checking account is not a finance charge unless the paym ent of such checks and the imposition of such finance charge were previously agreed upon in writing. (e) Excludable charges, real property transac tions. T he following charges in connection with any real property transaction, provided they are bona fide, reasonable in am ount, and not for the purpose of circumvention or evasion of this Part, 5 A creditor’s reservation or exercise of the right to re fuse to accept an insurer offered by the customer, for reasonable cause, does not require inclusion of the pre mium in the finance charge. § 226.5 shall not be included in the finance charge with respect to that transaction: (1) Fees or prem ium s for title examination, ab stract of title, title insurance, or similar purposes and for required related property surveys. (2) Fees for preparation of deeds, settlement statements, or other documents. (3) A m ounts required to be placed or paid into an escrow or trustee account for future payments of taxes, insurance, and water, sewer, and land rents. (4) Fees for notarizing deeds and other docu ments. (5) Appraisal fees. (6) Credit reports. (f) Prohibited offsets. Interest, dividends, or other income received or to be received by the custom er on deposits or on investments in real or personal property in which a creditor holds a se curity interest shall not be deducted from the am ount of the finance charge or taken into con sideration in com puting the annual percentage rate. (g) Demand obligations. Obligations other than those debited to an open end credit account which are payable on dem and shall be considered to have a m aturity of one-half year for the p u r pose of com puting the am ount of the finance charge and the annual percentage rate, except that where such an obligation is alternatively pay able upon a stated m aturity, the stated maturity shall be used for the purpose o f such com puta tions. (h) Computation of insurance premiums. If any insurance premium is required to be included as a part of the finance charge, the am ount to be included shall be the premium for coverage ex tending over the period of time the creditor will require the customer to m aintain such insurance. For this purpose, rates and classifications applica ble at the time the credit is extended shall be ap plied over the full time during which coverage is required, unless the creditor knows or has reason to know that other rates or classifications will be applicable, in which case such other rates or clas sifications shall be used to the extent appropriate. SEC TIO N 2 2 6 .5 --D E T E R M IN A T IO N O F AN NU A L PERCEN TAG E RATE (a) General rule— open end credit accounts. T he annual percentage rates for open end credit REGULATION Z § 226.5 accounts shall be com puted so as to perm it dis closure with an accuracy at least to the nearest quarter of 1 per cent. Such rate or rates shall be determined in accordance with § 226.7(a)(4) for purposes of disclosure before opening an account, § 226.10(c)(4) for purposes of advertising, and in the following m anner for purposes of disclosure on periodic statements: (1) W here the finance charge is exclusively the product of the application of one or more pe riodic rates (i) by multiplying each periodic rate by the num ber of periods in a year; or (ii) at the creditor’s option, if the finance charge is the result of the application of two or m ore periodic rates, by dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (ex pressed as a percentage) by the num ber of bill ing cycles in a year. (2) W here the creditor imposes all periodic finance charges in am ounts based on specified ranges or brackets of balances, the periodic rate shall be determined by dividing the am ount of the finance charge for the period by the am ount of the median balance within the range or bracket of balances to which it is applicable, and the annual percentage rate shall be determined by multiplying that periodic rate (expressed as a per centage) by the num ber of periods in a year. Such ranges or brackets of balances shall be sub ject to the limitations prescribed in subdivision (iv) of paragraph (c)(2) of this section. *(3) W here the finance charge imposed during the billing cycle is or includes (i) any minimum, fixed, or other charge not due to the application of a periodic rate, other than a charge with respect to any specific transaction during the billing cycle, by dividing the total finance charge for the billing cycle by the am ount of the balance(s) to which applica ble and multiplying the quotient (expressed as a percentage) by the num ber of billing cycles in a year; or (ii) any charge with respect to any specific transaction during the billing cycle (even if the total finance charge also includes any other minimum, fixed, or other charge not due to the application of a periodic rate), by dividing the * Amended 6/1/73. total finance charge imposed during the billing cycle by the total of all balances and other am ounts on which any finance charge was im posed during the billing cycle w ithout duplica tion and multiplying the quotient (expressed as a percentage) by the num ber of billing cycles in a year,™ except that the annual percentage rate shall not be less than the largest rate de termined by multiplying each periodic rate im posed during the billing cycle by the number of periods in a year; or (iii) any minimum, fixed, or other charge not due to the application of a periodic rate and the total finance charge imposed during the billing cycle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor’s option, by multiply ing each applicable periodic rate by the num ber of periods in a year, notwithstanding the provisions of subdivisions (i) and (ii) of this subparagraph. (b) General rule— other credit. Except as oth erwise provided in this section, the annual per centage rate applicable to any extension of credit, other than open end credit, shall be that nominal annual percentage rate determined as follows: (1) In accordance with the actuarial method of com putation so that it may be disclosed with an accuracy at least to the nearest quarter of 1 per cent. The mathematical equation and technical instructions for determining the annual percent age rate in accordance with the requirem ents of this paragraph are set forth in Supplement I to Regulation Z which is incorporated in this Part by reference. Supplement I to Regulation Z may be obtained from any Federal Reserve Bank or from the Board in Washington, D.C., 20551, upon written request. (2) A t the option of the creditor, by applica tion of the United States Rule so that it m ay be disclosed with an accuracy at least to the nearest quarter of 1 per cent. U n d er this rule, the finance charge is com puted on the unpaid balance for the actual time the balance remains unpaid and if the am ount of a paym ent is insufficient to pay the accum ulated finance charge, the unpaid accum u lated finance charge continues to accum ulate to be paid from the proceeds of subsequent pay ments and is not added to the am ount financed. See p. 11 for footnote 5a. REGULATION Z § 226.5 (c) Charts and tables. (1) T h e Regulation Z A nnual Percentage R ate Tables produced by the Board m ay be used to determ ine the annual per centage rate, and any such rate determined from these tables in accordance with instructions con tained therein will com ply with the requirem ents of this section. V olum e I contains table FR B — 100-M covering 1 to 60 m onthly payments, table FRB— 200-M covering 61 to 120 m onthly pay ments, table F R B — 300-M covering 121 to 480 m onthly payments, and table FR B — 100-W cov ering 1 to 104 weekly payments. V olum e I also contains instructions for use of the tables in regu lar transactions and most irregular transactions which involve only odd first and final paym ents and odd first paym ent periods. V olume II con tains factor tables and instructions for their use in connection with the tables in V olume I in the com putation of annual percentage rates in any type of irregular paym ent or paym ent period transaction and in transactions involving multiple advances. E ach volume is available from the Board in W ashington, D.C., 20551, and the F ed eral Reserve Banks. (2) A ny chart or table other than the B oard’s Regulation Z A nnual Percentage R ate Tables also m ay be utilized for the purpose of determining the annual percentage rate provided: (i) It is prepared in accordance with the general rule set forth in paragraph (b) (1) or (2)o f this section; (ii) It bears the nam e and address o f the person responsible for its production, an identi fication n um ber assigned to it by that person which shall be the same for each chart o r table so produced with like numerical content and configuration and, if prepared for use in connection with irregular transactions, an iden tification of the m ethod o f com putation (“A c tuarial” o r “U.S. Rule”); (iii) Except as provided in subdivision (iv) of this subparagraph, it perm its determ ination of the annual percentage rate to the nearest onequarter o f 1 per cent for the range of rates covered by the chart or table; and (iv) If applicable to ranges or brackets of balances, it discloses the am ount o f the finance charge and the annual percentage rate on the median balance w ithin each range or bracket o f balances w here a creditor imposes 5‘ In determining the denominator of the fraction under §226.5(a) (3) (ii) no amount will be used more than once when adding the sum of the balances to which periodic rates apply to the sum of the amounts financed to which specific transaction charges apply. In every case the full amount of transactions to which specific transac tion charges apply shall be included in the denominator. Other balances or parts of balances shall be included ac cording to the manner of determining the balance to which a periodic rate is applied, as illustrated in the fol lowing examples of accounts on monthly billing cycles: 1. Previous balance—none. A specific transaction of $100 occurs on first day of the billing cycle. The average daily balance is $100. A specific transaction charge of 3% is applicable to the specific transctions. The periodic rate is 1 applicable to the average daily balance. The numerator is the amount of the finance charge, which is $4.50. The de nominator is the amount of the transaction (which is $100), plus the amount by which the balance to which the periodic rate applies exceeds the amount of specific transactions (such excess in this case is 0 ), totaling $100. The annual percentage rate is ,the quotient (which is 4.5% ) multiplied by 12 (the number of months in a year), i.e., 54%. 2. Previous balance— $100. A specific transaction of $100 occurs at midpoint of the billing cycle. The average daily balance is $150. A specific transaction charge of 3% is applicable to the specific transaction. The periodic rate is W i% applicable to the average daily balance. The numerator is the amount of finance charge which is $5.25. The denomina tor is the amount of the transaction (which is $100), plus the amount by which the balance to which the pe- riodic rate applies exceeds the amounts of specific trans actions (such excess in this case is $50), totaling $150. As explained in example 1, the annual percentage rate is 3.5% X 12 = 42%. 3. If, in example 2, the periodic rate applies only to the previous balance, the num erator is $4.50 and the de nominator is $200 (the amount of the transaction, $100, plus the balance to which only the periodic rate is appli cable, the $100 previous balance). As explained in exam ple 1, the annual percentage rate is 2.25% X 12 = 27%. 4. If, in example 2, the periodic rate applies only to an adjusted balance (previous balance less payments and credits) and the customer made a payment of $50 at midpoint of billing cycle, the numerator is $3.75 and the denominator is $150 (the amount of the transaction, $100, plus the balance to which only the periodic rate is applicable, the $50 adjusted balance). As explained in example 1, the annual percentage rate is 2.5% X 12 = 30%. 5. Previous balance— $100. A specific transaction (check) of $100 occurs at the midpoint of the billing cycle. The average daily balance is $150. The specific transaction charge is 25 cents per check. The periodic rate is 1V4% applied to the average daily balance. The num erator is the amount of the finance charge, which is $2.50 and includes the 25 cents check charge and the $2.25 resulting from the applica tion of the periodic rate. The denominator is the full amount of the specific transaction (which is $100) plus the amount by which the average daily balance exceeds the amount of the specific transaction (which in this case is $50), totaling $150. As explained in example 1, the annual percentage rate would be \% % X 12 = 20%. REGULATION Z § 226.6 the same finance charge for all balances within a specified range or bracket of balances, and provided further that if the annual percentage rate determined on the median balance under states the annual percentage rate determined on the lowest balance in th at range or bracket by m ore than 8 per cent of the rate on the lowest balance, then the annual percentage rate for that range or bracket shall be com puted upon any balance lower than the median bal ance within that range so that any understate m ent will not exceed 8 per cent of the rate on the lowest balance within that range or bracket of balances. (3) In the event an error in disclosure of the am ount of a finance charge or an annual percent age rate occurs because of a corresponding error in a chart or table acquired or produced in good faith by the creditor, that error in disclosure shall not, in itself, be considered a violation of this Part provided that upon discovery of the error, that creditor makes no further disclosure based on that chart or table and prom ptly notifies the Board or a Federal Reserve Bank in writing of the erro r and identifies the inaccurate chart or table by giving the nam e and address of the per son responsible for its production and its identifi cation number. weekly instalments, not less than 10 days for an obligation otherwise payable in biweekly or semimonthly instalments, or not less than 20 days for an obligation otherwise payable in monthly instalments. (2) If the period from the date on which the finance charge begins to accrue and the date the final paym ent is due is less than 3 m onths in the case of weekly payments, 6 m onths in the case of biweekly or semimonthly payments, or 1 year in the case of monthly payments, either or both of the following: (i) The am ount of 1 paym ent other than any dow npaym ent is not m ore th a n 25 per cent greater n o r 25 per cent less than the am ount o f a regular payment; or (ii) The interval between the date on which the finance charge begins to accrue and the date the first paym ent is due is n o t less than 6 days for an obligation otherwise payable in weekly instalments, not less th a n 12 days for an obligation otherwise payable in biweekly or semimonthly instalments, or not less than 25 days for an obligation otherwise payable in monthly instalments. (e) Approximation o f annual percentage rate — other credit. In an exceptional instance when circumstances m ay leave a creditor with no alter (d) Minor irregularities. In determining the an native but to determine an annual percentage rate nual percentage rate a creditor may, at his applicable to an extension of credit other than option, consider the paym ent irregularities set open end credit by a method other than those forth in this paragraph as if they were regular in prescribed in paragraphs (b) or (c) of this section, am ount or time, as applicable, provided that the the creditor may utilize the constant ratio method transaction to which they relate is otherwise pay of com putation provided such use is limited to able in equal instalments scheduled at equal inter the exceptional instance and is not fo r the p u r vals. pose of circumvention or evasion of the require (1) If the period from the date on which the ments of this Part. A ny provision of State law finance charge begins to accrue and the date the authorizing or requiring the use of the constant final paym ent is due is not less than 3 months in ratio m ethod or any m ethod of com puting a per the case of weekly payments, 6 months in the centage rate other than those prescribed in p ara case of biweekly or semimonthly payments, or 1 graphs (b) and (c) of this section does not justify year in the case of monthly payments, either or failure of the creditor to com ply with the provi both of the following: sions of those paragraphs, as applicable. (i) T he am ount o f 1 paym ent other than any dow npaym ent is not more than 50 per cent S EC TIO N 226.6— G E N E R A L D ISC L O SU R E greater no r 50 per cent less than the am ount R E Q U IR E M E N T S of a regular payment; or (ii) The interval between the date on which the finance charge begins to accrue and the date the first paym ent is due is not less than 5 days for an obligation otherwise payable in *(a) Disclosures; general rule. T he disclosures required to be given by this P art shall be m ade * Amended 11/1/73. REGULATION Z clearly, conspicuously, in meaningful sequence, in accordance with the further requirem ents of this section, and at the time and in the terminology prescribed in applicable sections. Except with re spect to the requirem ents of § 226.10, where the term s “finance charge” and “annual percentage rate” are required to be used, they shall be printed more conspicuously than other term inol ogy required by this P art and all numerical amounts and percentages shall be stated in figures and shall be printed in not less than the equiva lent of 10 point type, .075 inch com puter type, or elite size typewritten numerals, o r shall be leg ibly handwritten. (b) Inconsistent State requirements. With re spect to disclosures required by this Part, State law is inconsistent with the requirem ents of the A ct and this Part, w ithin the meaning of section 111 (a) of the Act, to the extent that it (1) Requires a creditor to make disclosures dif ferent from the requirem ents of this P art with re spect to form, content, terminology, or time of delivery; (2) Requires disclosure of the am ount of the finance charge determined in any m anner other than th at prescribed in § 226.4; or (3) Requires disclosure of the annual percent age rate of the finance charge determined in any m anner other than that prescribed in § 226.5. (c) Additional information. A t the creditor’s option, additional inform ation or explanations m ay be supplied with any disclosure required by this Part, but none shall be stated, utilized, or placed so as to mislead or confuse the customer or contradict, obscure, or detract attention from the inform ation required by this P art to be dis closed. A ny creditor who elects to m ake disclo sures specified in any provision of State law which, under paragraph (b) of this section, is in consistent with the requirem ents of the Act and this Part m ay (1) M ake such inconsistent disclosures on a separate paper apart from the disclosures made pursuant to this Part, or (2) Make such inconsistent disclosures on the same statement on which disclosures required by this Part are made; provided: § 226.6 (ii) Disclosures required by this P art are identified by a clear and conspicuous heading indicating that they are m ade in compliance with Federal law, and (iii) All inconsistent disclosures appear sepa rately and below a conspicuous dem arcation line, and are identified by a clear and conspic uous heading indicating th at the statements m ade thereafter are inconsistent with the dis closure requirem ents of the Federal T ruth in Lending Act. (d) Multiple creditors; joint disclosure. If there is m ore than one creditor in a transaction, each creditor shall be clearly identified and shall be re sponsible for m aking only those disclosures re quired by this P art which are within his knowl edge and the purview of his relationship with the customer. If two or m ore creditors m ake a joint disclosure, each creditor shall be clearly identi fied. The disclosures required under paragraphs (b) and (c) of § 226.8 shall be made by the seller if he extends or arranges for the extension of credit. Otherwise disclosures shall be made as re quired under paragraphs (b) and (d) o f § 226.8. (e) Multiple customers; disclosure to one. In any transaction other th an a transaction which may be rescinded under the provisions of § 226.9, if there is m ore than one customer, the creditor need furnish a statement of disclosures required by this P art to only one of them other th an an endorser, com aker, guarantor, or a similar party. (f) Unknown information estimate. If at the time disclosures must be made, an am ount or other item of inform ation required to be dis closed, or needed to determ ine a required disclo sure, is unknow n or not available to the creditor, and the creditor has m ade a reasonable effort to ascertain it, the creditor m ay use an estimated am ount or an approxim ation of the inform ation, provided the estimate o r approxim ation is clearly identified as such, is reasonable, is based on the best inform ation available to the creditor, and is not used for the purpose of circumventing or evading the disclosure requirem ents of this Part. (g) Effect o f subsequent occurrence. If infor m ation disclosed in accordance with this P art is (i) All disclosures required by this P art ap subsequently rendered inaccurate as the result of any act, occurrence, o r agreement subsequent to pear separately and above any other disclo sures, the delivery of the required disclosures, the inac § 226.7 REGULATION Z curacy resulting therefrom does not constitute a violation of this P art.8 (h) Overstatement. T he disclosure of the am ount of the finance charge or a percentage which is greater than the am ount of the finance charge or percentage required to be disclosed under this P art does not in itself constitute a vio lation of this Part: Provided, T hat the overstate m ent is not for the purpose of circumvention or evasion of disclosure requirements. (i) Preservation and inspection of evidence of compliance. Evidence of compliance with the re quirem ents imposed under this Part, other than advertising requirem ents under § 226.10, shall be preserved by the creditor for a period of not less than 2 years after the date each disclosure is re quired to be made. Each creditor shall, when di rected by the appropriate administrative enforce m ent authority designated in section 108 of the Act, perm it that authority or its duly authorized representative to inspect its relevant records and evidence of compliance with this Part. *(j) Leap year. A ny variance in the am ount of any finance charge, paym ent, percentage rate, or other term required un der this P art to be dis closed, or stated in any advertisement, which oc curs by reason o f the addition of February 29 in each leap year, m ay be disregarded, and such term m ay be disclosed or stated w ithout regard to such variance. (1) T he conditions under w hich a finance charge may be imposed, including an explanation o f the time period, if any, within which any ■credit extended may be paid without incurring a finance charge. (2) T he method of determining the balance upon which a finance charge m ay be imposed. (3) T he m ethod of determining the am ount of the finance charge, including the method of de term ining any minimum, fixed, check service, transaction, activity, or similar charge, which may be imposed as a finance charge. *(4) W here one o r m ore periodic rates may be used to compute the finance charge, each such rate, the range of balances to which it is applica ble, and the corresponding annual percentage rate determined by multiplying the periodic rate by the num ber of periods in a year.oa (5) If the creditor so elects, the Com parative Index of Credit Cost in accordance with § 226.11. (6) The conditions under w hich any other charges m ay be imposed, and the method by which they will be determined. (7) The conditions under which the creditor may retain or acquire any security interest in any property to secure the paym ent of any credit ex tended on the account, and a description or iden tification of the type of the interest or interests which m ay be so retained or acquired. (8) T he m inim um periodic paym ent required. (b) Periodic statements required. Except in the SEC T IO N 226.7— O P E N E N D C R E D IT case of an account which the creditor deems to A C C O U N T S— S PE C IF IC be uncollectable or with respect to which delin D ISCLO SU R ES quency collection procedures have been insti tuted, the creditor of any open end credit ac (a) Opening new account. Before the first count shall mail or deliver to the customer, for transaction is m ade on any open end credit ac each billing cycle at the end of which there is an count, the creditor shall disclose to the customer outstanding debit balance in excess of $1 in that in a single written statement, which the customer account o f with respect to which a finance charge m ay retain, in terminology consistent with the re is imposed, a statement or statements which the quirem ents of paragraph (b) of this section, each custom er may retain, setting forth in accordance of the following items, to the extent applicable: with paragraph (c) of this section each of the fol 6 Such acts, occurrences, or agreements include the lowing items to the extent applicable: failure of the customer to perform his obligations under the contract and such actions by the creditor as may be proper to protect his interests in such circumstances. Such failure may result in the liability of the customer to pay delinquency charges, collection costs, or expenses of the creditor for perfection or acquisition of any security interest or amounts advanced by the creditor on behalf of the customer in connection with insurance, repairs to or preservation of collateral. * Added as § 226.6(1) 12/31/71, redesignated 226.6(j) 3/1/74. (Sections 226.6(j) and 226.6(k) effective July 1, 1969, deleted effective 3 /1/74 ). * Amended 6/1/73. Sa A creditor imposing minimum charges is not re quired to adjust the disclosure of the range of balances to which each periodic rate would apply in order to re flect the range of the balances below which the minimum charge applies. If a creditor does not impose a finance charge when the outstanding balance is less than a cer tain amount, the creditor is not required to disclose that fact or the balance below which no such charge will be imposed. REGULATION Z (1) T he outstanding balance in the account at the beginning of the billing cycle, using the term “previous balance.” (2) T he am ount and date of each extension of credit or the date such extension o f credit is deb ited to the account during the billing cycle and, unless previously furnished, a brief identification 7 of any goods or services purchased or other ex tension of credit. (3) T he am ounts credited to the account d u r ing the billing cycle for payments, using the term “paym ents,” and for other credits including re turns, rebates of finance charges, and adjust ments, using the term “credits,” and unless previously furnished a brief identification8 of each of the items included in such other credits. (4) T he am ount of any finance charge, using the term “finance charge,” debited to the account during the billing cycle, itemized and identified to show the am ounts, if any, due to the application o f periodic rates and the am ount of any other charge included in the finance charge, such as a m inimum, fixed, check service, transaction, activ ity, or similar charge,9 using appropriate descrip tive terminology. *(5) Each periodic rate, using the term “p e riodic rate” (or “rates”), that may be used to com pute the finance charge (whether or not ap plied during the billing cycle), the range of bal ances to which it is applicable, and the corre sponding annual percentage rate determined by multiplying the periodic rate by the num ber of periods in a year. The words “corresponding an nual percentage rate,” “corresponding nominal annual percentage rate,” “nom inal annual per centage rate” o r “annual percentage rate” (or “rates”) m ay be used to describe the correspond ing annual percentage rate. The requirem ents of § 226.6(a) of this P art with respect to disclosing the term “annual percentage rate” m ore conspicu 1 Identification may be made on an accompanying slip or by symbol relating to an identification list printed on the statement. 8 Identification may be made on an accompanying slip or by symbol relating to an identification list printed on the statement. “ These charges include any charges imposed by the creditor for the issuance, payment, or handling of checks, for account maintenance or otherwise, to the ex tent that such charges exceed any similar charges the customer is required to pay when an account is not being used to extend credit. * Amended 6/1/73. § 226.7 ously than other required term inology shall not be applicable to the disclosure m ade under this subparagraph, although such term (or words in corporating such term) may, at the creditor’s op tion, be shown as conspicuously as the term inol ogy required under subparagraph 6 of this paragraph. W here a m inim um charge m ay be a p plicable to the account, the am ount o f such mini mum charge shall be disclosed.9a *(6) W hen a finance charge is imposed during the billing cycle, the annual percentage rate or rates determined under § 226.5(a) using the term “annual percentage rate” (or “rates”). (7) If the creditor so elects, the Com parative Index of Credit Cost in accordance with § 226.11. (8) The balance on which the finance charge was computed, and a statement of how that bal ance was determined. If the balance is deter mined w ithout first deducting all credits during the billing cycle, that fact and the am ount of such credits shall also be disclosed. (9) The closing date of the billing cycle and the outstanding balance in the account on that date, using the term “new balance,” accom panied by the statement of the date by which, or the pe riod, if any, within which, paym ent must be made to avoid additional finance charges. *(c) Location of disclosures. T he disclosures required by paragraph (b) of this section shall be m ade on the face of the periodic statement, ex cept that, at the creditor’s option: (1) Itemization of the am ount and date of each extension of credit (or the date such exten sion of credit was debited to the account) re quired to be disclosed under paragraph (b)(2) of this section and itemization o f the am ount of the “credits” disclosed under paragraph (b)(3) of this section, and of the am ount of any finance charge required to be disclosed under paragraph (b)(4) o f this section, m ay be m ade on the reverse side of the periodic statement or on a separate accom panying statement(s), provided that the toA creditor imposing minimum charges is not re quired to adjust the disclosure of the range of balances to which each periodic rate would apply in order to re flect the range of the balances below which the minimum charge applies. If a creditor does not impose a finance charge when the outstanding balance is less than a cer tain amount, the creditor is not required to disclose that fact or the balance below which no such charge will be imposed. * Amended 6/1/73. § 226.8 tals of such respective am ounts are disclosed on the face o f the periodic statement; and (2) T he disclosures required under paragraph (b)(5) and (b)(8) of this section, except the bal ance on which the finance charge was computed, m ay be m ade on the reverse side of the periodic statement or on the face of a single supplemental statement which shall accom pany the periodic statement. (3) If the creditor exercises any of the options provided under this paragraph, the face of the periodic statement shall contain one of the fol lowing notices, as applicable: “N O T IC E : See reverse side for im portant inform ation” or “N O T IC E : See accom panying statement(s) for im portant inform ation” or “N O T IC E : See reverse side and accom panying statement(s) for important inform ation,” and the disclosures shall not be separated so as to confuse or mislead the cus tom er or obscure or detract attention from the inform ation required to be disclosed. (d) Finance charge imposed at time of transac tion, A ny creditor, other th an the creditor of the open end credit account, w ho imposes a finance charge at the tim e of honoring a custom er’s credit card, any other device, o r form o f identifi cation for a purchase of property or services or for a cash advance to be debited to the custom er’s open end credit account shall m ake the dis closures required under paragraphs (b)(2) and (d) of § 226.8, Credit other than open end— specific disclosures, at the time of that transaction, and the annual percentage rate to be disclosed shall be determined by dividing the am ount of the finance charge by the am ount financed and multi plying the quotient (expressed as a percentage) by 12. If disclosure is m ade under this paragraph, the creditor of the open end credit account need m ake no fu rther disclosure with respect to the finance charge on that transaction. *(e) Change in terms. N o t later than 15 days prior to the beginning date of the billing cycle in w hich any change is to be made in the term s p re viously disclosed to the custom er of an open end credit account, the creditor shall mail or deliver a written disclosure of such change to each cus tom er required to be furnished a statement under paragraph (b) of this section. Such disclosure shall be mailed or delivered to each other cus tom er who subsequently activates his account not * Amended 10/23/70 and to its present form 4/5/71. REGULATION Z later than the date o f mailing or delivery of the next required billing statement on his account. However, if the periodic rate or rates, or any minimum, fixed, check service, transaction, activ ity, o r similar charge is increased, the creditor shall mail or deliver a written disclosure of such increase to each customer at least 15 days prior to the beginning date of the billing cycle in which the increase is imposed on his account. N o notice is necessary if the only change is a reduc tion in the m inim um periodic paym ent, periodic rate or rates, or in any m inimum, fixed, check service, transaction, activity, or similar charge ap plicable to the account. (Section 226.7(f) effective 7 /1 /6 9 , deleted effec tive 3 /1 / 7 4 ) SEC T IO N 226.8— C R E D IT O T H E R T H A N O P E N E N D — S P E C IF IC D ISCLO SU R ES (a) General rule. A ny creditor w hen extending credit other than open end credit shall, in accord ance with § 226.6 and to the extent applicable, m ake the disclosures required by this section with respect to any transaction consum m ated on or after July 1, 1969. Except as provided in para graphs (g) and (h) of this section, such disclosures shall be m ade before the transaction is consum mated. A t the tim e disclosures are made, the creditor shall furnish the customer w ith a dupli cate of the instrum ent o r a statement by which the required disclosures are made and on which the creditor is identified. All of the disclosures shall be made together on either (1) T he note or other instrum ent evidencing the obligation on the same side of the page and above or adjacent to the place for the custom er’s signature; or (2) One side of a separate statement which identifies the transaction. (b) Disclosures in sale and nonsale credit. In any transaction subject to this section, the follow ing items, as applicable, shall be disclosed: (1) The date on which the finance charge be gins to accrue if different from the date of the transaction. (2) T he finance charge expressed as an annual percentage rate, using the term “annual percent age rate,” except in the case o f a finance charge (i) which does not exceed $5 and is applica ble to an am ount financed not exceeding $75, or REGULATION Z (ii) which does not exceed $7.50 and is ap plicable to an am ount financed exceeding $75. A creditor may not divide an extension of credit into two or more transactions to avoid the disclosure of an annual percentage rate, nor may any other percentage rate be disclosed if none is stated in reliance upon subdivisions (i) or (ii) of this subparagraph. (3) T he number, am ount, and due dates or pe riods of paym ents scheduled to repay the indebt edness and, except in the case of a loan secured by a first lien or equivalent security interest on a dwelling m ade to finance the purchase of that dwelling and except in the case of a sale of a dwelling, the sum of such payments using the term, “total of paym ents.” 10 If any paym ent is more than twice the am ount of an otherwise reg ularly scheduled equal payment, the creditor shall identify the am ount of such paym ent by the term “balloon paym ent” and shall state the conditions if any, under which that paym ent may be refi nanced if not paid when due. (4) The am ount, or method of com puting the am ount, of any default, delinquency, or similar charges payable in the event of late payments. (5) A description or identification of the type o f any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates or, if such property is not identifiable, an expla nation of the m anner in which the creditor retains or m ay acquire a security interest in such prop erty which the creditor is unable to identify. In any such case where a clear identification of such property cannot properly be m ade on the disclo sure statement due to the length of such identifi cation, the note, other instrum ent evidencing the obligation, or separate disclosure statement shall contain reference to a separate pledge agreement, or a financing statement, mortgage, deed of trust, o r similar docum ent evidencing the security inter est, a copy of which shall be furnished to the custom er by the creditor as prom ptly as practic able. If after-acquired property will be subject to the security interest, o r if other or future indebted ness is or m ay be secured by any such property, 1 The disclosures required by this sentence need not be 0 made with respect to interim student loans made pur suant to federally insured student loan programs under Public Law 89-329, Title IV Part B of the Higher Edu cation Act of 1965, as amended. § 226.8 this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained o r acquired. (6) A description of any penalty charge that may be imposed by the creditor or his assignee for prepaym ent of the principal of the obligation (such as a real estate mortgage) with an explana tion of the m ethod of com putation of such pen alty and the conditions under which it m ay be imposed. *(7) Identification of the method of computing any unearned portion of the finance charge in the event of prepaym ent in full of an obligation which includes precom puted finance charges and a statement of the am ount or method of com pu tation of any charge that m ay be deducted from the am ount of any rebate of such unearned finance charge th at will be credited to an obliga tion or refunded to the customer. If the credit contract does not provide for any rebate of un earned finance charges upon prepaym ent in full, this fact shall be disclosed. (c) Credit sales. In the case of a credit sale, in addition to the items required to be disclosed under paragraph (b) o f this section, the following items, as applicable, shall be disclosed: (1) The cash price of the property or service purchased, using the term “cash price.” (2) The am ount of the downpayment itemized, as applicable, as dow npaym ent in money, using the term “cash dow npaym ent,” dow npaym ent in property, using the term “trade-in” and the sum, using the term “total dow npaym ent.” (3) T he difference between the am ounts de scribed in subparagraphs (1) and (2) of this para graph, using the term “unpaid balance of cash price.” (4) All other charges, individually itemized, which are included in the am ount financed but which are not p art of the finance charge. (5) T he sum of the am ounts determined under subparagraphs (3) and (4) of this paragraph, using the term “unpaid balance.” (6) A ny am ounts required to be deducted under paragraph (e) of this section using as appli cable, the terms “prepaid finance charge” and “required deposit balance,” and, if both are ap plicable, the total of such items using the term “total prepaid finance charge and required de posit balance.” * Amended 1/1/74. § 226.8 (7) T he difference between the am ounts deter mined under subparagraphs (5) and (6) of this paragraph, using the term “am ount financed.” (8) Except in the case of a sale of a dwelling: (i) T he total am ount o f the finance charge, with description of each am ount included, using the term “finance charge,” and (ii) The sum o f the am ounts determined under subparagraphs (1), (4), and (8)(i) of this paragraph, using the term “deferred paym ent price.” (d) Loans and other nonsale credit. In the case of a loan or extension of credit which is not a credit sale, in addition to the items required to be disclosed under paragraph (b) of this section, the following items, as applicable, shall be disclosed: (1) T he am ount of credit, excluding items set forth in paragraph (e) of this section, which will be paid to the custom er or for his account o r to another person on his behalf, including all charges, individually itemized, which are included in the am ount of credit extended but which are not p art of the finance charge, using the term “am ount financed.” (2) A ny am ount referred to in paragraph (e) of this section required to be excluded from the am ount in subparagraph (1) of this paragraph, using, as applicable, the term s “prepaid finance charge” and “required deposit balance,” and, if both are applicable, the total of such items using the term, “total prepaid finance charge and re quired deposit balance.” (3) Except in the case of a loan secured by a first lien or equivalent security interest on a dwelling and made to finance the purchase of that dwelling, the total am ount of finance charge,11 with description of each am ount in cluded, using the term “finance charge.” (e) Finance charge payable separately or with held; required deposit balances. The following am ounts shall be disclosed and deducted in a credit sale in accordance with paragraph (c)(6) of this section, and in other extensions of credit shall be excluded from the am ount disclosed under paragraph (d)(1) of this section, and shall be disclosed in accordance with paragraph (d)(2) of this section: 1 The disclosure required by this subparagraph need 1 not be made with respect to interim student loans made pursuant to federally insured student loan programs under Public Law 89-329, Title IV Part B of the Higher Education Act of 1965, as amended. REGULATION Z (1) A ny finance charge paid separately, in cash or otherwise, directly or indirectly to the creditor or with the creditor’s knowledge to another per son, or withheld by the creditor from the p ro ceeds of the credit extended.12 (2) A ny deposit balance or any investment which the creditor requires the custom er to make, maintain, or increase in a specified am ount or proportion as a condition to the extension of credit except: (i) A n escrow account under paragraph (e)(3) of § 226.4, (ii) A deposit balance which will be wholly applied tow ard satisfaction of the custom er’s obligation in the transaction, (iii) A deposit balance or investment which was in existence prior to the extension of credit and which is offered by the custom er as security for that extension of credit, and (iv) A deposit balance or investment which was acquired or established from the proceeds of an extension of credit made for that p u r pose upon written request of the customer. (f) First lien to finance construction o f dwell ing. In any case w here a first lien or equivalent security interest in real property is retained or ac quired by a creditor in connection with the financing of the initial construction o f a dwelling, or in connection with a loan to satisfy that con struction loan and provide perm anent financing, of that dwelling, w hether or not the customer previously owned the land on which that dwelling is to be constructed, such security interest shall be considered a first lien against that dwelling to finance the purchase of that dwelling. (g) Orders by mail or telephone. If a creditor receives a purchase order or a request for an ex tension of credit by mail, telephone, or written com munication w ithout personal solicitation, the disclosures required under this section may be made any tim e not later than the date the first paym ent is due, provided: (1) In the case of credit sales, the cash price, the downpayment, the finance charge, the de ferred paym ent price, the annual percentage rate, and the number, frequency, and am ount of pay ments are set forth in or are determinable from the creditor’s catalog or other printed material distributed to the public; or 1 Finance charges deducted or excluded as provided by 2 this paragraph shall, nevertheless, be included in deter mining the finance charge under § 226.4. REGULATION Z (2) In the case of loans o r other extensions of credit, the am ount of the loan, the finance charge, the total scheduled payments, the num ber, frequency, and am ount of payments, and the annual percentage rate for representative am ounts or ranges of credit are set forth in or are deter minable from the creditor’s printed m aterial dis tributed to the public, in the contract of loan, or in other printed m aterial delivered or made avail able to the customer. (h) Series of sales. If a credit sale is one of a series of transactions m ade pursuant to a n agree m ent providing for the addition of the am ount financed plus the finance charge for the current sale to an existing outstanding balance, then the disclosures required un der this section for the current sale may be m ade at any tim e not later than the date the first paym ent for that sale is due, provided: (1) T h e customer has approved in writing both the annual percentage rate o r rates and the m ethod of treating any unearned finance charge o n an existing outstanding balance in com puting the finance charge or charges; and (2) The creditor retains no security interest in any property as to which he has received pay m ents aggregating the am ount of the sale price including any finance charges attributable thereto. F o r the purposes of this subparagraph, in the case of items purchased on different dates, the first purchased shall be deemed first paid for, and in the case of items purchased on the same date, the lowest priced shall be deemed first paid for. (i) Advances under loan commitments. If a loan is one of a series of advances m ade p u r suant to a w ritten agreement under which a cred itor is or m ay be com m itted to extend credit to a customer up to a specified am ount, and the cus tom er has approved in writing the annual per centage rate or rates, the method of computing the finance charge o r charges, and any other terms, the agreement shall be considered a single transaction, and the disclosures required under this section at the creditor’s option need be made only at the time the agreement is executed. (j) Refinancing, consolidating, or increasing. If any existing extension of credit is refinanced, or two or m ore existing extensions of credit are con solidated, o r an existing obligation is increased, such transaction shall be considered a new trans § 226.8 action subject to the disclosure requirem ents of this Part. F o r the purpose of such disclosure, any unearned portion of the finance charge which is not credited to the existing obligation shall be added to the new finance charge and shall not be included in the new am ount financed. A ny in crease in an existing obligation to reim burse the creditor for undertaking the custom er’s obligation in perfecting, protecting o r preserving the security shall not be considered a new transaction subject to this Part. A ny advance for agricultural p u r poses made under an open end real estate m ort gage or similar lien shall not be considered a new transaction subject to the disclosure requirem ents of this section, provided: (1) T he m aturity of the advance does not ex ceed 2 years; (2) N o increase is made in the annual per centage rate previously disclosed; and (3) All disclosures required by this P art were m ade at the time the security interest was ac quired by the creditor or at any tim e prior to the first advance m ade on or following the effective date of this part. (k) Assumption of an obligation. A ny creditor who accepts a subsequent custom er as an obligor under an existing obligation shall m ake the dis closures required by this P a rt to that customer before he becomes so obligated. If the obligation so assumed is secured by a first lien or equivalent security interest on a dwelling, and the assum p tion is made for the subsequent customer to ac quire that dwelling, that obligation shall be con sidered a loan made to finance the purchase of that dwelling. (1) Deferrals or extensions. In the case of an obligation other than an obligation upon which the am ount of the finance charge is determined by the application of a percentage rate to the un paid balance, if the creditor imposes a charge or fee for deferral or extension, the creditor shall disclose to the customer (1) The am ount deferred or extended; (2) T he date to which, or the time period for which paym ent is deferred or extended; and (3) T he am ount of the charge or fee for the deferral or extension. (m) Series o f single payment obligations. Any extension o f credit involving a series of single paym ent obligations shall be considered a single § 226.8 transaction subject to the disclosure requirem ents of this Part. (n) Permissible periodic statements. If a credi tor transm its a periodic billing s ta te m e n t13 other than a delinquency notice, paym ent coupon book, o r paym ent passbook, or a statement, billing, or advice relating exclusively to am ounts to be paid by the custom er as escrows for paym ent of taxes, insurance, and water, sewer, and land rents, it shall be in a form which the custom er m ay retain and shall set forth (1) The annual percentage rate or rates; and (2) T he date by which, or the period, if any, w ithin which paym ent must be m ade in order to avoid late paym ent or delinquency charges. *(o) Discount for prompt payment o f sales transactions. (I) F o r the purposes o f this para graph, a “transaction subject to § 226.8(o)” is a credit sale transaction which is not exempt under § 226.3 and which is subject to a discount for paym ent on or before a specified date (e.g. 2% discount if paid within 10 days) or to a charge for delaying paym ent after a specified date (e.g. $98 cash, $100 if paid in 30 days). Both such a discount and such a charge are referred to in this p aragraph as a “discount.” In the case of any transaction subject to § 226.8(o), notw ithstanding the provisions of the last sentence of paragraph (a) of this section, the creditor shall disclose on the invoice or other evidence of such sale, as ap plicable: (i) T he date of the sale or invoice. (ii) T he rate of discount, the date by which or period within which the discount m ay be taken, and the date by which or period within which the full am ount of the obligation is due and payable. (For example, “2 % / 1 0 days, net 30 days” ; or “$1 per t o n / 10 days, net 30 days.”) (iii) T he inform ation required under § 226.8 (b)(4) and (5). (iv) T he am ount of the discount, designated as a “finance charge,” using that term. (v) If the discount shown for prom pt paym ent exceeds 5% of the obligation to which the dis 13 Any statement, notice, or reminder of payment due on any transaction payable in instalments which is mailed or delivered periodically to the customer in ad vance of the due date of the instalment shall be a pe riodic billing statement for the purpose of this para graph. * Amended 8/11/69. REGULATION Z count relates, the “annual percentage rate,” using that term , com puted in accordance with subpara graph (2) of this paragraph, but subject to the ex ceptions provided under § 226.8(b)(2). (2) F o r the purposes o f subparagraph (l)(v) of this paragraph, the annual percentage rate shall be determ ined by dividing the am ount of the finance charge by the least am ount payable in satisfaction of the obligation and multiplying the quotient (expressed as a percentage) by a fraction in which the num erator is 12, and the denom ina tor is the num ber of whole m onths (but not less than 1) between the first day of the m onthly bill ing cycle in w hich the transaction is consum m ated and the first day of the m onthly billing cycle in which the obligation becomes d u e . 13a (3) In a transaction with multiple discount rates (for example 6 % /1 0 days, 4 % / 2 0 days, net 30 days), the largest discount shall be used for purposes of disclosing the am ount of the finance charge under subparagraph (l)(iv) of this para graph and the annual percentage rate under sub paragraph (l)(v) of this paragraph.13b (4) In order to determine the applicability of subparagraph (l)(v) of this paragraph and to fa cilitate disclosure o f an annual percentage rate, if the am ount of the discount for prom pt paym ent is related, pursuant to usual business practice, to weight, quantity, or other physical m easure (e.g. $1 per ton or 10 per gallon) rather th an ex pressed as a percentage o f discount, that discount m ay be converted to an approxim ate discount rate and, under subparagraph (2) of this p ara graph, a reasonably accurate approxim ation of the annual percentage rate by using approxim ate or projected prices per physical unit determined “ “F o r example, a $1,000 purchase of feed subject to terms of 6 % /1 0 days, net 30 days (or 6 % /1 0 days, net E.O.M.; or 6% /10 days, net 10th of the following month; or 6 % /2 0 days, net 30 days; or 6 % /30 days, net 30 days; or 6% discount for cash, net 30 days) results in a finance charge of $60, a least amount payable of $940, and an annual percentage rate of 76.56%, which may be rounded to 76.50% o r 76Vi%. Terms of 6% /20 days, net September 29 applied to an April purchase, as suming a calendar month billing cycle, result in an an nual percentage rate of 15.31% (i.e. 6/94 X 12/5) which may be rounded to 15.25% or 1514%. In this example the 29 days in September are ignored and the denomi nator (5) is determined by the number of whole months in the period. 13b F or example, terms of 6% /10 days, 4 % /2 0 days, net 30 days would be treated like terms of 6 % /1 0 days, net 30 days, which would represent an annual percentage rate of 76Vi% . REGULATION Z on the basis of past experience, current inform a tion, or projected analysis.130 (5) If by its terms a transaction subject to § 226.8(o) is payable in a single paym ent and no finance charge other than a discount is or may be imposed, and such discount is not utilized for the purpose of circumvention or evasion o f disclosure requirements, the disclosure required by subpara graph (1) of this paragraph shall constitute com pliance with the requirem ents of § 226.8 and under § 226.9(a) shall constitute “all other m ate rial disclosures required under this P art.” (6) If a transaction subject to § 226.8 (o ) is debited to an open end credit account, disclosures shall be made as specified in subparagraph (1) of this paragraph and also as specified in § 226.7. T he full am ount of the obligation including the am ount of the discount may be debited to the open end credit account, under § 226.7(b)(2), and the am ount of any finance charge representing the discount need not be added to any other finance charge for the purpose of com puting and disclosing the total am ount of finance charge and the annual percentage rate under § 226.5(a) and § 226.7.13d (7) If a transaction subject to § 226.8(o) is not debited to an open end credit account, but either is subject to an additional finance charge or is payable by its term s in m ore than one payment, disclosures shall be made as specified in subpara graph (1) of this paragraph and also as specified in paragraphs (b) and (c) of this section. In such a case, if the transaction is payable in m ore than one payment, the am ount of the discount shall be deducted for the purpose of com puting and dis closing the cash price under paragraph (c)(1) of this section and shall be added to any other finance charge for the purpose of com puting and disclosing the am ount of the finance charge under paragraph (c)(8)(i) of this section and the annual percentage rate under paragraph (b)(2) o f this I3C For example, if terms of $3 discount per ton/10 days, net 30 days are offered on fertilizer that is ex pected to sell in a range of about $48 to $52 per ton, the annual percentage rate could be approximated for preprinting as if it were 6% (i.e. $3 on $50)/10 days, net 30 days, that is, 76Vi%. 1 ,1 F or example, if a $1,000 sale on terms of 2 % /10 3 days, net 30 days, is debited to an open end account on which 1% per month is charged, the periodic statement under § 226.7(b) (assuming no other transactions in the account) would show a previous balance of $1,000, a finance charge of $10, and an annual percentage rate of 1 2 %. § 226.8 section.136 If the transaction is payable in a single payment, the discount m ay be disregarded in com puting and disclosing such cash price, finance charge, and annual percentage rate.13' (8) N otw ithstanding the provisions of the sec ond sentence of paragraph (a) o f this section, the disclosures required under subparagraph (1) of this paragraph made on the invoice or other evi dence of the sale m ay be delivered subsequent to consum m ation of the transaction. (9) A mended paragraph (o) of § 226.8 shall be come effective August 11, 1969, but until M arch 1, 1970, any creditor m ay at his option use any printed form s which were prepared before such effective date in accordance with paragraph (o) of § 226.8 in effect at the time of such preparation. *(p) Agricultural credit— information not de terminable. (1) In any transaction subject to this section, if the am ount or date of any advance or paym ent in connection with an extension of credit for agricultural purposes under a written agreement is to be determined by production, seasonal needs, or similar operational factors, and is not determinable at the tim e of execution of the agreement, disclosures m ay be made at the creditor’s option in accordance with this p ara graph, provided the use of this paragraph is not for the purpose of circumvention or evasion of this Part. (2) If a creditor elects to make disclosures under this paragraph, he shall disclose the follow ing items in accordance with § 226.8(a), which shall constitute compliance with the requirem ents of § 226.8, and under § 226.9(a) shall constitute “all other m aterial disclosures required under this P a rt” : (i) T he m ethod of com puting the am ount of the finance charge including an identification of each com ponent thereof in accordance with § 226.4; (ii) A ny item required to be disclosed under § 226.8(b)(3) which is determinable at the time ,,l'F o r example, if a $1,000 sale on terms of 2% /10 days, net 30 days is subject to an add-on finance charge of $100 and is payable in instalments, the disclosures under § 226.8(b) and (c) would include a cash price of $980 and a finance charge of $120. 131 F or example, if a $1,000 sale on August 2 not under an open end account is subject to terms of 2 % /1 0 days, net 30 days, thereafter 8% per annum until De cember 1, the disclosures under § 226.8(b) and (c) would include a cash price of $1,000, a finance charge of $19.95, and an annual percentage rate of 8.00%. ♦A dded 11/6/69. § 226.9 the disclosures are required to be made under this paragraph; (iii) T he disclosures, as applicable, required under § 226.8(b)(4), (5), (6), and (7) and the items described in § 226.8(e)(1) and (2); (iv) The disclosures, as applicable, required under § 226.8(o)(l), (2), (3), (4), (5), (8), and (9). (3) Disclosures m ade pursuant to subparagraph (2)(i), (ii), and (iii) of this paragraph need be made only on the agreement or on a separate statement as specified in § 226.8(a). (4) If a creditor making disclosures pursuant to this paragraph transm its a periodic billing statement of the type described in paragraph (n) of § 226.8, such statement shall be in a form which the customer m ay retain and shall set forth the date by which, or the period, if any, within which paym ent must be made in order to avoid late paym ent or delinquency charges. SEC T IO N 226.9— R IG H T T O R E SC IN D C E R T A IN T R A N SA C T IO N S (a) General rule. Except as otherwise provided in this section, in the case of any credit transac tion in which a security interest is or will be re tained or acquired in any real property which is used or is expected to be used as the principal resi dence of the customer, the customer shall have the right to rescind that transaction until m id night of the third business d a y '4 following the date of consum m ation of that transaction or the date of delivery of the disclosures required under this section and all other material disclosures re quired under this Part, whichever is later, by no tifying the creditor by mail, telegram, or other writing o f his intention to do so. Notification by mail shall be considered given at the tim e mailed; notification by telegram shall be considered given at the time filed for transmission; and notification by other writing shall be considered given at the tim e delivered to the creditor’s designated place of business. *(b) N otice o f opportunity to rescind. W hen ever a custom er has the right to rescind a trans action und er paragraph (a) of this section, the creditor shall give notice of that fact to the cus tom er by furnishing the custom er with two copies of the notice set out below, one of w hich may be used by the custom er to cancel the transaction. ♦A m ended 4/5/71. See page 23 for footnote 14. REGULATION Z Such notice shall be printed in capital and lower case letters of not less than 12 point bold-faced type on one side of a separate statement which identifies the transaction to which it relates. Such statement shall also set forth the entire paragraph (d) of this section, “Effect of rescission.” If such paragraph appears on the reverse side of the statement, the face of the statement shall state: “See reverse side for im portant inform ation about your right of rescission.” Before furnishing copies of the notice to the customer, the creditor shall complete both copies with the nam e of the credi tor, the address of the creditor’s place of busi ness, the date of consum m ation of the transac tion, and the date, not earlier than the third business day following the date of the transac tion, by which the customer may give notice of cancellation. W here the real property on which the security interest may arise does not include a dwelling, the creditor may substitute the words “the property you are purchasing” for “your hom e,” or “lot” for “hom e,” where these words appear in the notice. N otice to customer required by Federal law: You have entered into a transaction on (date) which may result in a lien, mortgage, or other security interest on your home. You have a legal right under Federal law to can cel this'transaction, if you desire to do so, without any penalty or obligation within three business days from the above date or any later date on which all material disclosures required under the Truth in Lending Act have been given to you. If you so cancel the transaction, any lien, mort gage, or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund o f any downpayment or other consideration if you can cel. If you decide to cancel this transaction, you may do so by notifying (Name of creditor) at (Address of creditor’s place of business) by mail or telegram sent not later than midnight of (date) . You may also use any other form of written notice identifying the trans action if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below. I hereby cancel this transaction. (date) (customer’s signature) REGULATION Z *(c) Delay of performance. Except as provided in paragraph (e) of this section, the creditor in any transaction subject to this section, other than an extension of credit primarily for agricultural purposes, shall not perform , o r cause or permit the perform ance of, any of the following actions until after the rescission period has expired and he has reasonably satisfied himself that the cus tom er has not exercised his right of rescission: (1) Disburse any money other than in escrow; (2) M ake any physical changes in the property of the customer; (3) P erform any w ork or service for the cus tomer; or (4) M ake any deliveries to the residence o f the customer if the creditor has retained or will ac quire a security interest other than one arising by operation of law. (d) Effect o f rescission. W hen a customer exercises his right to rescind under paragraph (a) of this section, he is not liable for any finance or other charge, and any security interest becomes void upon such a rescission. W ithin 10 days after receipt of a notice of rescission, the creditor shall return to the custom er any money or property given as earnest money, downpayment, or other wise, and shall take any action necessary or ap propriate to reflect the term ination of any secu rity interest created under the transaction. If the creditor has delivered any property to the cus tomer, the customer m ay retain possession o f it. U p o n the perform ance of the creditor’s obliga tions under this section, the customer shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the custom er shall tender its reasona ble value. T ender shall be made at the location of the property or at the residence of the cus tomer, at the option of the customer. If the credi tor does not take possession of the property w ithin 10 days after tender by the customer, ownership of the property vests in the customer w ithout obligation on his p art to pay for it. * Amended 4/5/71. “ F or the purpose of this section, a business day is any calendar day except Sunday and those legal public holidays specified in Section 6103(a) of Title 5 of the United States Code (New Year’s Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas D ay). Amended 10/1/71. § 226.9 (e) Waiver of right o f rescission. A customer may modify or waive his right to rescind a transaction subject to the provisions of this sec tion provided: (1) The extension of credit is needed in order to meet a bona fide imm ediate personal financial emergency of the customer; (2) T he custom er has determined that a delay of 3 business days in perform ance of the credi tor’s obligation under the transaction will jeop ardize the welfare, health or safety of natural persons or endanger property which the customer owns or for which he is responsible; and (3) The custom er furnishes the creditor with a separate dated and signed personal statement de scribing the situation requiring immediate remedy and modifying or waiving his right of rescission. T he use of printed form s for this purpose is p ro hibited. (f) Joint ownership. F o r the purpose o f this section, “custom er” shall include two or more customers w here joint ownership is involved, and the following shall apply: (1) The right of rescission of the transaction may be exercised by any one of them, in which case the effect of rescission in accordance with paragraph (d) of this section applies to all of them; and (2) A ny waiver of the right of rescission p ro vided in paragraph (e) o f this section is invalid unless signed by all of them. (g) Exceptions to general rule. This section does not apply to: (1) The creation, retention, or assumption of a first lien or equivalent security interest to finance the acquisition of a dwelling in which the cus tom er resides or expects to reside. (2) A security interest which is a first lien re tained or acquired by a creditor in connection with the financing of the initial construction of the residence of the customer, o r in connection with a loan com mitted prior to completion of the construction of that residence to satisfy that con struction loan and provide perm anent financing of that residence, whether or not the customer previously owned the land on which that resi dence is to be constructed. (3) A ny lien by reason of its subordination at any time subsequent to its creation, if that lien was exempt from the provisions of this section when it was originally created. § 226.10 *(4) A ny advance for agricultural purposes m ade pursuant to either: (i) P aragraph (j) of § 226.8 under an open end real estate mortgage or similar lien, pro vided the disclosure required under paragraph (b) of this section was m ade at the time the se curity interest was acquired by the creditor or at any time prior to the first advance made on o r following the effective date of this Part, or (ii) P aragraph (p) of § 226.8 under a written agreement, provided the disclosure required under paragraph (b) of this section was made at the time the written agreement was executed by the customer. SEC T IO N 226.10— A D V E R T IS IN G C R E D IT T E R M S (a) General rule. N o advertisement to aid, p ro mote, or assist directly or indirectly any extension of credit m ay state (1) T h at a specific am ount of credit or instal m ent am ount can be arranged unless the creditor usually and customarily arranges or will arrange credit am ounts or instalments for th at period and in that am ount; or (2) T h at no dow npaym ent or th at a specified dow npaym ent will be accepted in connection with any extension of credit, unless the creditor usually and customarily accepts or will accept downpayments in that am ount. (b) Catalogs and multi-page advertisements. If a catalog or other multiple-page advertisement sets forth or gives inform ation in sufficient detail to perm it determination o f the disclosures re quired by this section in a table or schedule of credit terms, such catalog or multiple-page adver tisement shall be considered a single advertise m ent provided: (1) T he table or schedule and the disclosures m ade therein are set forth clearly and conspicu ously, and (2) A ny statement of credit terms appearing in any place other than in that table o r schedule of credit term s clearly and conspicuously refers to the page or pages on which that table or schedule appears, unless that statem ent discloses all of the credit term s required to be stated under this sec tion. F o r the purpose of this subparagraph, cash price is not a credit term. * Amended 11/6/69. REGULATION Z *(c) Advertising o f open end credit. N o ad vertisement to aid, promote, or assist directly or indirectly the extension of open end credit m ay set forth any o f the term s described in paragraph (a) of § 226.7, the Com parative Index of Credit Cost, or that a specified dow npaym ent or p e riodic paym ent is required (either in dollars or as a percentage), the period of repaym ent o r any of the following items, unless it also clearly and conspicuously sets forth all the following items in terminology prescribed under paragraph (b) of § 226.7: (1) An explanation of the time period, if any, within which any credit extended m ay be paid w ithout incurring a finance charge. (2 ) T he method of determ ining the balance upon which a finance charge may be imposed. (3) T he m ethod of determining the am ount of the finance charge, including the determination of any m inimum, fixed, check service, transaction, activity, or similar charge, which m ay be imposed as a finance charge. (4) W here one or m ore periodic rates m ay be used to com pute the finance charge, each co rre sponding annual percentage rate determ ined by multiplying the periodic rate by the num ber of periods in a year and, w here there is m ore than one corresponding annual percentage rate, the range of balances to which each is applicable.15 *(d) Advertising of credit other than open end. N o advertisement to aid, promote, or assist di rectly or indirectly any credit sale including the sale of residential real estate, loan, or other exten sion of credit, other than open end credit, sub ject to the provisions of this Part, shall state (1) The rate of the finance charge except as an “annual percentage rate;” using that term. N o other rate of finance charge may be stated, ex cept that: (i) where the total finance charge includes, as a com ponent, interest com puted at a simple annual * Amended 11/1/73. 1 A creditor imposing minimum charges is not required 3 to adjust the disclosure of the range of balances to which each rate would apply in order to reflect the range of the balances below which the minimum charge applies. If a creditor does not impose a finance charge when the outstanding balance is less than a certain amount, the creditor is not required to disclose that fact or the balance below which no such charge will be im posed. REGULATION Z rate, the simple annual rate may be stated in con junction with, but not m ore conspicuously than, the annual percentage rate, or (ii) where the finance charge is com puted solely by the application of a periodic rate to an unpaid balance, the periodic rate may be stated in conjunction with, but not m ore conspicuously than, the annual percentage rate. (2) T hat no dow npaym ent is required, or the am ount of the dow npaym ent or of any instalment paym ent required (either in dollars or as a p er centage), the dollar am ount of any finance charge, the num ber of instalments o r the period of repayment, o r that there is no charge for credit, unless it also clearly and conspicuously sets forth all of the following items in terminology prescribed under § 226.8: (i) the cash price or the am ount of the loan, as applicable. (ii) in a credit sale, the am ount of the down paym ent required or that no dow npaym ent is re quired, as applicable. (iii) the number, am ount, and due dates or pe riod of paym ents scheduled to repay the indebtedness if the credit is extended. (iv) the am ount of the finance charge ex pressed as an annual percentage rate. T he exemp tions from disclosure of an annual percentage rate permitted in paragraph (b)(2) of § 226.8 shall not apply to this subdivision. (v) except in the case of the sale o f a dwelling or a loan secured by a first lien on a dwelling to purchase that dwelling, the deferred paym ent price in a credit sale, or the total of paym ents in a loan or other extension of credit which is not a credit sale, as applicable. *(e) Advertising of FH A Section 235 financ ing. A ny advertisement to aid, prom ote, or assist directly or indirectly the sale of residential real estate under Title II, Section 235, of the N ational Housing Act (12 U.S.C. 1715z) shall clearly iden tify those credit term s which apply to the assist ance program and, except as provided in this p ar agraph, comply with the provisions of paragraph (d) of this section. N o such advertisement shall state: (1) the am ount of any paym ent scheduled to repay the indebtedness w ithout stating the family size and income level applicable to that amount. (2) any rate of a finance charge, or the am ount * Added 4/5/71. § 226.11 of the finance charge, expressed as an annual per centage rate based on the assistance. The annual percentage rate exclusive of the assistance m ay be stated, but is not required. SEC T IO N 226.11— C O M P A R A T IV E IN D E X O F C R E D IT CO ST F O R O P E N E N D C R E D IT (a) General rule. Any creditor who elects to disclose the Com parative Index of Credit Cost on open end credit accounts (1) Shall com pute the Com parative Index of Credit Cost in accordance with paragraph (b) of this section. (2) Shall recom pute the C om parative Index of Credit Cost in accordance with paragraph (b) of this section based upon any new open end credit account terms to be adopted and shall disclose the new Com parative Index of Credit Cost in ac cordance with paragraph (c)(2) of this section concurrently with the notice required under p ara graph (e) of §226.7. (3) Shall, when making such disclosure under the provisions of subparagraphs (a)(5) and (b)(7) of § 226.7, m ake the disclosure to all open end credit account customers; and (4) Shall not utilize such disclosure so as to mislead, or confuse the customer or contradict, obscure, or detract attention from the required disclosures. (b) Computation of Comparative Index of Credit Cost. The Com parative Index of Credit Cost for each open end credit plan shall be com puted by applying the creditor’s term s of that plan to the following hypothetical factors: (1) A single transaction in the am ount o f $100 is debited on the first day of a billing cycle to an open end credit account having no previous bal ance. (2) T he creditor imposes all finance charges in cluding periodic, fixed, m inim um or other charges applicable to such account in am ounts and on dates consistent with his policy o f imposing such charges upon open end credit accounts. (3) The exact am ount of the required mini m um periodic paym ent is paid on the last day of each subsequent and successive billing cycle until the am ount of the single transaction, together with applicable finance charges, is paid in full. (4) T he Com parative Index of Credit Cost shall be expressed and disclosed as a percentage REGULATION Z § 226.12 accurate to the nearest quarter of 1 per cent and shall be determined by dividing the total am ount of the finance charges imposed by the sum of the daily balances and multiplying the quotient so ob tained (expressed as a percentage) by 365. (c) Form of disclosure. A ny creditor who elects to disclose the Com parative Index of Credit Cost shall: (1) M ake the disclosure in the form of the fol lowing statement: “O ur Com parative Index of Credit Cost under the term s of o ur open end credit account plan is __ % per year, computed on the basis of a single transaction of $100 de bited on the first day of a billing cycle to an ac count having no previous balance, and paid in re quired minimum consecutive instalments on the last day of each succeeding billing cycle until the transaction and all finance charges are paid in full. The actual percentage cost of credit on your account may be higher or lower depending on the dates and am ounts o f charges and paym ents.” (2) Disclose any newly com puted Com parative Index of Credit Cost in the form of the state m ent prescribed in subparagraph (1) of this para graph, except that the statem ent shall be preceded by the w ords “Effective as of (date) ,” and the words “will be” shall be substituted for the w ord “is” in the second line of the statement. * SEC T IO N 226.12— E X E M P T IO N OF C E R T A IN STA T E R E G U L A T E D T R A N SA C T IO N S (a) Exemption for State regulated transactions. In accordance with the provisions of Supplements II and IV to Regulation Z, any State may make application to the Board for exemption of any class of transactions within that State from the requirem ents of C hapter 2 of the A ct and the corresponding provisions of this Part: Provided, T hat (1) U nd er the law of that State, that class of transactions is subject to requirem ents substan tially similar to those imposed under C hapter 2 of the Act and the corresponding provisions of this Part; and (2) There is adequate provision for enforce ment. (b) Procedures and criteria. The procedures and criteria under w hich any State m ay apply for * Amended 3/12/70 and to its present form 1/25/71. the determination provided for in paragraph (a) of this section are set forth in Supplement II to Regulation Z with respect to disclosure and re scission requirem ents (§§ 121-131 of C hapter 2) and Supplement IV with respect to the prohibi tion of the issuance of unsolicited credit cards and the liability of the cardholder for unauthor ized use of a credit card (§§ 132-133 o f Chapter 2 ). (c) Civil liability. In order to assure that the concurrent jurisdiction of Federal and State courts created in section 130(e) of the Act shall continue to have substantive provisions to which such jurisdiction shall apply, and generally to aid in implementing the A ct with respect to any class of transactions exempted pursuant to paragraph (a) of this section and Supplement II, the Board pursuant to sections 105 and 123 hereby pre scribes that: (1) N o such exemptions shall be deemed to ex tend to the civil liability provisions of sections 130 and 131; and (2) A fter an exemption has been granted, the disclosure requirem ents of the applicable State law shall constitute the disclosure requirements of this Act, except to the extent that such State law imposes disclosure requirem ents not imposed by this Act. Inform ation required under such State law with the exception of those provisions which impose disclosure requirem ents not imposed by this Act shall, accordingly, constitute the “infor mation required under this C h apter” (Chapter 2 of the Act) for the purpose of section 130(a). (d) Exemptions granted. Exem ptions granted by the Board to particular classes of credit trans actions within specified States are set forth in Supplement III to Regulation Z. * SEC T IO N 226.13— C R E D IT CA RDS— ISSU A N C E A N D L IA B ILITY (a) Supplemental definitions applicable to this section. In addition to the definitions set forth in § 226.2, as applicable, the following definitions apply to this section: (1) “Accepted credit card” means any credit card which the cardholder has requested or ap plied for and received, or has signed, or has used, or has authorized another person to use for the purpose of obtaining money, property, labor, or services on credit. A ny credit card issued in * Added 1/25/71. REGULATION Z renewal of, or in substitution for, an accepted credit card becomes an accepted credit card when received by the cardholder w hether such card is issued by the same or a successor card issuer. (2) “Adequate notice” means a printed notice to a cardholder w hich sets forth the pertinent facts clearly and conspicuously so that a person against w hom it is to operate could reasonably be expected to have noticed it and understood its meaning. (3) “Card issuer” m eans any person who issues a credit card, o r the agent of such person with respect to such card. *(4) “Cardholder” means any person to whom a credit card is issued for personal, family, household, agricultural, business, or commercial purposes, or any person w ho has agreed with the card issuer to pay obligations arising from the is suance of a credit card to another person for such purposes. (5) “Credit” means the right to defer paym ent o f debt, incur debt and defer its paym ent, or to obtain money, property, labor or services and defer paym ent therefor. (6) “Credit card” means any card, plate, cou pon book, or other single credit device existing for the purpose of being used from time to time upon presentation to obtain money, property, labor, or services on credit. (7) “Unauthorized use” m eans the use of a credit card by a person other th an the cardholder (i) who does not have actual, implied, or ap parent authority for such use, and (ii) from which the cardholder receives no ben efit. *(b) Issuance o f credit cards. Regardless of whether a credit card is to be used for personal, family, household, agricultural, business o r com mercial purposes, no credit card shall be issued to any person except: (1) In response to a request or application therefor, or (2) As a renewal of, or in substitution for, an accepted credit card w hether such card is issued by the same or a successor card issuer. *(c) Conditions of liability of cardholder. A cardholder shall be liable for unauthorized use of each credit card issued only if, (1) The credit card is an accepted credit card; (2) Such liability does not exceed the lesser of * Amended 12/15/72. § 226.13 $50 or the am ount of money, property, labor, or services obtained by such use p rior to notification of the card issuer pursuant to paragraph (f) of this section; (3) T he card issuer has given adequate notice to the cardholder of his potential liability on the credit card or within two years preceding the un authorized use; and (4) T he card issuer has provided the card holder with an addressed notification requiring no postage to be paid by the cardholder w hich may be mailed by the cardholder in the event o f the loss, theft, or possible unauthorized use of the credit card. (d) Other conditions of liability. In addition to the conditions of liability in paragraph (c) of this section, no cardholder shall be liable for the un authorized use of any credit card which was is sued after Jan u ary 24, 1971, and, regardless of the date of its issuance, after January 24, 1972, no cardholder shall be liable for the unauthorized use of any credit card, unless the card issuer has provided a m ethod whereby the user of such card can be identified as the person authorized to use it, such as by signature, photograph, o r finger print on the credit card or by electronic or me chanical confirmation. (e) Notice to cardholder. The notice to card holder pursuant to paragraph (c)(3) of this section may be given by printing the notice on the credit card, or by any other means reasonably assuring the receipt thereof by the cardholder. An acceptable form of notice m ust state that lia bility shall not exceed $50 (or any lesser am ount), that notice of loss, theft, or possible u n authorized use may be given orally or in writing, and the nam e and address of the party to receive the notice. It m ay include any additional infor m ation w hich is not inconsistent with the provi sions of this section. A n example of an accepta ble notice is as follows: “Y ou m ay be liable for the unauthorized use of y our credit card [or other term which describes the credit device]. Y ou will n o t be liable for unauthorized use which occurs after you notify [name o f card issuer or his designee] at [address] orally or in writing of loss, theft, or possible u n authorized use. In any case liability shall n ot ex ceed [insert $50 or any lesser am ount under other applicable law or under any agreem ent with the cardholder].” § 226.13 (f) N otice to card issuer. F o r the purposes of this section, a cardholder notifies a card issuer by taking such steps as m ay be reasonably required in the ordinary course of business to provide the card issuer with the pertinent inform ation with respect to loss, theft, or possible unauthorized use of any credit card, whether or not any particular officer, employee, or agent of the card issuer does, in fact, receive such notice or information. Irrespective of the form of notice provided under paragraph (c)(4) of this section, at the option of the cardholder, notice m ay be given to the card issuer or his designee in person or by telephone or by letter, telegram, radiogram, cablegram, or, other written com munication which sets forth the pertinent information. N otice by mail, telegram, radiogram , cablegram, or other written com m uni cation shall be considered given at the time of re REGULATION Z ceipt or, whether or not received, at the expira tion of the time ordinarily required for transmission, whichever is earlier. (g) Action to enforce liability. In any action by a card issuer to enforce liability for the use of a credit card, the burden o f proof is upon the card issuer to show th a t the use was authorized or, if the use was unauthorized, then the burden of proof is upon the card issuer to show that the conditions of liability for the unauthorized use of a credit card, as set forth in paragraphs (c) and (d) of this section, have been met. (h) Effect on other applicable law or agree ment. N othing in this section imposes liability upon a cardholder for the unauthorized use of a credit card in excess of his liability for such use under other applicable law or under any agree ment with the card issuer. STATUTORY APPENDIX § 101 STATUTORY APPENDIX would be strengthened by the informed use of credit. T he informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this title to assure a meaningful disclosure of credit terms so that the consumer will be able to com pare more readily the various credit terms available to him and avoid the unin formed use of credit. Titles I and V of Act of M ay 29, 1968, as am ended October 26, 1970 § 1. Short title of entire Act This Act m ay be cited as the Consumer Credit Protection Act. § 103. Definitions and rules o f construction (a) The definitions and rules of construction set forth in this section are applicable for the purposes of this title. (b) The term “Board” refers to the Board of G overnors of the Federal Reserve System. (c) The term “organization” means a corpora tion, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association. (d) The term “person” means a natural person or an organization. (e) The term “credit” means the right granted by a creditor to a debtor to defer paym ent of debt or to incur debt and defer its payment. (f) The term “creditor” refers only to creditors who regularly extend, or arrange for the exten sion of, credit for which the paym ent of a finance charge is required, whether in connection with loans, sales of property or services, or other wise. The provisions of this title apply to any such creditor, irrespective of his or its status as a natural person or any type of organization. (g) The term “credit sale” refers to any sale with respect to which credit is extended or ar ranged by the seller. The term includes any con tract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in ex cess of the aggregate value of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nom i nal consideration has the option to become, the owner of the property upon full compliance with his obligations under the contract. (h) T he adjective “consum er” , used with refer ence to a credit transaction, characterizes the transaction as one in which the party to whom credit is offered or extended is a natural person, and the money, property, or services which are the subject of the transaction are primarily for personal, family, household, or agricultural pur poses. TITLE I— CONSUM ER CREDIT COST DISCLOSURE [15 U .S .C . §§ 1601 et seq.] C hapter 1. 2. 3. Section G e n e r a l P r o v i s i o n s ....................................... C r e d it T r a n s a c t i o n s ...................... C r e d it A d v e r t i s i n g .......................... 101 121 141 CHAPTER 1— GENERAL PROVISIONS Sec. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. Short title. Findings and declaration of purpose. Definitions and rules of construction. Exem pted transactions. Regulations. D eterm ination of finance charge. D eterm ination of annual percentage rate. Administrative enforcement. Views of other agencies. Advisory committee. Effect on other laws. Criminal liability for willful and knowing violation. 113. Penalties inapplicable to governmental agen cies. 114. Reports by Board and Attorney General. § 101. Short title This title may be cited as the T ruth in Lending Act. § 102. Findings and declaration of purpose The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit 29 § 104 STATUTORY APPENDIX (i) T he term “open end credit plan” refers to a *(r) The disclosure of an am ount or percent plan prescribing the term s of credit transactions age which is greater than the am ount or percent which may be made thereunder from time to age required to be disclosed under this title does time and under the term s of which a finance not in itself constitute a violation of this title. charge m ay be com puted on the outstanding un § 104. Exempted transactions paid balance from tim e to tim e thereunder. This title does not apply to the following: *(j) T he term “adequate notice” , as used in (1) Credit transactions involving extensions of section 133, means a printed notice to a card credit for business or commercial purposes, or to holder which sets forth the pertinent facts clearly government or governmental agencies or instru and conspicuously so that a person against w hom mentalities, or to organizations. it is to operate could reasonably be expected to (2) Transactions in securities or commodities have noticed it and understood its meaning. Such accounts by a broker-dealer registered with the notice may be given to a cardholder by printing Securities and Exchange Commission. the notice on any credit card, or on each periodic (3) Credit transactions, other than real p rop statement of account, issued to the cardholder, or erty transactions, in which the total am ount to be by any other means reasonably assuring the re financed exceeds $25,000. ceipt thereof by the cardholder. (4) Transactions under public utility tariffs, if *(k) T he term “credit card” means any card, the Board determines that a State regulatory body plate, coupon book or other credit device existing regulates the charges for the public utility serv for the purpose of obtaining money, property, ices involved, the charges for delayed payment, labor, or services on credit. and any discount allowed for early payment. *(1) T he term “accepted credit card ” means any credit card which the cardholder has re § 105. Regulations quested and received or has signed or has used, The Board shall prescribe regulations to carry or authorized another to use, for the purpose of out the purposes of this title. These regulations obtaining money, property, labor, or services on may contain such classifications, differentiations, credit. or other provisions, and may provide for such *(m) T he term “cardholder” means any person adjustments and exceptions for any class of trans to w hom a credit card is issued or any person actions, as in the judgm ent of the Board are nec who has agreed with the card issuer to pay obli essary or proper to effectuate the purposes of this gations arising from the issuance of a credit card title, to prevent circumvention or evasion thereof, to another person. or to facilitate compliance therewith. *(n) T he term “card issuer” means any person who issues a credit card, or the agent of such § 106. Determination of finance charge person with respect to such card. (a) Except as otherwise provided in this sec *(o) T he term “unauthorized use”, as used in tion, the am ount o f the finance charge in section 133, means a use of a credit card by a connection with any consum er credit transaction person other than the cardholder who does not shall be determined as the sum of all charges, have actual, implied, or apparent authority for payable directly or indirectly by the person to such use and from which the cardholder receives whom the credit is extended, and imposed di no benefit. rectly or indirectly by the creditor as an incident **(p) T he term “State” refers to any State, the to the extension of credit, including any of the Com m onw ealth of P uerto Rico, the District of following types of charges which are applicable: Columbia, and any territory or possession of the (1) Interest, time price differential, and any U nited States. am ount payable under a point, discount, or other **(q) A ny reference to any requirem ent im system of additional charges. posed under this title or any provision thereof in (2) Service or carrying charge. cludes reference to the regulations of the Board (3) Loan fee, finder’s fee, or similar charge. under this title or the provision thereof in ques (4) Fee for an investigation or credit report. tion. (5) Prem ium or other charge for any guaran* Added 10/26/70. ** Redesignated 10/26/70. * Redesignated 10/26/70. STATUTORY APPENDIX tee or insurance protecting the creditor against the obligor’s default or other credit loss. (b) Charges or premiums for credit life, acci dent, or health insurance written in connection with any consum er credit transaction shall be in cluded in the finance charge unless (1) the coverage of the debtor by the insur ance is not a factor in the approval by the credi tor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit; and (2) in order to obtain the insurance in connec tion with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so after written disclosure to him of the cost thereof. (c) Charges or prem ium s for insurance, written in connection with any consumer credit transac tion, against loss of or dam age to property or against liability arising out of the ownership or use o f property, shall be included in the finance charge unless a clear and specific statement in writing is furnished by the creditor to the person to w hom the credit is extended, setting forth the cost of the insurance if obtained from or through the creditor, and stating that the person to whom the credit is extended m ay choose the person through which the insurance is to be obtained. (d) If any of the following items is itemized and disclosed in accordance with the regulations of the Board in connection with any transaction, then the creditor need not include that item in the com putation of the finance c h a rg ; with re spect to that transaction: (1) Fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction. (2) The prem ium payable for any insurance in lieu of perfecting any security interest otherwise required by the creditor in connection with the transaction, if the prem ium does not exceed the fees and charges described in paragraph (1) which would otherwise be payable. (3) Taxes. (4) Any other type of charge which is not for credit and the exclusion of which from the finance charge is approved by the Board by regu lation. § 107 (e) The following items, w hen charged in connection with any extension of credit secured by an interest in real property, shall not be in cluded in the com putation of the finance charge with respect to that transaction: (1) Fees or prem ium s for title examination, title insurance, or similar purposes. (2) Fees for preparation of a deed, settlement statement, or other documents. (3) Escrows for future paym ents of taxes and insurance. (4) Fees for notarizing deeds and other docu ments. (5) Appraisal fees. (6) Credit reports. § 107. Determination of annual percentage rate (a) T he annual percentage rate applicable to any extension of consum er credit shall be deter mined, in accordance with the regulations of the Board, (1) in the case of any extension of credit other than under an open end credit plan, as (A) that nominal annual percentage rate which will yield a sum equal to the am ount of the finance charge w hen it is applied to the unpaid balances of the am ount financed, calculated ac cording to the actuarial m ethod of allocating pay ments made on a debt between the am ount financed and the am ount of the finance charge, pursuant to which a paym ent is applied first to the accum ulated finance charge and the balance is applied to the unpaid am ount financed; or (B) the rate determ ined by any m ethod pre scribed by the Board as a method which m ate rially simplifies com putation while retaining rea sonable accuracy as com pared with the rate determined under subparagraph (A). (2) in the case of any extension o f credit under an open end credit plan, as the quotient (expressed as a percentage) of the total finance charge for the period to w hich it relates divided by the am ount upon which the finance charge for that period is based, multiplied by the num ber of such periods in a year. (b) W here a creditor imposes the same finance charge for balances within a specified range, the annual percentage rate shall be com puted on the median balance within the range, except that if the Board determines that a rate so com puted would not be meaningful, or would be materially misleading, the annual percentage rate shall be § 108 STATUTORY APPENDIX (3) the Federal Credit U nion Act, by the D irector of the Bureau of Federal Credit Unions with respect to any Federal credit union. (4) the Acts to regulate commerce, by the In terstate Com m erce Commission with respect to any com m on carrier subject to those Acts. (5) the Federal Aviation Act o f 1958, by the Civil A eronautics Board with respect to any air carrier or foreign air carrier subject to that Act. (6) the Packers and Stockyards Act, 1921 (ex cept as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act. (b) F o r the purpose of the exercise by any agency referred to in subsection (a) of its powers under any A ct referred to in that subsection, a violation of any requirem ent imposed under this title shall be deemed to be a violation of a re quirem ent imposed under that Act. In addition to its powers under any provision of law specifically referred to in subsection (a), each of the agencies referred to in that subsection m ay exercise, for the purpose of enforcing compliance with any re quirem ent imposed under this title, any other a u thority conferred on it by law. (c) Except to the extent that enforcem ent of the requirem ents imposed under this title is spe cifically committed to some other G overnm ent agency under subsection (a), the Federal Trade Commission shall enforce such requirements. F or § 108. Administrative enforcement (a) Com pliance with the requirem ents imposed the purpose of the exercise by the Federal Trade Commission o f its functions and powers under under this title shall be enforced under the Federal T rade Commission Act, a violation (1) section 8 of the Federal Deposit Insurance of any requirem ent imposed under this title shall Act, in the case of be deemed a violation of a requirem ent imposed (A) national banks, by the C om ptroller o f the under that Act. All of the functions and powers Currency. of the Federal T rade Commission u n der the F ed (B) m em ber banks of the Federal Reserve Sys eral T rade Commission A ct are available to the tem (other than national banks), by the Board. Commission to enforce compliance by any person (C) banks insured by the Federal Deposit In with the requirem ents imposed u nd er this title, ir surance Corporation (other than members of the respective of w hether that person is engaged in Federal Reserve System), by the Board of D irec com m erce or meets any other jurisdictional tests tors of the Federal Deposit Insurance C orpora in the Federal T rade Commission Act. tion. (d) The authority of the Board to issue regula (2) section 5(d) of the H om e Owners’ Loan tions under this title does not im pair the author A ct of 1933, section 407 of the N ational H ous ity of any other agency designated in this section ing Act, and sections 6(i) and 17 of the Federal to make rules respecting its own procedures in H om e L oarw B ank Act, by the Federal H om e enforcing com pliance with requirem ents imposed Loan Bank Board (acting directly or through the under this title. Federal Savings and Loan Insurance C orpora § 109. Views of other agencies tion), in the case of any institution subject to any In the exercise of its functions under this title, of those provisions. com puted on such other basis as the Board may by regulation require. (c) The annual percentage rate m ay be rounded to the nearest quarter of 1 per centum for credit transactions payable in substantially equal installments when a creditor determines the total finance charge on the basis of a single add on, discount, periodic, or other rate, and the rate is converted into an annual percentage rate under procedures prescribed by the Board. (d) T he Board m ay authorize the use of rate tables or charts which m ay provide for the dis closure of annual percentage rates which vary from the rate determined in accordance with subsection (a)(1)(A) by not m ore than such toler ances as the Board m ay allow. The Board may not allow a tolerance greater than 8 per centum of th at rate except to simplify com pliance where irregular paym ents are involved. (e) In the case o f creditors determining the an nual percentage rate in a m anner other than as described in subsection (c) o r (d), the Board may authorize other reasonable tolerances. (f) P rior to Janu ary 1, 1971, any rate required under this title to be disclosed as a percentage rate may, at the option of the creditor, be ex pressed in the form of the corresponding ratio of dollars per hundred dollars. STATUTORY APPENDIX the Board may obtain upon request the views of any other Federal agency which, in the judgment of the Board, exercises regulatory or supervisory functions with respect to any class o f creditors subject to this title. § 1 1 0 . Advisory committee T he Board shall establish an advisory com m it tee to advise and consult with it in the exercise of its functions under this title. In appointing the members of the committee, the Board shall seek to achieve a fair representation of the interests of sellers of merchandise on credit, lenders, and the public. T he com mittee shall meet from time to time at the call of the Board, and members thereof shall be paid transportation expenses and not to exceed $100 per diem. § 111. Effect on other laws (a) This title does not annul, alter, or affect, or exempt any creditor from complying with, the laws of any State relating to the disclosure of in form ation in connection with credit transactions, except to the extent that those laws are inconsist ent with the provisions of this title or regulations thereunder, and then only to the extent of the in consistency. (b) This title does not otherwise annul, alter or affect in any m anner the meaning, scope or appli cability of the laws of any State, including, but not limited to, laws relating to the types, amounts o r rates of charges, or any element or elements o f charges, permissible under such laws in connection with the extension or use of credit, nor does this title extend the applicability of those laws to any class of persons or transactions to which they would not otherwise apply. (c) In any action or proceeding in any court involving a consum er credit sale, the disclosure of the annual percentage rate as required under this title in connection with that sale m ay not be received as evidence that the sale was a loan or any type of transaction other than a credit sale. (d) Except as specified in sections 125 and 130, this title and the regulations issued thereun der do not affect the validity or enforceability of any contract or obligation under State or Federal law. § 1 1 2 . Criminal liability for willful and knowing violation W hoever willfully and knowingly § 110 (1) gives false or inaccurate inform ation or fails to provide inform ation which he is required to disclose under the provisions of this title or any regulation issued thereunder, (2) uses any chart o r table authorized by the Board under section 107 in such a m ann er as to consistently understate the annual percentage rate determined under section 107 (a)(1)(A), or (3) otherwise fails to com ply with any require ment imposed under this title, shall be fined not m ore than $5,000 o r impris oned not more than one year, or both. § 113. Penalties inapplicable to governmental agencies N o civil or criminal penalty provided under this title for any violation thereof m ay be im posed upon the U nited States or any agency thereof, or upon any State or political subdivision thereof, or any agency of any State or political subdivision. § 114. Reports by Board and Attorney General N ot later than Janu ary 3 of each year after 1969, the Board and the A ttorney G eneral shall, respectively, m ake reports to the Congress con cerning the adm inistration of their functions under this title, including such recommendations as the Board and the A ttorney General, respec tively, deem necessary or appropriate. In addi tion, each report o f the Board shall include its as sessment of the extent to which compliance with the requirem ents imposed u n der this title is being achieved. CHAPTER 2— CREDIT TRANSACTIONS Sec. 121. 122. 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. G eneral requirem ent o f disclosure. F o rm of disclosure; additional information. Exem ption for State-regulated transactions. Effect of subsequent occurrence. Right of rescission as to certain transactions. C ontent of periodic statements. O pen end consum er credit plans. Sales not un der open end credit plans. C onsum er loans not under open end credit plans. Civil liability. W ritten acknowledgm ent as proof of receipt. Issuance of credit cards. Liability o f holder of credit card. F raud ulen t use of credit card. § 121 § 121. General requirement of disclosure (a) Each creditor shall disclose clearly and conspicuously, in accordance with the regulations of the Board, to each person to whom consumer credit is extended and upon w hom a finance charge is or may be imposed, the inform ation re quired under this chapter. (b) If there is more than one obligor, a credi tor need not furnish a statement of inform ation required under this chapter to m ore than one of them. § 122. Form of disclosure; additional information (a) Regulations of the Board need not require that disclosures pursuant to this chapter be m ade in the order set forth in this chapter, and may perm it the use of term inology different from that employed in this chapter if it conveys substan tially the same meaning. (b) A ny creditor may supply additional infor m ation or explanations with any disclosures re quired under this chapter. § 123. Exemption for State-regulated transactions T he Board shall by regulation exempt from the requirem ents of this chapter any class of credit transactions within any State if it determines that under the law of that State that class of transac tions is subject to requirem ents substantially simi lar to those imposed under this chapter, and that there is adequate provision for enforcement. § 124. Effect of subsequent occurrence If inform ation disclosed in accordance with this chapter is subsequently rendered inaccurate as the result of any act, occurrence, or agreement subsequent to the delivery of the required disclo sures, the inaccuracy resulting therefrom does not constitute a violation of this chapter. STATUTORY APPENDIX creditor, in accordance with regulations of the Board, of his intention to do so. T he creditor shall clearly and conspicuously disclose, in ac cordance with regulations of the Board, to any obligor in a transaction subject to this section the rights of the obligor under this section. The cred itor shall also provide, in accordance with regula tions o f the Board, an adequate opportunity to the obligor to exercise his right to rescind any transaction subject to this section. (b) W hen an obligor exercises his right to res cind under subsection (a), he is not liable for any finance or other charge, and any security interest given by the obligor becomes void upon such a rescission. Within ten days after receipt of a n o tice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to re flect the term ination of any security interest cre ated under the transaction. If the creditor has de livered any property to the obligor, the obligor may retain possession of it. U pon the p e rfo rm ance of the creditor’s obligations under this sec tion, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be m ade at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take posses sion of the property within ten days after tender by the obligor, ownership of the property vests in the obligor w ithout obligation on his p art to pay for it. (c) Notwithstanding any rule of evidence, writ ten acknowledgment of receipt of any disclosures required under this title by a person to whom a § 125. Right of rescission as to certain transac statement is required to be given pursuant to this tions (a) Except as otherwise provided in this sec section does no m ore than create a rebuttable presum ption of delivery thereof. tion, in the case of any consum er credit (d) The Board may, if it finds that such action transaction in which a security interest is retained is necessary in order to perm it homeowners to or acquired in any real property which is used or meet bona fide personal financial emergencies, is expected to be used as the residence of the prescribe regulations authorizing the modification person to w hom credit is extended, the obligor or waiver of any rights created under this section shall have the right to rescind the transaction to the extent and under the circumstances set until midnight of the third business day following forth in those regulations. the consum m ation of the transaction or the deliv (e) This section does not apply to the creation ery of the disclosures required under this section or retention of a first lien against a dwelling to and all other material disclosures required under finance the acquisition of that dwelling. this chapter, whichever is later, by notifying the STATUTORY APPENDIX § 126 § 1 2 6 . Content o f periodic statements If a creditor transm its periodic statements in connection with any extension of consum er credit other than under an open end consum er credit plan, then each of those statements shall set forth each of the following items: (1) T he annual percentage rate of the total finance charge. (2) The date by which, or the period (if any) within which, paym ent m ust be made in order to avoid additional finance charges or other charges. (3) Such of the items set forth in section 127(b) as the Board m ay by regulation require as appropriate to the terms and conditions under which the extension of credit in question is made. charges m ay be imposed, and the m ethod by which they will be determined. (7) The conditions under which the creditor may retain or acquire any security interest n any property to secure the paym ent of any credit ex tended under the plan, and a description of the interest or interests which m ay be so retained or acquired. (b) T he creditor of any account under an open end consum er credit plan shall transm it to the obligor, for each billing cycle at the end of which there is an outstanding balance in that account or with respect to which a finance charge is im posed, a statement setting forth each of the fol lowing items to the extent applicable: (1) T he outstanding balance in the account at the beginning of the statement period. (2) T he am ount and date of each extension of credit during the period, and, if a purchase was involved, a brief identification (unless previously furnished) of the goods o r services purchased. (3) T he total am ou n t credited to the account during the period. (4) T he am ount of any finance charge added to the account during the period, itemized to show the amounts, if any, due to the application of percentage rates and the am ount, if any, im posed as a m inimum or fixed charge. (5) W here one o r more periodic rates m ay be used to com pute the finance charge, each such rate, the range of balances to which it is applica ble, and, unless the annual percentage rate (deter mined under section 107(a)(2)) is required to be disclosed pursuan t to paragraph (6), the corre sponding nom inal annual percentage rate deter mined by multiplying the periodic rate by the num ber o f periods in a year. (6) W here the total finance charge exceeds 50 cents for a monthly or longer billing cycle, or the pro rata p art o f 50 cents fo r a billing cycle shorter than monthly, the total finance charge ex pressed as an annual percentage rate (determined under section 107(a)(2)), except that if the finance charge is the sum of two or m ore prod ucts of a rate times a portion of the balance, the creditor may, in lieu o f disclosing a single rate for the total charge, disclose each such rate ex pressed as an annual percentage rate, and the p art of the balance to which it is applicable. (7) A t the election of the creditor, the average effective annual percentage rate of return (or the § 127. Open end consumer credit plans (а) Before opening any account under an open end consum er credit plan, the creditor shall dis close to the person to w hom credit is to be ex tended each o f the following items, to the extent applicable: (1) T he conditions under which a finance charge may be imposed, including the tim e p e riod, if any, w ithin which any credit extended m ay be repaid w ithout incurring a finance charge. (2) T he m ethod of determining the balance upon which a finance charge will be imposed. (3) T he m ethod of determining the am ount of the finance charge, including any m inim um or fixed am ount imposed as a finance charge. (4) W here one or m ore periodic rates m ay be used to com pute the finance charge, each such rate, the range of balances to which it is applica ble, and the corresponding nominal annual per centage rate determined by multiplying the pe riodic rate by the num ber of periods in a year. (5) If the creditor so elects, (A) the average effective annual percentage rate of return received from accounts under the plan for a representative period of time; or (B) whenever circumstances are such th at the com putation of a rate under subparagraph (A) would not be feasible or practical, or would be misleading o r meaningless, a projected rate o f re tu rn to be received from accounts under the plan. T he Board shall prescribe regulations, consistent with com monly accepted standards for account ing or statistical procedures, to carry out the p u r poses of this paragraph. (б) The conditions und er w hich any other 35 STATUTORY APPENDIX § 128 projected rate) under the plan as prescribed in subsection (a)(5). (8) The balance on which the finance charge was com puted and a statement of how the bal ance was determined. If th e balance is deter mined w ithout first deducting all credits during the period, that fact and the am ount of such pay m ents shall also be disclosed. (9) T he outstanding balance in the account at the end of the period. (10) T h e date by which, or the period (if any) within which, paym ent must be m ade to avoid additional finance charges. (c) In the case of any open end consumer credit plan in existence on the effective date of this subsection, the items described in subsection (a), to the extent applicable, shall be disclosed in a notice mailed or delivered to the obligor not later than thirty days after that date. § 128. Sales not under open end credit plans (а) In connection with each consum er credit sale not under an open end credit plan, the credi to r shall disclose each of the following items which is applicable: (1) T he cash price of the property or service purchased. (2) T h e sum of any am ounts credited as down paym ent (including any trade-in). (3) The difference between the am ount re ferred to in paragraph (1) and the am ount re ferred to in paragraph (2). (4) All other charges, individually itemized, which are included in the am ount of the credit extended but w hich are not p art of the finance charge. (5) The total am ount to be financed (the sum of the am ount described in paragraph (3) plus the am ount described in paragraph (4)). (б) Except in the case of a sale of a dwelling, the am ount o f the finance charge, which may in whole or in part be designated as a time-price differential or any similar term to the extent ap plicable. (7) The finance charge expressed as an annual percentage rate except in the case of a finance charge (A) which does not exceed $5 and is applica ble to an am ount financed not exceeding $75, o r (B) which does not exceed $7.50 and is appli cable to an am ount financed exceeding $75. 36 A creditor m ay not divide a consumer credit sale into two or m ore sales to avoid the disclosure of an annual percentage rate pursuant to this p ara graph. (8) The number, am ount, and due dates or pe riods of paym ents scheduled to repay the indebt edness. (9) The default, delinquency, or similar charges payable in the event of late payments. (10) A description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to w hich the security interest relates. (b) Except as otherwise provided in this chap ter, the disclosures required under subsection (a) shall be m ade before the credit is extended, and may be m ade by disclosing the inform ation in the contract or other evidence of indebtedness to be signed by the purchaser. (c) If a creditor receives a purchase order by mail or telephone w ithout personal solicitation, and the cash price and the deferred paym ent price and the term s of financing, including the annual percentage rate, are set forth in the credi tor’s catalog or other printed m aterial distributed to the public, then the disclosures required under subsection (a) m ay be made at any tim e not later than the date the first paym ent is due. (d) If a consumer credit sale is one of a series of consum er credit sales transactions m ade p u r suant to an agreement providing for the addition of the deferred paym ent price of th at sale to an existing outstanding balance, and the person to w hom the credit is extended has approved in writing both the annual percentage rate or rates and the method of com puting the finance charge or charges, and the creditor retains n o security interest in any property as to which he has re ceived payments aggregating the am ount of the sales price including any finance charges attribut able thereto, then the disclosure required under subsection (a) fo r the particular sale m ay be made at any time not later than the date the first paym ent for that sale is due. F o r the purposes of this subsection, in the case o f items purchased on different dates, the first purchased shall be deemed first paid for, and in the case of items purchased on the same date, the lowest priced shall be deemed first paid for. STATUTORY APPENDIX § 129. Consumer loans not under open end credit plans (a) A ny creditor making a consum er loan or otherwise extending consum er credit in a transac tion which is neither a consumer credit sale nor under an open end consum er credit plan shall disclose each of the following items, to the extent applicable: (1) The am ount of credit of which the obligor will have the actual use, or which is or will be paid to him or for his account or to another per son on his behalf. (2) All charges, individually itemized, which are included in the am ount of credit extended but which are not part of the finance charge. (3) The total am ount to be financed (the sum of the am ounts referred to in paragraph (1) plus the am ounts referred to in paragraph (2)). (4) Except in the case o f a loan secured by a first lien on a dwelling and m ade to finance the purchase of that dwelling, the am ount of the finance charge. (5) The finance charge expressed as an annual percentage rate except in the case of a finance charge (A) which does not exceed $5 and is applica ble to an extension of consumer credit not ex ceeding $75, or (B) which does not exceed $7.50 and is appli cable to an extension of consumer credit exceeding $75. A creditor m ay not divide an extension of credit into two or m ore transactions to avoid the disclo sure of an annual percentage rate pursuant to this paragraph. (6) T h e num ber, am ount, and the due dates or periods of paym ents scheduled to repay the in debtedness. (7) T he default, delinquency, or similar charges payable in the event of late payments. (8) A description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates. (b) Except as otherwise provided in this chap ter, the disclosures required by subsection (a) shall be m ade before the credit is extended, and may be m ade by disclosing the inform ation in the note o r other evidence o f indebtedness to be signed by the obligor. § 129 (c) If a creditor receives a request for an ex tension of credit by mail or telephone without personal solicitation and the term s of financing, including the annual percentage rate for repre sentative am ounts of credit, are set forth in the creditor’s printed material distributed to the pub lic, or in the contract of loan or other printed m aterial delivered to the obligor, then the disclo sures required under subsection (a) m ay be made at any time not later than the date the first pay ment is due. § 130. Civil liability (a) Except as otherwise provided in this sec tion, any creditor who fails in connection with any consum er credit transaction to disclose to any person any inform ation required under this chapter to be disclosed to that person is liable to that person in an am ount equal to the sum of (1) twice the am ount of the finance charge in connection with the transaction, except that the liability under this paragraph shall not be less than $100 nor greater th an $1,000; and (2) in the case of any successful action to en force the foregoing liability, the cost o f the ac tion together with a reasonable attorney’s fee as determined by the court. (b) A creditor has no liability under this sec tion if within fifteen days after discovering an error, and p rior to the institution of an action under this section or the receipt of written notice of the error, the creditor notifies the person con cerned of the error and makes whatever adjust ments in the appropriate account are necessary to insure that the person will not be required to pay a finance charge in excess of the am ount or per centage rate actually disclosed. (c) A creditor m ay not be held liable in any action brought under this section for a violation of this chapter if the creditor shows by a prepon derance of evidence th at the violation was not intentional and resulted from a bona fide error notwithstanding the m aintenance of procedures reasonably adapted to avoid any such error. (d) A ny action which m ay be brought under this section against the original creditor in any credit transaction involving a security interest in real property may be maintained against any sub sequent assignee of the original creditor where the assignee, its subsidiaries, or affiliates were in a continuing business relationship with the origi nal creditor either at the tim e the credit was ex § 131 tended o r at the time of the assignment, unless the assignment was involuntary, or the assignee shows by a preponderance o f evidence that it did not have reasonable grounds to believe that the original creditor was engaged in violations of this chapter, and that it m aintained procedures rea sonably adapted to apprise it of the existence of any such violations. (e) A ny action under this section may be brought in any United States district court, or in any other court of com petent jurisdiction, within one year from the date of the occurrence of the violation. § 131. Written acknowledgment as proof of re ceipt Except as provided in section 125(c) and ex cept in the case of actions brought under section 130(d), in any action or proceeding by or against any subsequent assignee of the original creditor w ithout knowledge to the contrary by the as signee when he acquires the obligation, written acknowledgment of receipt by a person to whom a statement is required to be given pursuant to this title shall be conclusive proof of the delivery thereof and, unless the violation is apparent on the face of the statement, o f compliance with this chapter. This section does not affect the rights of the obligor in any action against the original creditor. *§ 132. Issuance o f credit cards N o credit card shall be issued except in re sponse to a request or application therefor. This prohibition does not apply to the issuance of a credit card in renewal of, or in substitution for, an accepted credit card. **§ 133. Liability o f holder of credit card (a) A cardholder shall be liable for the u n au thorized use of a credit card only if the card is an accepted credit card, the liability is not in ex cess o f $50, the card issuer gives adequate notice to the cardholder of the potential liability, the card issuer has provided the cardholder with a self-addressed, prestamped notification to be mailed by the cardholder in the event of the loss o r theft of the credit card, and the unauthorized * Added 10/26/70. ** Added 10/26/70, effective 1/25/71. STATUTORY APPENDIX use occurs before the cardholder has notified the card issuer that an unauthorized use of the credit card has occurred or m ay occur as the result of loss, theft, or otherwise. Notwithstanding the foregoing, no cardholder shall be liable for the unauthorized use of any credit card which was is sued on or after the effective date of this section, and, after the expiration of twelve months follow ing such effective date, no cardholder shall be lia ble for the unauthorized use of any credit card regardless of the date of its issuance, unless (1) the conditions of liability specified in the preced ing sentence are met, and (2) the card issuer has provided a method whereby the user of such card can be identified as the person authorized to use it. F or the purposes of this section, a cardholder notifies a card issuer by taking such steps as may be reasonably required in the ordinary course of business to provide the card issuer with the perti nent inform ation whether or not any particular officer, employee, or agent of the card issuer does in fact receive such information. (b) In any action by a card issuer to enforce liability for the use of a credit card, the burden of proof is upon the card issuer to show that the use was authorized or, if the use was unauthor ized, then the burden of proof is upon the card issuer to show that the conditions of liability for the unauthorized use of a credit card, as set forth in subsection (a), have been met. (c) N othing in this section imposes liability upon a cardholder for the unauthorized use o f a credit card in excess of his liability for such use under other applicable law or under any agree ment with the card issuer. (d) Except as provided in this section, a card holder incurs no liability from the unauthorized use of a credit card. *§ 134. Fraudulent use of credit card Whoever, in a transaction affecting interstate or foreign commerce, uses any counterfeit, ficti tious, altered, forged, lost, stolen, o r fraudulently obtained credit card to obtain goods or services, or both, having a retail value aggregating $5,000 or more, shall be fined not m ore than $10,000 or imprisoned not more than five years, or both. * Added 10/26/70. STATUTORY APPENDIX CHAPTER 3— CREDIT ADVERTISING Sec. 141. Catalogs and multiple-page advertisements. 142. Advertising of downpayments and install ments. 143. Advertising of open end credit plans. 144. Advertising of credit other than open end plans. 145. N onliability of media. § 141. Catalogs and multiple-page advertisements F o r the purposes of this chapter, a catalog or other multiple-page advertisement shall be consid ered a single advertisement if it clearly and con spicuously displays a credit terms table on which the inform ation required to be stated under this chapter is clearly set forth. § 142. Advertising of downpayments and install ments N o advertisement to aid, promote, or assist di rectly or indirectly any extension of consumer credit m ay state (1) that a specific periodic consumer credit am ount or installment am ount can be arranged, unless the creditor usually and customarily ar ranges credit payments or installments for that period and in that amount. (2) that a specified dow npaym ent is required in connection with any extension of consumer credit, unless the creditor usually and customarily arranges downpayments in that amount. § 143. Advertising of open end credit plans N o advertisement to aid, promote, o r assist di rectly o r indirectly the extension of consumer credit und er an open end credit plan m ay set forth any of the specific term s of that plan or the appropriate rate determ ined under section 127(a)(5) unless it also clearly and conspicuously sets forth all of the following items: (1) The tim e period, if any, within which any credit extended may be repaid w ithout incurring a finance charge. (2) T he m ethod of determ ining the balance upon which a finance charge will be imposed. (3) T h e method of determ ining the am ount of the finance charge, including any m inim um or fixed am ount imposed as a finance charge. § 141 • (4) W here periodic rates m ay be used to com pute the finance charge, the periodic rates ex pressed as annual percentage rates. (5) Such other or additional inform ation for the advertising of open end credit plans as the Board may by regulation require to provide for adequate com parison of credit costs as between different types of open end credit plans. § 144. Advertising of credit other than open end plans (a) Except as provided in subsection (b), this section applies to any advertisement to aid, p ro mote, or assist directly or indirectly any con sumer credit sale, loan, or other extension of credit subject to the provisions of this title, other than an open end credit plan. (b) The provisions o f this section do not apply to advertisements of residential real estate except to the extent that the Board m ay by regulation require. (c) If any advertisement to which this section applies states the rate of a finance charge, the ad vertisement shall state the rate of th a t charge ex pressed as an annual percentage rate. (d) I f any advertisement to which this section applies states the am ount of the dow npaym ent, if any, the am ount of any installment paym ent, the dollar am ount of any finance charge, or the num ber of installments or the period o f repayment, then the advertisement shall state all of the fol lowing items: (1) The cash price or the am ount of the loan as applicable. (2) T he dow npaym ent, if any. (3) The num ber, am ount, and due dates or p e riod of paym ents scheduled to repay the indebt edness if the credit is extended. (4) T he rate of the finance charge expressed as an annual percentage rate. § 145. Nonliability o f media There is no liability under this chapter on the p art of any ow ner or personnel, as such, of any medium in which an advertisement appears or through which it is disseminated. STATUTORY APPENDIX § 501 TITLE V — G ENER AL PROVISIONS Sec. 501. 502. 503. 504. • § 503. Grammatical usages In this Act: (1) T he word “m ay” is used to indicate that an action either is authorized or is permitted. (2) The word “shall” is used to indicate that an action is both authorized and required. (3) T he phrase “m ay n o t” is used to indicate that an action is both unauthorized and forbid den. (4) Rules of law are stated in the indicative mood. Severability. Captions and catchlines for reference only. G ram m atical usages. Effective dates. § 501. Severability If a provision enacted by this A ct is held in valid, all valid provisions that are severable from the invalid provision rem ain in effect. If a provi sion enacted by this A ct is held invalid in one or m ore of its applications, the provision remains in effect in all valid applications th at are severable from the invalid application or applications. § 504. Effective dates (a) Except as otherwise specified, the provi sions of this A ct take effect upon enactment. (b) Chapters 2 and 3 o f title I take effect on July 1, 1969. (c) Title III takes effect on July 1, 1970. § 502. Captions and catchlines for reference only Captions and catchlines are intended solely as aids to convenient reference, and no inference as to the legislative intent with respect to any provi sion enacted by this A ct m ay be draw n from them. 40 § 226.101 REGULATION Z— INTERPRETATIONS TRUTH IN LENDING INTERPRETATIONS OF REGULATION Z SECTION 226.1 SEC T IO N 226.101— U SE O F “A N N U A L P E R C E N T A G E R A T E ” IN O R A L C O M M U N IC A T IO N S U nder § 226.1(a)(2), a stated purpose of the T ru th in Lending Act and Regulation Z is to as sure that every custom er w ho has need for con sumer credit is given meaningful inform ation with respect to the cost of that credit so that he may readily com pare the various credit term s available to him from different sources and avoid the uninform ed use of credit. U nder § 226.6(a), a creditor is required to m ake disclosures using cer tain prescribed terminology, including the “an nual percentage rate.” T he question arises as to the propriety of a creditor quoting annual rates other than “annual percentage rate” in response to consum er inquiries about the cost of credit, where such other rates could not be used in an advertisement under the proscriptions of § 226.10. The T ru th in Lending A ct and Regulation Z are intended to facilitate “shopping” between competitive credit plans. If a custom er inquires about the cost of credit and the creditor responds by quoting an add-on or discount rate, he may mislead the customer since the use of such rates is prohibited in consum er credit advertising and such rates are significantly lower than the annual percentage rate which must be shown on the creditor’s disclosure statement. T he quotation of these rates can frustrate the stated purpose of the A ct and prevent the custom er from making an inform ed use of credit. In response to any oral inquiry by a customer about the cost of credit, a creditor when quoting annual rates should use only those rates perm it ted to be used in advertisements under § 226.10. Irrespective of the m ethod used by the creditor to com pute finance charges, the annual rate of the creditor’s total finance charges should be quoted only in term s of the “annual percentage rate.” 6/29/73 SECTION 226.2 SEC T IO N 226.201— L A Y -A W A Y PLA N S AS E X T E N S IO N S O F C R E D IT M any vendors offer Lay-Away Plans under which they retain the merchandise for a customer until the cash price is paid in full and the cus tom er has no contractual obligation to m ake pay ments and may, at his option, revoke a purchase m ade under the plan and request and receive prom pt refund of any am ounts paid tow ard the cash price of the merchandise. A purchase under such a Lay-Away Plan shall not be considered an extension of credit subject to the provisions of Regulation Z. 5 /5 / 6 9 SEC T IO N 226.202— S E C U R IT Y IN T E R E S T — C O N FESSIO N S O F JU D G M E N T — C O G N O V IT N O TE S U nder § 226.2(z) “security interest” is defined to include confessed liens w hether o r not re corded and, in general, to include any interest in property which secures paym ent or perform ance of an obligation. In certain transactions involving a security interest, under § 226.9 the customer has a right of rescission. In some o f the States, confession of judgm ent clauses or cognovit provisions are lawful and make it possible for the holder o f an obligation containing such clause or provision to record a lien on property of the obligor simply by recor dation entry of judgment; the obligor is afforded no opportunity to enter a defense against such action prior to entry of the judgment. Since confession of judgm ent clauses and cog novit provisions in such States have the effect of depriving the obligor o f the right to be notified of a pending action and to enter a defense in a judi cial proceeding before judgm ent m ay be entered or recorded against him, such clauses and provi sions in those States are security interests under § 226.2(z) and for the purposes o f § 226.7(a)(7), § 226.8(b)(5), and § 226.9. This is the case even if the judgm ent cannot be entered until after a default by the obligor. § 226.203 REGULATION Z— INTERPRETATIONS Confession of judgm ent clauses and cognovit provisions which, by their terms, exclude a lien on all real property which is used o r is expected to be used as the principal residence of the cus tomer, would not bring a transaction under the provisions of § 226.9. 5 /2 6 /6 9 SEC T IO N 226.203— O P E N E N D C R E D IT D IS T IN G U IS H E D F R O M O T H E R C R E D IT T he fundam ental qualification for “open end credit” under § 226.2(r) is that consum er credit be extended on an account pursuant to a plan u nd er which (1) the creditor may perm it the cus tom er to make purchases or obtain loans from time to time directly or indirectly from the credi tor, as the plan may provide; (2) the customer has the privilege of paying the balance in full or in instalments; and (3) a finance charge may be com puted by the creditor from tim e to time on an outstanding unpaid balance. U nder an open end credit account plan, it is contemplated that there will o r m ay be repetitive transactions on a revolving basis. In certain cases, a form of contract or note re lating to a single transaction provides that the finance charge be com puted from time to time by application of a rate to the unpaid balance and stipulates required m inim um periodic payments. However, the obligor has the privilege of making larger and more frequent paym ents than stipu lated or paying the obligation in full at any time w ithout penalty. T he question arises as to w hether the creditor should m ake disclosures in such circumstances under § 226.7 for open end credit accounts or under § 226.8 for credit other than open end. Although the term s of such a contract or note meet the second and third requirem ents for such a plan, they do not m eet the first of such require ments n o r the basic qualification that consumer credit be extended on an account pursuant to a plan. Therefore, disclosures in this case are re quired to be m ade under § 226.8. 5 /2 6 /6 9 SECTION 226.3 S E C T IO N 2 2 6 .3 0 1 — A G R I C U L T U R A L PURPO SES— W H E N E X E M P T FR O M T H E R E G U L A T IO N U nder § 226.3(a), the Regulation does not apply to “Extensions of credit to organizations, including governments, o r for business or com mercial purposes, other than agricultural pu r poses.” The definition of “organization” in § 226.2(s) includes a corporation, trust, estate, partnership, cooperative, o r association as well as governmental entities. The question arises as to w hether the Regulation applies to extensions of credit to organizations, including governments, for agricultural purposes. Extensions of credit to organizations, including governments, for agricultural purposes are ex empt from the Regulation. 5 /2 6 /6 9 SEC TIO N 226.302— C R E D IT F O R BUSINESS O R C O M M E R C IA L P U R PO SES— M O R E T H A N 4 F A M IL Y U N IT S U nder § 226.3(a), extensions of credit for busi ness o r com mercial purposes, other th an agricul tural purposes, are not subject to Regulation Z. The question arises as to whether an extension of credit relating to a dwelling (as defined in § 226.2(p)) which contains m ore than 4 family housing units is an extension of credit fo r business or com mercial purposes. Credit extended to an owner of a dwelling con taining m ore than 4 family housing units for the purpose of acquiring, financing, refinancing, im proving, or maintaining th at dwelling is an exten sion of credit for business or com mercial p u r poses. 1 /2 8 /7 0 SECTION 226.4 SEC T IO N 226.401— SER V IC E C H A R G E S ON A C C O U N T S N O T P A ID W IT H IN A G IV E N P E R IO D O F T IM E Some vendors bill their customers for property or services purchased under the term s of a credit plan which requires that the full am o un t of each billing be paid w ithin a stipulated period after § 226.402 REGULATION Z— INTERPRETATIONS billing, with no privilege o f paying in instalments. If a bill is not paid within that stipulated period of time, the vendor imposes a service charge pe riodically on the unpaid balance until the account is paid in full. T he question arises as to whether Regulation Z applies to such transactions. W hen in the ordinary course o f business a ven d or’s billings are not paid in full within th at stip ulated period of time, and under such circum stances the vendor does not, in fact, regard such accounts in default, but continues or will con tinue to extend credit and imposes charges pe riodically for delaying paym ent of such accounts from time to time until paid, the charge so im posed comes within the definitions of a “finance charge” (§ 226.2 ( q ) ) applicable in each case to the am ount of the unpaid balance of the account. U nder such circumstances the credit so extended comes w ithin the “open end credit” in § 226.2(r), the vendor is a creditor as defined in § 226.2(m), and the disclosures required for open end credit accounts under § 226.7 shall be made. 4 /2 2 /6 9 SEC T IO N 226.402— T E R M O F IN S U R A N C E COVERAGE U nd er § 226.4(a)(5) and (6) certain disclosures of insurance prem ium costs, if applicable, are re quired. T he question arises as to w hether such am ounts of cost disclosed m ust include the cost of insurance for the full term of the transaction. U nd er § 226.4(h) the cost of insurance for the full period of insurance coverage w hich the credi tor will require shall be disclosed if the cost of the insurance prem ium is required to be included in the finance charge. However, if the cost of in surance is not required to be included in the finance charge, the cost to be disclosed need only be the cost of prem ium s for the term of the ini tial policy or policies written in connection with the transaction, accom panied by a statement of the type of insurance and the term thereof. 5 /5 / 6 9 SEC T IO N 226.403— D ISC L O SU R E O F COST O F P R O P E R T Y IN S U R A N C E W H E N N O T O B T A IN A B L E F R O M O R T H R O U G H T H E C R E D IT O R In m any cases a creditor requires insurance against loss o r dam age to property or liability arising out of its use but such insurance is not obtainable from o r through him. T he question arises under § 226.4(a)(6) as to w hether such a creditor must m ake any disclosures to avoid hav ing to include the insurance prem ium in the finance charge. Irrespective of w hether such insurance m ay be obtained from o r through the creditor, if the creditor requires property insurance and wishes to exclude the cost from the finance charge, he is required to state clearly and conspicuously to the customer that he m ay choose the person through which the insurance is to be obtained. However, if the insurance is not obtainable from or through the creditor, he is not required to dis close the cost of th at insurance, unless, of course, the prem ium s are included in the “am ount financed,” in w hich case it would have to be dis closed u n der § 226.8(c)(4) or (d)(1), as the case m ay be. 5 /2 6 /6 9 SEC T IO N 226.404— P R E M IU M S F O R V E N D O R ’S S IN G L E IN T E R E S T IN S U R A N C E R E Q U IR E D BY C R E D IT O R T he question arises w hether charges or prem i ums for single interest insurance (Vendor’s Single Interest Insurance) written in connection with a credit transaction m ay be excluded from the finance charge under § 226.4(a)(6) if the insurer waives subrogation. If the insurer waives all right of subrogation against the custom er in a single interest policy of insurance against loss o f or dam age to property (which m ay include coverage for skip, conceal ment, conversion, and embezzlement) w ritten in connection with a credit transaction, and the creditor complies with the requirem ents of § 226.4(a)(6), charges or prem ium s for such insur ance may be excluded from the am ount of the finance charge on th at transaction. However, if the insurer does not so waive subrogation in such policy of insurance, the charges or prem ium s shall be included in the finance charge. 1 /2 8 /7 0 (Supersedes issued 8 /1 / 6 9 ) interpretation § 226.404 § 226.405 SEC T IO N 226.405— P R O P E R T Y IN S U R A N C E W R IT T E N IN C O N N E C T IO N W IT H A T R A N S A C T IO N — O B T A IN E D FR O M OR T H R O U G H T H E C R E D IT O R Footnote 4 to § 226.4(a)(6) specifies that a pol icy of insurance against loss or dam age to pro p erty or liability arising out of its use is not con sidered to be “w ritten in connection with” a transaction w hen it “ . . . was not purchased by the custom er for the purpose of being used in connection with th at extension of credit.” T here fore, whenever such a policy is purchased by the custom er for the purpose of being used in connection with a specific extension of credit, it is insurance “written in connection w ith” that transaction. If the custom er elects to purchase such insur ance otherwise than from or through the creditor, the creditor is not required to disclose the cost of the insurance or include the prem ium in the finance charge. However, if the cost of such in surance is to be financed through the creditor, the premiums must be included in the “am ount financed” and disclosed under § 226.8(c)(4) or (d)(1), as the case m ay be. 9 /1 1 /6 9 SEC T IO N 226.406— SE L L E R ’S P O IN T S A N D D IS C O U N TS U N D E R R E G U L A T IO N Z Section 226.4(a) o f Regulation Z includes in the finance charge any charge “payable directly or indirectly by the customer, and imposed di rectly or indirectly by the creditor as an inci dent to or as a condition of the extension of credit. . . .” T he question arises as to the proper treatm ent of discounts paid by the seller, includ ing points imposed on the seller by the lender in connection with a real estate transaction. U nder the general rule in § 226.4(a), any such discount, to the extent it is passed on to the buyer through an increase in the selling price, m ust be included in the finance charge. However, as a practical matter, it m ay be difficult to deter mine w hether or not a discount paid by the seller in connection with a real estate transaction has been, in fact, passed along to the custom er as a part of the purchase price of the property. The same situation m ay exist in other cases, for ex ample, those in which the creditor sells at a dis REGULATION Z— INTERPRETATIONS count obligations payable in m ore than four in stalments. The Board has concluded that in any such transaction coming within its administrative en forcement authority, w here seller’s points o r dis counts were, in fact, passed along to the cus tom er o r buyer and the am ount thereof was not disclosed as a finance charge, the Board will take such action as may be appropriate in the circum stances. However, it will not attem pt to prescribe rules creating a presum ption that all discounts or points are passed on to the custom er or buyer and hence must be included in the finance charge in any particular class of transaction. O n the other hand, the inclusion of seller’s points or dis counts in the finance charge will be acceptable to the Board as a correct disclosure under Regula tion Z. This position relates only to the Board’s adm in istrative enforcem ent procedures and it is not intended in any way to restrict or prejudice the rights of any customer or buyer to bring an ac tion under sections 130 and 131 of the Act w here he has reason to believe he is or was re quired to pay directly or indirectly a finance charge imposed directly or indirectly by the cred itor of the transaction and the am ount of that finance charge was not disclosed to him. 1 0 /2 3 /7 0 SEC T IO N 226.407— C H A R G E S F O R M E M B E R SH IP IN O P E N E N D C R E D IT P L A N A credit card issuer charges the cardholder an annual fee for membership in the credit plan and for issuance of a credit card for use in conjunc tion with the plan. The paym ent of the fee is re quired as a condition of membership in the plan, w hether o r not the cardholder uses his card for the purpose of obtaining credit. T he question arises w hether these fees are finance charges under § 226.4(a) of Regulation Z. Since such fees are imposed as a qualification of membership in the plan and for the issuance of a credit card, and not as incident to or as a condition of any specific extension of credit, they do not fall within the definition o f a “finance charge” under § 226.4(a) of Regulation Z. 8 /1 2 / 7 1 REGULATION Z— INTERPRETATIONS SECTION 226.5 SEC TIO N 226.501— U SE O F R A N G E S OR B R A C K E TS T O D E T E R M IN E P E R IO D IC R A T E O F F IN A N C E C H A R G E ON OPEN EN D ACCOUNTS Section 226.5(a)(1) of Regulation Z, in effect, gives a creditor the option in certain circum stances of stating (1) two or more separate an nual percentage rates (e.g., the rate on a $700 balance might be stated as 18% on balance to $500 and 12% on balance over $500), or (2) a single annual percentage rate determined by the “quotient m ethod” resulting from applying the rates to a total balance (e.g., in the example above, an annual percentage rate of 16V4 % on a $700 balance). Section 226.5(a)(2), which relates to the use of ranges or brackets to com pute periodic finance charges, does not prevent a creditor w ho uses such brackets from exercising the options re ferred to in § 226.5(a)(1). 4 /2 /6 9 SEC TIO N 226.502— A N N U A L P E R C E N T A G E R A T E O N S IN G L E A D D -O N R A T E T R A N SA C T IO N S T he application of a single add-on rate to transactions of varying maturities, when converted to an annual percentage rate determined by the actuarial method, results in m inor variations. Such annual percentage rate variations on m atur ities up to 60 months are so insignificant that sep arate com putations are unwarranted. T he question arises as to whether a creditor m ay disclose a single annual percentage rate on all such transactions based upon the highest rate w hich will arise from the application of the same single add-on rate to each of such transactions. W hen the same add-on rate is applied to all transactions within a range o f maturities up to 60 months, and provided that all paym ents on each transaction are equal in am ount and due at equal intervals o f time within the limits provided by § 226.5(d), a single annual percentage rate m ay be disclosed in which case it shall be the highest a n nual percentage rate th at may be applicable to any such transactions. 5 /2 6 /6 9 § 226.501 SEC T IO N 226.503— M IN O R IR R E G U L A R ITIE S — M A X IM U M IR R E G U L A R P E R IO D L IM ITS Section 226.5(d) specifies certain minimums in determining what m inor irregularities in first pay m ent periods may be disregarded in determining the annual percentage rate. The question arises as to what m axim um limits for such periods would still perm it the irregular periods to be considered regular in computing the annual percentage rate. If the period from the date on which the finance charge begins to accrue and the date the final paym ent is due is not less than three months in the case of weekly payments, six months in the case of biweekly or semimonthly payments, or one year in the case of monthly payments, the m axim um interval of time from the date the finance charge begins to accrue to the date the first paym ent is due is as follows: (1) in the case of weekly payments, 12 days; (2) in the case of biweekly or semimonthly pay ments, 25 days; (3) in the case o f monthly payments, 50 days. If the period from the date on which the finance charge begins to accrue and the date the final paym ent is due is less than three months in the case o f weekly payments, six months in the case of biweekly or semimonthly payments, or one year in the case of monthly payments, the m axim um interval o f time from the date the finance charge begins to accrue to the date the first paym ent is due is as follows: (1) in the case of weekly payments, 10 days; (2) in the case of biweekly or semimonthly pay ments, 21 days; (3) in the case o f monthly payments, 42 days. 6 /1 0 /6 9 SEC T IO N 226.504— T R E A T M E N T O F “PIC K -U P P A Y M E N T ” IN A N IN S T A L M E N T C O N T R A C T In some instances involving an instalment contract arising from a credit sale, the purchaser may not pay the full am ount of the required dow npaym ent at the time he signs the contract or otherwise enters into the credit transaction. In such cases, the creditor m ay include in the instal m ent contract or accept a separate obligation for the unpaid portion of the downpayment, com § 206.505 monly called a “pick-up paym ent,” the am ount of which usually carries no finance charge and is to be paid on or before a specified date inde pendent of the other scheduled payments. T he question arises whether the “pick-up pay m ent” m ust be treated as part of the “am ount financed” for purposes of disclosure and determ i nation o f the “annual percentage rate” or w hether it m ay be treated as a deferred portion o f the downpayment. In determining the “am ount financed” the creditor m ay exclude the am ount o f the “pick-up p aym ent” provided that: (1) The am ount of the finance charge applica ble to the transaction does not exceed the am ount that would have been imposed had the required dow npaym ent been paid in full upon consum m a tion o f the transaction; and (2) T he due date o f the “pick-up paym ent” is n ot later than the due date of the second pay m ent otherwise scheduled. In m aking the disclosures required under § 226.8(b)(3), if such “pick-up paym ent” is more than twice the am ount of an otherwise regularly scheduled equal paym ent, the creditor siiall state the conditions, if any, under which such “pick-up paym ent” m ay be refinanced if not paid when due; and such “pick-up paym ent” m ay be identi fied using th at term o r the term “balloon p ay m ent.” 9 /1 1 /6 9 S EC TIO N 226.505— A P P L IC A T IO N O F T H E M IN O R IR R E G U L A R IT IE S PRO VISIO N S IN D E T E R M IN IN G T H E A M O U N T O F T H E F IN A N C E C H A R G E Some creditors calculate finance charges in a credit transaction on the basis of predetermined percentage rate o r rates, e.g., 1 % p er m onth on the unpaid balances. D eterm ination of the am ount of the finance charge is fairly routine for these creditors if the contracts are w ritten for regular paym ents at regular intervals. However, m any times the first paym ent m ay be irregular ei ther in am ount or paym ent period, or both, espe cially in those instances w here creditors require paym ents to fall due on fixed dates or those who are paid by means of payroll deductions. The m inor irregularities provisions of § 226.5(d) of the Regulation and § 226.503 of the interpretations to REGULATION Z— INTERPRETATIONS Regulation Z, which pertain to the determination of the annual percentage rate, also apply to the determ ination of the finance charge. F o r con venient reference, the applicable provisions of § 226.5(d) and § 226.503 as they apply to the determination of the finance charge are set forth below. In determining the finance charge, a creditor may, at his option, consider the paym ent irregu larities set forth below in subparagraphs (1) and (2) and if they were regular in am ount or time, as applicable, provided th at the transaction to which they relate is otherwise payable in equal instalments scheduled at equal intervals. (1) If the period from the date on which the finance charge begins to accrue and the date the final paym ent is due is not less than 3 months in the case of weekly payments, 6 months in the case o f biweekly or semimonthly payments, or 1 year in the case of m onthly payments, either or both of the following: (1) T he am ount of 1 paym ent other than any dow npaym ent is not more than 50 per cent greater nor 50 per cent less than the am ount of a regular paym ent; or (ii) The interval between the date on which the finance charge begins to accrue and the date the first paym ent is due is not less than 5 no r more than 12 days for an obligation otherwise payable in weekly instalments, not less than 10 n o r m ore than 25 days for an obligation otherwise payable in biweekly or semimonthly instalments, or not less than 20 nor m ore than 50 days for an obli gation otherwise payable in m onthly instalments. (2) If the period from the date on which the finance charge begins to accrue and the date the final paym ent is due is less than 3 months in the case of weekly payments, 6 months in the case of biweekly o r semimonthly payments, or 1 year in the case of m onthly payments, either or both of the following: (i) The am ount of 1 paym ent other than any downpayment is not m ore than 25 per cent greater nor 25 per cent less than the am ount of a regular payment; or (ii) The interval between the finance charge begins to the first paym ent is due is more than 10 days for an the date on which accrue and the date not less than 6 nor obligation otherwise REGULATION Z— INTERPRETATIONS payable in weekly instalments, not less than 12 n or m ore than 21 days for an obligation other wise payable in biweekly or semimonthly instal ments, or not less than 25 no r m ore than 42 days for an obligation otherwise payable in monthly instalments. F or the purposes of § 226.8(b)(3) in disclosing the num ber, am ount and due dates or periods of paym ents scheduled to repay the indebtedness and the “total of paym ents,” the creditor may treat such irregular paym ents or paym ent periods, or both, as if they were regular. If the creditor so elects, he may indicate the exact am ount of pay m ent period involved in the m inor irregularity. 9 /1 1 /6 9 S EC T IO N 226.506— D A IL Y P E R IO D IC RA T E ; C O M P U T A T IO N OF THE A N N U A L P E R C E N T A G E RA T E U nder §§ 226.5(a)(l)(ii), (3)(i), and (3)(ii), the quotient used in com puting the annual percentage rate in open end credit accounts m ust be multi plied “by the num ber of billing cycles in a year” . T he question arises as to the method which should be used to com pute the annual percentage rate under those sections where a daily periodic rate or rates is used. In any open end credit account to which the provisions of §§ 226.5(a)(l)(ii) or 226.5(a)(3)(i) apply, where all or a portion of the finance charge is determined by the application of one or m ore daily periodic rates, the annual percentage rate may be determined (1) by dividing the total finance charge by the average of daily balances and multiplying the quotient by the num ber of billing cycles in a year, or alternatively (2) by di viding the total finance charge by the sum of the daily balances and multiplying the quotient by 365. § 226.506 SECTION 226.6 SEC T IO N 226.601— O V E R S T A T E M E N T A N N U A L PER CEN TA G E RATE OF Section 226.6(h) of Regulation Z provides that in certain circumstances the disclosure of an an nual percentage rate which is greater than that required to be disclosed under the Regulation does not in itself constitute a violation of the Reg ulation. U nder this section may a disclosure re garding an annual percentage rate (e.g., “the an nual percentage rate does not exceed 1 8 % ”) be preprinted on a contract or periodic statement and com ply with disclosure requirem ents when the ac tual rate will at times be lower (e.g., 15% ) for some transactions? Section 226.5 specifies the methods which shall be employed in determ ining annual percentage rates. Section 226.6(h) is not intended to provide an alternative to these requirements, but is merely to provide appropriate relief to a creditor who overstates accidentally. A ny disclosure of an annual percentage rate whether preprinted or oth erwise which overstates the annual percentage rate determined in accordance with § 226.5 o ther than through inadvertence does not comply with requirements. 4 /2 /6 9 SEC T IO N 226.602— (Rescinded effective 3 /1 /7 4 ) SEC T IO N 226.603— D ISCLO SU R ES IN TRANSACTION INVOLVING M U L T IP L E CU ST O M E R S In any open end credit account to which the provisions of § 226.5(a)(3)(ii) apply, where a por tion of the finance charge is determined by appli cation of one o r more daily periodic rates, the phrase “sum of the balances” in footnote 5a shall also m ean the “average of daily balances”. Section 226.6(e) states the general rule that, ex cept in the case of a rescindable transaction under § 226.9, w here there are multiple customers in a transaction, the creditor is only required to make disclosures to one o f them. However, in determining which customer shall receive disclo sures, the creditor m ay not select a custom er who is secondarily liable, such as an endorser, co m aker (when designated as surety), guarantor, or a similar party. This does not prohibit the credi tor from also furnishing disclosures to such per sons who are secondarily liable. 6/1/73 4/2/69 § 226.604 SEC TIO N REGULATION Z— INTERPRETATIONS 226.604— IN C O N S IS T E N T R E Q U IR E M E N T S STA TE Section 226.6(b) of Regulation Z indicates types of State law requirem ents that are inconsist ent with Regulation Z, and § 226.6(c) indicates the methods of dealing with such inconsistent re quirements of State law. W hether State laws are inconsistent with R egu lation Z necessarily depends on the nature of the State laws. Section 226.6(b)(1) provides that State law is inconsistent to the extent that it “requires a creditor to make disclosures different from the requirements of this Part with respect to form, content, terminology, or time of delivery.” This refers to disclosures of the kinds of information covered by Regulation Z, and not to other or col lateral inform ation such as a statement telling the customer that he should read the contract care fully, or that there should be no blanks in the contract. Similarly, it does not refer to headings that State law may require on a contract such as “Retail Installment C ontract.” Similarly, a specifi cation in a State law that certain size type must be used is not necessarily inconsistent with the requirem ents of Regulation Z. 4 /2 2 /6 9 SEC T IO N 226.605— (Rescinded effective 3 /1 /7 4 ) SECTION 226.7 SEC TIO N 226.701— P E R IO D IC S TA T E M E N TS — F IN A N C E C H A R G E R E S U L T IN G FROM M ORE TH A N ONE PE R IO D IC R A T E Section 226.7(b)(4) of Regulation Z requires that a periodic statem ent for open end credit show the am ount of any finance charge, and that the statement also itemize and identify that por tion of the finance charge that is due to applica tion of one or m ore periodic rates and that po r tion due to any other charge such as minimum, fixed, check service, transaction, activity, or simi lar charge. This does not require the statement to state separately the portions of a finance charge due to application of two or m ore periodic rates. F or example, if a creditor charges V A % per month on the first $500 of a balance and 1 % per m onth on am ounts over $500, the m onthly charge on a $600 balance would be $8.50, which must be shown. However, it would not be necessary to itemize the two com ponents ($7.50 and $1.00) of the $8.50 charge. U nder § 226.7(b)(5), the p e riodic rates that may apply to the account, and the applicable range of balances must, o f course, be shown, but this could be preprinted. 4 /2 /6 9 SEC TIO N 226.702 is incorporated into section 226.7(c) effective June 1, 1973, and is revoked effective that date. SEC T IO N 226.703— F IN A N C E C H A R G E BASED O N A V E R A G E D A IL Y B A L A N C E IN O P E N E N D C R E D IT A C C O U N T S Section 226.7(b)(8) requires that periodic state ments for open end accounts shall disclose, among other things, “The balance on which the finance charge was computed, and a statement of how th at balance was determ ined.” In some in stances, creditors com pute a finance charge on the average daily balance by application of a m onthly periodic rate. In such case, this inform a tion is adequately disclosed if the statem ent gives the am ount of the average daily balance on which the finance charge was computed, and also states how the balance is determined. In other in stances, the finance charge is com puted on the balance each day by application of a daily pe riodic rate and such charges are accum ulated and debited to the account in a single am ount for the billing cycle. The question arises w hether th e p e riodic statement m ust show for each day of the billing cycle a balance on which a finance charge was computed. If a daily periodic rate is used, the balance to which it is applicable shall be stated as follows: (1) A balance for each day in the billing cycle; or (2) A balance for each day in the billing cycle on which the balance in the account changes; or (3) The sum of the daily balances during the billing cycle; or (4) The average daily balance during the bill ing cycle in which case the creditor shall state on the face of the periodic statement, its reverse REGULATION Z— INTERPRETATIONS side, or on an enclosed supplement wording to the effect th at the average daily balance is or can be multiplied by the num ber of days in the bill ing cycle and the periodic rate applied to the product to determine the am ount of the finance charge. 6 /2 1 /7 2 (Supersedes issued 5 / 5 / 6 9 ) interpretation § 226.703 SEC TIO N 226.704 is incorporated into section 226.5(a)(3) effective June 1, 1973, and is revoked effective that date. SEC T IO N 226.705— O P E N E N D C R E D IT — C H A N G E IN T H E M E T H O D O F D E T E R M IN IN G T H E B A L A N C E ON W H IC H F IN A N C E C H A R G E S ARE COM PUTED T h e creditor of an open end credit account plan desires to change his m ethod of determining the balance on which finance charges are com puted from a m ethod in which paym ents and credits made during the billing cycle are not de ducted in determining such balance to a m ethod in which such paym ents and credits are deducted in determining such balance. This change results in a reduction in finance charges to the customer, where full paym ent of the account is deferred. T he question arises w hether notice of such change is required to be sent to customers of open end credit accounts under § 226.7(e), since that section also provides that prior notice is not required if the only change is a reduction in ihe “periodic rate o r rates, or in any minimum, fixed, check service, transaction, activity, or similar charge applicable to the account.” W here a creditor changes his m ethod of deter mining the balance on which finance charges are com puted from a m ethod in which payments and credits m ade during th e billing cycle are not de ducted in determ ining such balance, to a method in which such payments and credits are deducted in determining such balance, § 226.7(e) requires no prior notice of such charge in terms, provided no other changes in terms applicable to the ac count are made simultaneously which would re quire § 226.7(e) notification. 7/29/71 § 226.705 SEC T IO N 226.706— O P E N E N D C R E D IT — A L L O C A T IO N O F P A Y M E N T S Section 226.7(a)(2) provides th at before the first transaction is m ade on any open end credit account, the creditor m ust disclose “the method of determ ining the balance upon which a finance charge may be imposed.” Section 226.7(b)(8) re quires the creditor to disclose on the periodic statement “the balance on which the finance charge was com puted, and a statement of how that balance was determ ined.” T he question is raised w hether these provisions require a creditor to provide a description of the m anner in which payments o r other credits are applied to various portions of the balance or balances on which finance charges are computed. In disclosing the method of determining the balance(s) upon which finance charges are com puted, it is not necessary to show the m ethod of allocating paym ents or other credits. F o r exam ple, explanation of the m anner in w hich pay ments or credits m ay be applied to late charges, overdue balances, finance charges, insurance pre miums or other portions of balances is not re quired. Similarly, explanation of the method of allocating such paym ents between cash advance and purchase portions of the account is not re quired. Such explanations in m any cases involve lengthy and com plex descriptions which m ay un duly complicate disclosures. Explanation of the allocation m ethod m ay be m ade by creditors where it can be done in con formity with § 226.6(c) which authorizes addi tional inform ation or explanations as long as they are not stated, utilized, o r placed so as to mislead or confuse the custom er or contradict, obscure, or detract attention from the required disclosures. 6 /2 1 /7 2 SEC T IO N 226.707— D ISCLO SU R ES— V A R IA B L E P E R IO D IC RA TES U nder the term s of some open end credit plans the periodic rates of finance charges and corre sponding annual percentage rates are tied to a fluctuating base rate, for example, the “prim e rate.” Consequently, both the periodic rates and annual percentage rates m ay change from time to time with changes in the base rate. T he question arises as to the proper disclosure, if any, which § 226.801 REGULATION Z— INTERPRETATIONS should be made under § 226.7(a)(4), § 226.7(b)(5), § 226.7(b)(6), § 226.7(e) and § 226.10(c)(4) in connection with such plans. W here any creditor’s open end credit plan pro vides that the account is subject to variations in any periodic rate of finance charge, the creditor need not comply with § 226.7(e) with respect to any prospective change in any periodic rate or corresponding annual percentage rate applicable to the account, provided that in connection with the disclosures m ade pursuant to paragraph 226.7(a)(4) the creditor has disclosed that such rates are subject to change, the conditions under which such rates m ay be changed, and, if appli cable, the m axim um and m inim um limits of such rates. T he requirem ents of § 226.7(b)(5) and § 226.10(c)(4) may be complied with by similarly disclosing the method of com puting the periodic or annual percentage rates which are subject to variation. In disclosing an annual percentage rate or rates u nd er §226.7(b)(6) where there have been variations during the billing cycle, the com putations as specified in § 226.5(a)(l)(ii), § 2 2 6 .5 ( a ) ( 2 ) , § 2 2 6.5 (a) (3) (i) o r § 2 2 6.5 (a) (3 ) ( i i ) , as applicable, should be used. 1 1 /2 /7 2 SECTION 226.8 SEC T IO N 226.801— L O C A T IO N O F D IS CLO SUR ES W H E N C O N T R A C T , SE C U R IT Y A G R E E M E N T , A N D E V I D E N C E O F T R A N SA C T IO N A R E C O M B IN E D IN A S IN G L E DOCUM ENT Some creditors incorporate the term s of a con tract, a security agreement, and evidence of a transaction in a single document. These docu ments are designed for processing by mechanical and electronic equipment. If all of the required disclosures under § 226.8 should be placed on the face of such a docum ent, the creditor will be un able to utilize conventional accounting and record keeping equipm ent because of the size of the re sulting document. T he question arises as to whether required disclosures m ay be m ade on the face and the reverse side of such a document. W here a creditor elects to com bine disclosures with the contract, security agreement, and evi dence of a transaction in a single document, the disclosures required under § 226.8 shall, in ac cordance with § 226.6, be m ade on the face of that document, on its reverse side, or on both sides, provided that the am ount of the finance charge and the annual percentage rate shall ap pear on the face of the document, and, if the re verse side is used, the printing on both sides of the docum ent shall be equally clear and conspicu ous, both sides shall contain the statement, “N O TIC E : See other side for im portant inform ation,” and the place for the custom er’s signature shall be provided following the full content of the doc ument. 4 /2 2 /6 9 SEC T IO N 226.802— D ISCLO SU RES ON M A IL O R TELEPH O N E ORDERS U nd er § 226.8(g), disclosures may be m ade at any time not later than the date the first paym ent is due under certain conditions. T he question arises as to when disclosures shall be made on mail or telephone orders w here the inform ation outlined in § 226.8(g)(1) and (2) is not available to the custom er or prospective customer. U nder the circumstances set forth in the above question, the creditor shall make the disclosures required under Regulation Z as follows: 1. W ith respect to credit sales, not later than at the time o f delivery of the property or first perform ance of service ordered. 2. W ith respect to loans, not later than at the time proceeds of the loan are disbursed. 3. Except that if the transaction is subject to the provisions of § 226.9, the disclosures shall be made before the transaction is consummated. 5 /5 / 6 9 SEC TIO N 226.803— D ISCLO SU R ES W H E N D ISC O U N TS A PP L Y F O R P R O M P T PAYMENT U nder § 226.8(o), disclosures shall be made on the billing statem ent whereas under § 226.8(a) disclosures shall be made before the transaction is consummated. The question arises as to which provision prevails. T he provisions of § 226.8(o) prevail under the conditions set forth in that paragraph unless the REGULATION Z— INTERPRETATIONS transaction is also subject to the provisions of § 226.9 in which event the disclosures shall be m ade before the transaction is consummated. 5 /5 / 6 9 SEC T IO N 226.804— SERIES O F S A L E S CONTENT OF AGREEM ENT U n d er § 226.8(h), if a credit sale is one o f a series of transactions m ade under an agreement providing for the addition of a current sale to an existing outstanding balance and the customer has approved in writing the annual percentage rate or rates and certain other requirem ents are met, dis closures may be m ade at any time not later than the date the first paym ent for that sale is due. T he question arises as to how the annual per centage rate or rates should be shown in an agree m ent where, for example, an 18% annual per centage rate applies to the first $500 of balance, a 12% annual percentage rate applies to all balances over $500, and the mix of the two rates on trans actions over $500 will produce a gradually de creasing annual percentage rate as the am ount of balance over $500 increases. In addition to meeting the oth er requirem ents of § 226.8(h), if two or m ore annual percentage rates apply to ranges o f balances, the agreem ent need only state each annual percentage rate and the range of balances to which it applies. However, the disclosures which must be m ade not later th a n the date the first paym ent is due must include the actual annual percentage rate applicable to that sale. 5 /5 / 6 9 SEC T IO N 226.805— SER IES O F SALES AS D IS T IN G U IS H E D F R O M R E F IN A N C IN G , C O N SO L ID A T IN G , OR IN C R E A S IN G T he question arises as to the distinction be tween the provisions o f § 226.8(h), series of sales, and the provisions of § 226.8(j), refinancing, con solidating, or increasing. Section 226.8(h) is applicable only when a credit sale is made pursuant to an agreement which provides for the addition of a current (or new) sale to an existing outstanding balance. In such cases, and provided that all of the requirem ents of § 226.8(h)(1) and (2) are met, the disclosures m ay be m ade at any time not later than the date the first paym ent for that sale is due. § 226.804 If there is no agreement, o r if the agreement does not m eet all of the requirem ents of § 226.8 (h), the disclosures required in connection with any subsequent sale, which is added to a previ ously outstanding balance shall be m ade u nd er the provisions o f § 226.8(j). F o r example, the fact that an agreement provides a m ethod o f computing an unearned portion of the finance charge in the event of prepayment, but does not otherwise meet the requirem ents of § '226.8(h), will not qualify transactions made pursuant to that agreement for disclosure under the term s § 226.8(h). 5 /2 6 /6 9 S EC T IO N 226.806— D E PO SIT BA LA N CES A P P L IE D T O W A R D SA T ISF A C T IO N O F C U S T O M E R ’S O B L IG A T IO N Section 226.8(e)(2) provides that required de posit balances m ust be deducted under § 226.8(c) (6) and excluded under § 226.8(d)(1) in deter mining the am ount financed. Subdivision (ii) of § 226.8(e)(2) provides an exception in the case of M orris Plan type transactions in which pay ments in the transaction are m ade and accum u lated in a deposit account which is then wholly applied to satisfy the obligation. Unless the deposit balance account is created for the sole purpose of accum ulating payments and then being applied tow ard satisfaction of the custom er’s obligation in the transaction, such de posit balance does not fall within the exception provided in subdivision (ii). In any case in which a deposit balance quali fies for this exception, each deposit m ade into the account shall be considered the same as a pay m ent on the obligation for the purpose of com pu tations and disclosures. 5 /2 6 /6 9 SEC T IO N 226.807— A SSU M PT IO N O F A N O B L IG A T IO N — D ISCLO SU R ES T he question arises as to which disclosures are required to be m ade under § 226.8 ( k ). F o r the purposes of § 226.8(k), an “assump tion” occurs only when, by written agreement entered into between a subsequent custom er and the creditor, that subsequent custom er is or will be accepted by that creditor as an obligor on § 226.808 an existing evidence of debt. In such circum stances, disclosures shall be made as follows: (1) If the finance charge originally imposed on the existing evidence of debt was an add-on or discount type finance charge, the creditor need only disclose: (1) T he unpaid balance of the obligation as sumed; (ii) T he total am ount of the charges imposed by the creditor, individually itemized, in connec tion with the assumption; (iii) T he num ber, am ount, and due dates of re m aining payments to be made after assumption, the total of such payments, and any other appli cable inform ation required under § 226.8(b)(3); (iv) Identification of the type of security inter est, if any, retained or to be acquired in any property of the assuming customer and a brief identification of that property; (v) The inform ation required to be disclosed under § 226.8(b)(4), (6) and (7); (vi) If applicable in connection with the assump tion, the disclosures required under § 226.4(a)(5) and (6); and (vii) If that obligation was entered into on or after July 1, 1969, the annual percentage rate originally disclosed on the existing obligation. (2) If the existing evidence of debt is subject to a finance charge com puted from time to time by application of a percentage rate to an unpaid balance, the creditor shall m ake the disclosures required under § 226.8(b) and (d), and, if applica ble in connection with the assumption, the disclo sures required under § 226.4(a)(5) and (6), ex cept that in determining the am ount of the finance charge and the annual percentage rate to be disclosed to the custom er who assumes the ob ligation, the creditor m ay disregard any prepaid finance charges paid by the original customer, but shall include in the finance charge as a “prepaid finance charge” the total am ount of the charges imposed by the creditor, individually itemized, in connection with the assumption. 6 /1 0 /6 9 SEC T IO N 226.808— D ISC L O SU R E OF A M O UN T OF SCHEDULED PAYM ENTS Section 226.8(b)(3) requires the creditor to dis close the “am ount . . . of paym ents scheduled to REGULATION Z— INTERPRETATIONS repay the indebtedness.” In certain transactions each paym ent consists of an equal am ount to apply on principal and a finance charge which is determined by application of a rate to the de creasing unpaid balance. In such cases no two paym ents are equal in am ount. The question arises as to whether it is necessary to list the re spective dollar am ount of each such paym ent to comply with this requirem ent of § 226.8(b)(3),or w hether an optional disclosure is permitted. In any transaction in which the am ount of each regularly scheduled paym ent (other than a first or last payment) includes an equal am ount to be applied on principal and a finance charge com puted by application of a rate to the decreas ing unpaid balance, at the creditor’s option the requirem ent of § 226.8(b)(3) with respect to the am ount of each paym ent may be met by disclos ing the following information: (1) The am ount of each paym ent to be applied on principal, and an identification of that am ount as paym ent on principal; (2) T he respective am ount of finance charge included in the first and last scheduled payments so described; If this option is utilized, the exceptions pro vided under paragraphs (b)(3), and (c)(8) and (d)(3) of § 226.8 shall not apply. 6 /1 0 /6 9 SEC T IO N 226.809— D ISCLO SU R ES F O R C E R T A IN S T U D E N T LO AN S Footnotes 10 and 11 to Regulation Z provide an exception from specified disclosure require ments fo r interim student loans under certain Federally insured student loan programs. These exceptions are applicable to other student loans of the same type, including those m ade to stu dents under Federally supported loan programs or program s of loan guarantee, adm inistered by or under agreement with the U.S. D epartm ent of Health, Education, and Welfare. In all of such cases, however, all disclosures m ust be made prior to the time the final note is executed or re paym ent schedule is agreed upon. 6/10/69 REGULATION Z— INTERPRETATIONS SEC T IO N 226.810— D ISCLO SU R ES— V A R IA B L E IN T E R E S T RA TES In some cases a note, contract, or other in strum ent evidencing an obligation provides for prospective changes in the annual percentage rate or otherwise provides for prospective variation in the rate. T he question arises as to w hat disclo sures must be m ade un der these circumstances w hen it is not know n at the tim e of consum m a tion of the transaction w hether such change will occur or the date or am ount of change. In such cases, the creditor shall make all dis closures on the basis of the rate in effect at the time of consum m ation of the transaction and shall also disclose the variable feature. If disclosure is made prior to the consum m a tion o f the transaction that the annual percentage rate is prospectively subject to change, the condi tions under which such rate m ay be changed, and, if applicable, the m axim um and minimum limits of such rate stipulated in the note, con tract, or other instrum ent evidencing the obliga tion, such subsequent change in the annual per centage rate in accordance with the foregoing disclosures is a subsequent occurrence under § 226.6(g) and is not a new transaction. 6 /2 0 /6 9 SEC T IO N 226.811— REN E W A L S O F N O TE S A ny renewal o f an extension of credit provid ing for paym ent of the full principal sum on a specified date shall not b e considered a refinanc ing under § 226.8(j), and no disclosures need be m ade in connection with such renewal, provided: (i) All disclosures required under this Part were m ade in connection with the original exten sion of credit or a prior renewal thereof; (ii) T h e am ount of the renewal does not ex ceed the am ount of the unpaid balance plus any accrued and unpaid finance charge: (iii) The annual percentage rate (or rates) pre viously disclosed is not increased; and (iv) T he period for which renewal is m ade does not exceed by m ore than 4 days the period of the extension of credit for which disclosures were made. § 226.810 In instances in which disclosures are required to be m ade and renewal is made by mail, the creditor may not know w hether the custom er will reduce his obligation by a paym ent on principal or, if reduced, the am ount o f that reduction. The question arises as to w hat disclosures should be m ade by mail to the custom er in these circum stances. If the creditor knows the am ount o f the princi pal paym ent, all disclosures should be m ade on the basis of the resulting new am ount financed. If, however, the creditor does not know whether the custom er will reduce his original obligation, or if so, by how much, he should disclose on the assumption that there will be no reduction. In such circumstances, at the creditor’s option, he may m ake one o r m ore additional disclosures based on one o r m ore examples of graduated principal reduction. For example, if a single p ay ment note for $1,000 at 1 % is proposed to be renewed for $1,000 at 8% for 3 months, in addi tion to the other required disclosures, the creditor should disclose an am ount financed of $1,000 with a finance charge o f $20, and may, in addi tion, disclose that with a principal paym ent of $300 the am ount financed would be $700 with a finance charge of $14, and with a principal pay ment of $500 the am ount financed would be $500 with a finance charge of $10. 1 /2 8 /7 0 (Supersedes issued 8 /1 / 6 9 ) interpretation § 226.811 SEC T IO N 226.812 — A D V A N C E S UNDER O P E N E N D R E A L E ST A T E M O R T G A G E S F O R A G R IC U L T U R A L PU R PO SES U nd er § 226.8(p) disclosures are perm itted in connection with certain extensions of credit for agricultural purposes which m ay involve advances under an open end real estate mortgage o r simi lar lien. Section 226.8(j) in p art treats advances for agricultural purposes und er an open end real estate mortgage or similar lien. The question arises as to the respective application of these paragraphs to such advances. If an extension of credit involving multiple ad vances, whether or not under an open end m ort gage, meets the tests of § 226.8(p), disclosures need only be m ade p rio r to consum m ation of the credit transaction and need not be m ade at the tim e o f each individual advance, even though § 226.813 REGULATION Z— INTERPRETATIONS such advance for agricultural purposes may not meet the tests in § 226.8(j). Conversely, extensions of credit for agricultural purposes involving ad vances under an open end real estate mortgage or similar lien which do not meet the tests for dis closure under § 226.8(p) are subject to the rele vant provisions of § 226.8(j) dealing with such advances. (iii) If interest is com puted on the full am ount of the com m itm ent without regard for the dates of disbursements o r actual am ounts disbursed: Estimated annual percentage rate = Estimated interest finance charge = SEC T IO N 226.813— D ISCLO SU R ES ON M U L T IP L E A D V A N C E LOANS In connection with construction and other m ul tiple advance loans under § 226.8(i), which are payable in a single sum or perm anently financed by the same creditor at m aturity of the construc tion phase with interest only payable up to such m aturity, and in which either the am ount or date of an advance is not determinable, the question arises w hether a method might be utilized to estimate the inform ation to be disclosed under § 226.8(b)(2) and (3) and (d)(3). In such cases, at the creditor’s option, required inform ation m ay be estimated and disclosed as follows: (1) T he following mathem atical equations based upon assumed continuous advances m ay be utilized in estimating the am ount of the interest com ponent of the finance charge and the annual percentage rate by substituting the appropriate numerical am ounts for the following symbols in the equations: (3) In the case of a combination construction loan and perm anent financing provided by the same creditor: (i) The am ount o f interest finance charge to be paid prior to the due date of the first am ortiza tion paym ent shall be estimated as prescribed under subdivisions (ii) o r (iii) of paragraph (1) as the case m ay be and shall be treated as prepaid finance charge for com putational purposes; and (ii) Estimation of the annual percentage rate shall be made w ithout regard to the num ber of interest only paym ents to be made, assuming the first paym ent period to be that interval between the date the finance charge begins to accrue and the date the first am ortization paym ent is due. (4) Disclosures m ade in accordance with this interpretation, when made along with the other disclosures required under § 226.8(b) and (d), shall constitute “all other material disclosures required under this P a rt” referred to under § 226.9(a): (i) Symbols n m P B = A m ount of loan commitment, = Stated annual interest rate expressed as a decimal figure, = N um b er of interest paym ents to be made to maturity, = N um ber of interest periods (unitperiods) in 1 year. = Total am ount of any prepaid finance charge un der § 2 2 6 .8 (e ). = A m ount of any required deposit bal ance u nd er § 2 26 .8 (e ). Exam ple I A $20,000 construction loan com m itm ent on which the precise dates or am ounts of advances are not determinable. T he obligation bears a stated 6% interest rate and interest is to be paid monthly on the am ounts advanced, and the total of the am ounts advanced under the com m itm ent plus any unpaid interest is due and payable at the end of nine months from the date the finance charge begins to accrue. T here is a loan fee of 1% ($200), but there is no required deposit balance. (ii) If interest is com puted from the date of each advance on only the am ounts advanced: Estimated annual percentage rate = nrL m (2) If the equations under subdivision (ii) of paragraph (1) are utilized, the am ounts of any re-' quired interest paym ents during the construction phase m ay be omitted in making the disclosure required under § 226.8(b)(3); however, if the equations under subdivision (iii) of paragraph (1) are utilized, then the am ount of each scheduled interest paym ent shall be disclosed as required under § 226.8(b)(3). 1 1 /6 /6 9 L r 2nrL + 2mP n(L - 2P - 2B) nrL + 2mP n(L - 2P - 2B) nrL Estimated interest finance charge = 2m 54 I REGULATION Z— INTERPRETATIONS § 226.813 Substituting these terms for the symbols, the equa tions become: phase (pursuant to sub division (ii)) A dd: Loan fee 1 point Estim ated finance charge (9 X .06 X 20,000) + (2 X 12 X 200) 9 x [20,000 - (2 x 200)] .0884 or 8.84% or 83 % estimated annual percentage A rate. 9 X .06 X 20,000 2 X 12 450 or $450 estimated interest finance charge component of the finance charge. L oan fee 1 point prepaid finance charge 900 or $900 estimated interest finance charge component of : the finance charge. This inter est would be payable in 9 monthly payments of $100 each. 450.00 $ 650.00 A m ount of loan D educt total of esti m ated finance charge treated as prepaid A $20,000 construction loan followed by per m anent financing in same am ount. Six per cent interest. One point loan fee. N ine months to m a turity of construction phase. N ine months pay ments of interest only during construction phase. Twenty-year m aturity on perm anent financing to be am ortized in 240 equal m onthly paym ents in cluding interest and principal. $20,000 $ Estim ated am ount fi nanced for com puta tional purposes A m ount financed to be disclosed A m ortization of a $20,000 6% 20-year loan in 240 equal monthly paym ents including interest and principal requires each m onthly paym ent to be $143.29. $20,000 650 D educt actual am ount of prepaid finance charge F ro m mortgage am ortization tables: $ 200 $19,350 $19,800 A djust first paym ent period (period of con struction loan plus period from m aturity date of construction loan to due date of first am ortization paym ent) by dividing the period of the construc tion loan by 2 and adding the period of time be tween the m aturity date of the construction loan and the date the first am ortization paym ent is due. T otal of 240 paym ents = 240 X $143.29 = $34,389.60 Interest finance charge on perm anent financing $ C om putational Disclosure Purposes Purposes Exam ple II Subtract am ount of loan principal 200.00 T otal am ount treated as prepaid finance charge for com putational purposes .1497 or 14.97% or 15% estimated annual percent age rate. $ F o r com putational purposes con sider interest to be paid on con struction phase as prepaid (not to be disclosed as prepaid) (2 X 9 X .06 X20,000) + (2 X 12 X 200) 9 x [20,000 (2 x 200)] 12 $15,039.60 200.00 (If the interest on the construction phase is com puted on the full am ount of the com m itm ent for the full tim e to m aturity w ithout regard for the dates of disbursements o r actual am ounts dis bursed pursuant to subdivision (iii), the estimated interest finance charge for the construction phase would be $900.00 which would result in a total estimated finance charge of $15,489.60.) If the term s stated in the example were changed so that interest would be com puted on the full am ount of the com m itm ent from the date the finance charge begins to accrue w ithout re gard for the dates of disbursements or actual am ounts of funds disbursed, the equations under (iii) above become: 9 x .06 x 20,000 450.00 $20,000.00 $14,389.60 9 months divided by 2 = 4Vi m onths plus 1 m onth = 5Vi months A dd: Estim ated interest finance charge on construction F rom Appendix A (page A2) of V olume I of 55 § 226.814 the B oard’s A nnual Percentage R ate Tables, read across to 5 months and on the line below opposite 15 days (Vi month) read + 9 .0 . This adjustm ent should be added to the num ber of regular am orti zation paym ents to determ ine the n um ber of p ay ments in utilizing the A nnual Percentage Rate Tables: 240 m onthly paym ents + adjustm ent 9.0 = 249 Following the directions on page 1 of V olum e I: Estim ated finance charge $15,039.60 X 100 = $1,503,960 which should be divided by the estimated am ount financed for com putational p urp o ses: $1,503,960 19,350 = $77.72 estimated fi nance charge p er $100 of estimated am ount financed fo r com putational purposes. Refer to page 309M of Volume I, read down num ber o f paym ents colum n to 249; read across to 78.71 (which is nearest to $77.72 com puted above), and read up to 6.25% which is the esti m ated annual percentage rate to be disclosed. In the example w here the interest on the con struction phase is com puted on the full am ount of the com m itm ent w ithout regard for the dates of advances or actual am ounts advanced, the esti m ated finance charge per $100 of am ount financed is $81.96. On page 309M of Volume I, read down to the 249th paym ent line and across to 82.39 which is the nearest am ount to $81.96, and read up to 6.50% which is the estimated a n nual percentage rate to be disclosed. 1 /2 8 /7 0 SEC T IO N 226.814— P R E M IU M S F O R IN S U R A N C E A D D E D T O A N E X IS T IN G B A L A N C E Subsequent to the consummation of a consumer credit transaction the custom er m ay wish to purchase optional insurance in connection with the obligation. Typically, mortgage life and dis ability insurance may be offered to the custom er at some date after consum m ation under a plan in which the lender will advance the am ount of the prem ium due and add that am ount to the existing unpaid balance of the obligation. Generally, each instalment on the original obligation paid during the period before the next prem ium is due will be increased proportionately to liquidate the am ount REGULATION Z— INTERPRETATIONS of the additional advance plus any finance charge. A dditional advances are m ade autom ati cally for renewal prem ium s as they become due unless the borrow er requests discontinuance of the coverage. The question arises as to the re quired disclosures. In such cases the insurance agreement m ay be considered a single separate transaction, and the disclosures required under § 226.8, at the credi tor’s option, need be m ade only prior to the time the agreement is executed and only with respect to the am ount of the initial advance. F o r exam ple, a mortgage life and disability insurance plan in which the annual prem ium advanced was $145 repayable in 12 monthly instalments of $12.61 added to the regular monthly mortgage paym ents would be disclosed as an “am ount financed” of $145, a “finance charge” of $6.32, and a “total of paym ents” of $151.32. Additional disclosures as applicable under § 226.8 would, of course, be made. If, as in some cases, only a portion of the advance is liquidated during the prem ium period with the rem ainder payable at the end o f the mortgage contract, the creditor would likewise calculate the am ount of finance charge which would accrue on the advance until paid in full. In some cases the advance is secured by a se curity interest in real property which is used o r expected to be used as the principal residence of the customer. In those cases the prem ium ad vance agreement is rescindable u nd er § 226.9, and notice of the right of rescission provided in § 226.9(b) need only be given at the time the agreement is executed. Subsequent advances for renewal premiums are not subject to the right of rescission. 1 /2 8 /7 0 SEC T IO N 226.815— D IS C L O SU R E F O R D E M A N D LO AN S Section 226.8(b)(3) requires a creditor to dis close the num ber, am ount and due dates or pe riods o f paym ents scheduled to repay an exten sion of credit other th an open end and, in appropriate cases, the total of payments. The question arises as to how these requirem ents should be met in the case of dem and loans. Section 226.4(g) provides that for the purpose of calculating the finance charge and annual p er centage rate, dem and loans are considered to REGULATION Z— INTERPRETATIONS have a one-half year m aturity unless the obliga tion is alternatively payable upon a stated m atu rity, in which case the stated m aturity shall be used. In order to comply with the requirem ents of § 226.8(b)(3), if no alternative maturity date is specified, the creditor need disclose only the due dates or periods of payments of all scheduled in terest paym ents for the first one-half year. In such cases, the creditor need not disclose the number, am ounts or total of paym ents or identify any balloon paym ent. Effective M ay 1, 1970, creditors shall disclose the fact that the obligation is payable on demand. If an alternative m aturity date is specified, all disclosures required under § 226.8(b)(3) shall be made, using that date. / 1 /2 8 /7 0 SEC T IO N 226.816— M O R T G A G E S W IT H D EM A ND FEATURES In some cases real estate mortgages are written for a stated period, for example one year, with the provision that they shall be payable on dem and after expiration of that period, provided that until such dem and is made the principal and interest shall be paid in scheduled periodic instalments until paid in full. T he obligation is thus payable according to a specified am ortization schedule subject to the holder’s right to dem and payment after the stated period. The question arises w hether the creditor may m ake disclosures based on the specified am ortiza tion schedule or whether disclosures m ust be m ade on the basis of the m aturity established by the expiration of the stated period. In such cases the creditor may m ake disclo sures based on the specified am ortization sched ule, provided he discloses clearly and conspicu ously that the obligation is payable on demand after the stated period together with the fact that disclosures are made on the basis of the specified am ortization schedule. Otherwise, disclosures shall be based upon the earliest date dem and for pay m ent in full may be made under the terms of the mortgage showing the unpaid balance due at that time as a “balloon paym ent.” T h e disclosure requirem ents of this interpreta tion shall become effective M ay 1, 1970. 1/28/70 § 226.816 SEC T IO N 226.817— R E D U C T IO N IN AN NUAL PERCENTAGE RATE Section 226.8(j) specifies that if any existing extension of credit is refinanced, such transaction shall be considered a new transaction subject to the disclosure requirem ents of Regulation Z. The question arises as to whether a reduction in the annual percentage rate applicable to an existing extension of credit, when no other credit terms are changed, constitutes a refinancing under § 226.8(j). W hen no other credit term s are changed, a re duction in the annual percentage rate applicable to an existing extension of credit does not consti tute a refinancing under § 226.8(j), and no disclo sures are required. 3 /3 1 /7 0 S EC T IO N 226.818— R E F U N D O F U N E A R N E D F IN A N C E C H A R G E ; P R E P A Y M E N T PENALTY U nder § 226.8(b)(7) a creditor must provide an identification of the m ethod of com puting any unearned portion of the finance charge in the event of prepaym ent of an obligation, as well as a statement of the am ount or m ethod of com pu tation of any charge that m ay be deducted from the am ount of any rebate. Section 226.8(b)(6) re quires the creditor to provide “a description of any penalty charge that m ay be imposed by the creditor or his assignee for prepaym ent of the principal of the obligation. . . . ” A question arises whether the com putation of certain rebates of un earned finance charges on contracts with precom puted finance charges involves a “prepaym ent penalty.” A second question concerns the disclo sures required to identify the m ethod of com put ing any finance charge rebate. Section 226.8(b)(6) relates only to charges as sessed in connection with obligations which do not involve precom puted finance charges included in th e obligation. It applies to transactions in which the finance charge is com puted from time to time by application of a rate to the unpaid principal balance. Prepaym ent penalties w hich re quire disclosure under this section (which princi pally arise in connection with prepaym ent of real estate mortgages) occur when the obligor in such a transaction is required to pay separately an ad- § 226.819 ditional am ount for paying all or part of the obli gation before maturity. On the other hand, § 226.8(b)(7) is designed to encompass the disclo sures necessary with regard to the prepaym ent of an obligation involving precom puted finance charges which are included in the face am ount of the obligation. Therefore, although in a precom puted obligation the finance charge rebate to a custom er may be less when calculated according to the “Rule of 78’s,” “sum of the digits,” or other m ethod than if calculated by the actuarial method, such difference does not constitute a penalty charge for prepaym ent that must be de scribed pursuant to § 226.8(b)(6). Section 226.8(b)(7) requires “identification” of the rebate method used on precomputed con tracts. M any State statutes provide for rebates of unearned finance charges under methods known as the “Rule of 78’s” or “sum of the digits” or other methods. In view of the fact that such stat utory provisions involve complex mathem atical descriptions which generally cannot be condensed into simple accurate statements, and which if re peated at length on disclosure forms could de tract from other im portant disclosures, the re quirem ent of rebate “identification” is satisfied simply by reference by nam e to the “Rule of 78’s” or other method, as applicable. 4 /3 0 /7 3 SEC T IO N 226.819— P R E P A ID F IN A N C E C H A R G E S; A D D -O N S A N D D ISC O U N TS Sections 226.8(c)(6), 226.8(d)(2) and 226.8(e)(1) require that certain finance charges be disclosed as “prepaid finance charges.” They also require that such prepaid finance charges be excluded or deducted from the credit extended in arriving at the “am ount financed.” T he question arises whether add-on, discount or other precom puted finance charges which are reflected in the face am ount of the debt instrum ent as part o f the custom er’s obligation, but which are excluded from the “am ount financed,” m ust be labeled as “prepaid” finance charges. T h e concept of prepaid finance charges was adopted to insure that the “am ount financed” re flected only that credit of which the customer had the actual use. Precom puted finance charges which are included in the face am ount of the ob REGULATION Z— INTERPRETATIONS ligation are not the type contemplated by the “prepaid” finance charge disclosure concept. A l though such precomputed finance charges are not to be included in the “am ount financed,” they need not be regarded as finance charges “paid separately” or “withheld by the creditor from the proceeds of the credit extended” within the m ean ing of § 226.8(e) to require labeling “prepaid” under §§ 226.8(c)(6) and 226.8(d)(2). They are “fi nance charges,” of course, to be disclosed under §§ 226.8(c)(8) and 226.8(d)(3). 8 /2 3 /7 3 SECTION 226.9 SEC TIO N 226.901— W A IV E R O F S E C U R ITY IN T E R E ST S— E F F E C T ON T H E R IG H T O F RESCISSION Section 226.9(a) provides for a right of rescis sion “in the case of any [consumer] credit trans action in which a security interest is or will be retained or acquired in any real property which is used or is expected to be used as the principal residence of the custom er.” U nder § 226.2(z) se curity interests include mechanic’s and m aterial m en’s liens. If a creditor effectively waives his right to retain, or to acquire such a lien, he has not retained or acquired such security interest. T he question arises, however, of w hether waiver of a creditor’s lien rights is effective to remove a transaction from the scope of rescission when lien rights which are not waived arise in favor of subcontractors, workmen, or others w ho are not creditors in the transaction. T he fact that the creditor waives his lien rights does not, in itself, determine whether o r not the transaction is rescindable. If all security interests are effectively waived, the transaction is not res cindable. On the other hand, if as a result of the transaction, a security interest is or will be re tained or acquired by a subcontractor, workm an, or other person, the transaction is rescindable. In the latter case the creditor would be responsible for delivering the rescission notice as well as other applicable disclosures, delaying perform ance as provided under § 226.9(c), and identifying himself as the creditor on the rescission notice. The subcontractors, workmen, and others would not be responsible for delivering rescission notices to the customer. 5/26/69 REGULATION Z— INTERPRETATIONS § 226.902 S E C T IO N 226.902— “C U S T O M E R S ” A N D JO IN T O W N ERS OF PROPERTY U N D E R T H E R IG H T O F RESCISSION plus any accrued and unpaid finance charge on the existing obligation, § 226.9 does not apply to the transaction. If, however, such new transaction is for an in creased am ount, that is, for an am ount in excess of the am ount of the unpaid balance plus any ac crued and unpaid finance charge on the existing obligations, § 226.9 applies to the transaction. However, such right of rescission applies only to such excess and does pot affect the existing obli gation (or related security interest) for the unpaid balance plus accrued unpaid finance charge. If a transaction is refinanced by a creditor other than the creditor of the existing obligation, the entire transaction is subject to § 226.9. Section 226.9(f) provides that, for the purpose of the right of rescission, “custom er” shall in clude two or m ore customers w here joint ow ner ship is involved. The question arises of whether this means that all joint owners of record, regard less of w hether or not they are parties to the transaction, are customers for this purpose, and w hether each of such owners of record (1) must receive disclosures and a notice of the right of rescission, (2) m ay exercise the right of rescission, and (3) m ust join in signing a waiver if one is appropriately taken by the creditor. 1 /2 8 /7 0 (Supersedes interpretation § 226.903 is sued 6 /2 0 /6 9 ) U nder § 226.9(f) w here there are joint owners, the right to receive disclosures and notice of the right of rescission, the right to rescind, and the need to sign a waiver of such right, apply only to those joint owners w ho are parties to the transac tion. SECTION 226.10 SEC T IO N 226.1001— A D V E R T IS IN G O F C R E D IT T E R M S IN O T H E R T H A N O P E N E N D C R E D IT 5 /2 6 /6 9 S EC T IO N 226.903— R E F IN A N C IN G A N D IN C R E A S IN G — D ISCLO SU R ES A N D E F F E C T S O N T H E R IG H T O F RESCISSION T he statement of certain credit term s in adver tisements such as “no dow npaym ent”, the am ount of any instalment paym ents, dollar am ount of finance charge, num ber of payments, etc., as pro vided in § 226.10(d)(2), requires that certain other terms also be stated in the same advertisement. T h e question arises as to how a creditor m ay ad vertise credit term s in a meaningful way when all of his credit sales or loans are not m ade on the same basis. In some cases the creditor of an obligation will refinance that obligation at the request of a cus tom er by permitting the custom er to execute a new note, contract, or other docum ent evidencing the transaction under the term s of which one or m ore of the original credit terms, including the m aturity date of the obligation, are changed. Ex cept as provided in § 226.811, such refinancing constitutes a new transaction, and all disclosures required under § 226.8 m ust be made. T he ques tion arises as to whether that transaction is sub ject to the right of rescission under § 226.9 where the obligation is already secured by a security in terest in real property which is used or expected to be used as the principal residence of th a t cus tomer. The advertising of credit term s m ay b e made by giving one or m ore examples of typical exten sions of credit and stating all of the term s appli cable to each example. In any such case, the ad vertiser shall set forth one o r m ore examples which are, in fact, typical of the type of credit and term s usually and customarily made availa ble by the creditor to present and prospective customers and each shall be clearly and conspicu ously identified as examples o f typical transac tions. If the am ount of such new transaction does not exceed th e am ount of the unpaid balance 4/22/69 59 § 226.1002 SEC T IO N 226.1002— C A T A L O G S— TA BLES OR S C H E D U L E S O F C R E D IT T E R M S U nd er § 226.10(b) in order th at a catalog may qualify as a single advertisement, am ong other things, it m ust include a table or schedule of credit terms. It has been the practice of catalog houses to include such tables in catalogs; how ever, such tables generally state am ounts of pu r chases, am ounts of finance charges, and num ber and am ount of paym ents for brackets up to a cer tain level and then contain an instruction to in clude a specified dollar am ount in computing the finance charge by application of a percentage rate on any purchase in excess of that level. Tables to show the actual term s including annual percent age rates for all purchases into thousands of dol lars would be unwieldy, present a formidable ap pearance, and m ay be more confusing than helpful to the user. T he question arises as to w hether a creditor who publishes a catalog is re quired to include tables in detailed am ounts from REGULATION Z— INTERPRETATIONS the m inim um up to, for example, $5,000, his highest priced cataloged merchandise. Tables or schedules of term s in catalogs must include all am ounts up to a level of the more com monly sold higher priced property or services which are offered for sale, but in no event greater than $1,000 unless the creditor elects to do so. If the creditor offers property or service for sale at prices higher than the upperm ost level covered by his table, he shall state the m ethod by which the finance charge is com puted on larger amounts, how the am ount of paym ents and the num ber and periods of paym ents are determined and state, for each representative am ount in in crements of not m ore than $500 up to the high est priced property or service offered, the annual percentage rate. A ny catalog which contains such a table or schedule of credit term s will comply with requirem ents o f § 226.10(b) provided all other requirem ents are met and such catalog shall be considered adequate for the purpose of § 226.8(g)(1). 4 /2 2 /6 9 APPENDIX A QUESTIONS AND ANSWERS If you extend consum er credit or issue credit cards, you m ust become fam iliar with Regulation Z. You will be responsible fo r complying with the Regulation and this pam phlet tells you how Regula tion Z affects your business. T he questions and answers that follow are stated as simply and clearly as possible. H O W E V E R , F O R E X A C T I N F O R M A T I O N O N W H A T Y O U M U S T D O TO C O M P L Y W IT H T H E L A W , Y O U M U S T R E A D T H O R O U G H L Y T H E A P P L I C A B L E S E C T IO N S O F R E G U L A T I O N Z. SOME G ENER AL QUESTIONS A N D ANSW ERS Q: What is the purpose of Regulation Z? A: T he purpose is to let borrowers and consumers know the cost of credit so that they can com pare costs between various credit sources and avoid the uninform ed use of credit. Regulation Z also regulates issuance of credit cards and sets m axim um liability for the unauthorized use o f credit cards. T he Regulation does not set m axim um or minimum interest rates o r require any charge for credit. (Reg. Z / 226.1) Q: What kinds of businesses are affected? A: Regulation Z applies to credit card issuers and any individual or organization th at extends or ar ranges credit for which a finance charge is or m ay be payable or which is repayable by agreement in m ore than four instalments. F o r example, the Regulation applies to banks, savings and loan associa tions, credit unions, consum er finance companies and residential mortgage brokers. It m ay also apply to departm ent stores, automobile, furniture and appliance dealers, craftsm en— such as plum b ers and electricians, doctors, dentists and other professional people, and hospitals. (Reg. Z /226.2(k) and (1)) , Q: What types of credit transactions are covered under Regulation Z? A: Generally, credit you extend to people for personal, family, household o r agricultural uses, not ex ceeding $25,000. (Reg. Z /226.2(k)) But A L L real estate credit transactions for these purposes are covered regardless of the amount. (Reg. Z / 226.3(c)) Q: What types o f credit transactions are not covered? A: T he following are not affected by Regulation Z: (Reg. Z / 226.3) 1. Business and com mercial credit— except agricultural credit. 2. Credit to Federal, State and local government. (However, governmental units extending credit to individuals are affected by this law.) 3. Transactions in securities and commodities accounts with a broker-dealer registered with the Secu rities and Exchange Commission. 4. Transactions under certain public utility tariffs. 5. Credit over $25,000— except real estate transactions. Q: Can a State law be substituted for Regulation Z? A: Yes, it can, provided the Federal Reserve Board makes that determ ination as provided by law. Any determination made will be published. (Reg. Z / 226.12) Q: What happens if I not only follow Regulation Z but also elect to follow inconsistent State law? A: In these cases the State disclosures may be shown on a separate sheet. They m ay also be shown on APPENDIX A the same statement as the Federal disclosures. But in this event they must appear separately and be low the Federal disclosure, clearly marked that they are inconsistent with the Federal disclosures, and separated by a dividing line. Regulation Z is very specific on these points. (Reg. Z /226.6(c)) Q: Is any special terminology prescribed? A: Yes, certain terminology is specified that must be used in making disclosures required by the Regu lation. (Reg. Z /226.6(a); Reg. Z /22 6.7(b) and (c); Reg. Z /226.8(b), (c) and (d); Reg. Z /226.9(b); Reg. Z /2 2 6 . 11(c)) Q: D o disclosures have to be made in the order they appear in the Regulation? A: No, but they must be listed in an order which will be meaningful to your customer. (Reg. Z /226.6(a)) Q: What terms are used to describe credit transactions in the Regulation? A: The Regulation divides all consumer credit transactions into two broad categories: open end credit, and credit other than open-end. These are discussed in subsequent sections of these Questions and Answers. Q: How long do I have to keep records? A: You should keep evidence of com pliance for two years. (Reg. Z/226.6(i)) Q: Will anyone inspect my records? A: If asked by the proper agency you must show your records relating to disclosure and evidence o f com pliance. (Reg. Z /226.6(i)) Q: Are there provisions for enforcement? A: Specific responsibilities for enforcem ent of Regulation Z are divided am ong nine Federal agencies. A complete list of these agencies and types of businesses they cover can be found in Appendix D. If you need additional inform ation, you should contact the appropriate Federal agency. (Reg. Z/226.1(b)) Q: Are there any penalties for violating the Act? A: If you fail to m ake disclosures as required under the T ru th in Lending Act, you may be sued for twice the am ount of the finance charge— for a m inim um of $100, up to a m axim um of $1000— plus court costs and attorney’s fees. A nd if you willfully or knowingly disobey the law or Regulation Z and are convicted, you could be fined up to $5000, or be imprisoned for one year, o r both. (Reg. Z /226.1(c)) SOME QUESTIONS A N D ANSW ERS ON THE FIN A N C E CHARGE A N D A N N U A L PERCENTAGE RATE Q: What is the finance charge? A: It is the total of all costs which your customer must pay, directly or indirectly for obtaining credit. (Reg. Z /2 2 6 .4 ) Q: What costs are included in the finance charge? A: H ere are some of the m ore com m on items that you m ust include in your finance charge. See Reg. Z / 226.4 for others and for qualifications which apply. 1. 2. 3. 4. Interest. Loan fee. Finders fee o r similar charge. Time price differential. 62 APPENDIX A 5. A m ount paid as a discount. 6. Service, transaction or carrying charge. 7. Points. 8. Appraisal fee (except in real estate transactions). 9. Prem ium for credit life insurance, should you make this a condition for giving credit. 10. Investigation or credit report fee (except in real estate transactions). Q: Are all costs part o f the finance charge? A: N o, some costs which would be paid if credit were not employed m ay be excluded. H owever, you m ust itemize and show them to your customer. (Reg. Z / 226.4 gives you a com plete list.) H ere are a few examples: 1. 2. 3. 4. 5. Taxes. License fees. Registration fees. C ertain title fees and other legal fees. Some real estate closing fees. Q: In what form is the finance charge to be shown to the customer? A: It must be clearly typed or written, stating the dollars and cents total and the annual percentage rate. The w ords “finance charge” and “annual percentage rate” m ust stand out especially clearly. (Reg. Z / 226.6(a)) In the sale of dwellings, the total dollar finance charge need not be stated, although the an nual percentage rate m ust be disclosed. Q: What is the annual percentage rate? A: Simply put, it is the relative cost of credit in percentage terms. (Reg. Z/226.5(e)) Q: Are maximum or minimum rates specified in Regulation Z? A: No. Regulation Z does n o t fix maxim um , minim um , or any charges for you show whatever annual percentage rate you do charge. credit. But it requires that Q: H ow accurate must the A: It m ust be com puted so 1 % . (Reg. Z / 226.5) the nearest one-quarter of annual percentage rate be? as to perm it disclosure w ith an accuracy at least to Q: How is the annual percentage rate computed? A: It depends on w hether the credit is open end (Reg. Z /226.5(a)) or other than open end credit. (Reg. Z /226.5(b)) SOME QUESTIONS A N D ANSW ERS ABOUT OPEN E N D CREDIT Q: What is open end credit? A: Typically it covers most credit cards and revolving charge accounts in retail stores and check over draft plans in banks, where finance charges are usually made on unpaid am ounts each m onth. (Reg. Z /226.2(r); Reg. Z / 226.7) Q: What must an open end credit customer be told under this law? A: If it is a new account, then your custom er must receive these specific items in writing to the extent ap plicable: (Reg. Z /226.7(a)) 1. T he conditions under which the finance charge m ay be imposed and the period in which pay m ent can be m ade w ithout incurring a finance charge. APPENDIX A 2. T he method used in determining the balance on which the finance charge is to be made. 3. H ow the actual finance charge is calculated. 4. The periodic rates used and the range o f balances to which each applies. 5. The conditions under which additional charges may be m ade along with details of how they are calculated. 6. Descriptions of any lien which you may acquire on a custom er’s property. 7. T he m inim um paym ent that must be made on each billing. Q: Are periodic statements necessary on open end accounts? A: Yes, but only where there is an unpaid balance over $1 or where a finance charge is made. (Reg. Z / 226.7(b)) Q: What sort of information must accompany a monthly statement? A: W here applicable, you must give customers this information: (Reg. Z/226.7(b)) 1. The unpaid balance at the start of the billing period. 2. T he am ount and date of each extension of credit and identification of each item bought. 3. Paym ents m ade by a customer and other credits: this includes returns, rebates dnd adjust ments. 4. T he finance charge shown in dollars and cents. 5. The rates used in calculating the finance charge plus the range of balances to which they apply, the corresponding annual percentage rate in each case calculated by multiplying the rate for the time period by the num ber of periods you use each year, and any minimum charge. 6. T he annual percentage rate, when a finance charge is imposed. 7. T he unpaid balance on which the finance charge was calculated. 8. T he closing date of the billing cycle and the unpaid balance at that time. Q: Where must this information appear? A: Some items must appear on the actual face of the statement. Others m ay be shown on the reverse side; or on a separate form enclosed in the same envelope. (Reg. Z /226.7(c)) Q: How is the annual percentage rate determined on open end credit? A: The finance charge is divided by the unpaid balance to which it applies. This gives the rate per m onth or whatever time period is used. The result is multiplied by 12 o r the other num ber of time periods used by you during the year. (Reg. Z /22 6.5(a)) F or example, a typical charge of \V i% is m ade on an unpaid balance where bills are sent out monthly. The annual percentage rate would be twelve times \V i% or 18% . O ther methods for calculating the annual percentage rate on open end credit are detailed in Reg. Z /226.5(a). SOME QUESTIONS A N D ANSW ERS ABOUT CREDIT OTHER T H A N OPEN EN D Q: What types of credit are included? A: Both loans and sales credit— in every case for a specified period of time where the total am ount, n um ber of payments, and due dates are agreed upon by you and your customer. Typically, it is used in buying or financing the purchase of “big ticket” items. A good example is a loan from a finance com pany to buy an automobile. A nother example is credit extended by a store to buy a washing machine, a television set, or other m ajor appliance. It also includes a single paym ent loan. (Reg. Z / 226.8) Q: What must the credit customer be told in these types of transactions? APPENDIX A A: You m ust present to your custom er in writing the following inform ation as applicable, plus addi tional inform ation relating to the type of credit extended: (Reg. Z /226.8(b)) 1. T he total dollar am ount of the finance charge; except in the case of a credit transaction to fi nance the purchase of a dwelling. 2. The date on which the finance charge begins to apply, if this is different from the date of the transaction. 3. The annual percentage rate. (For exception, see Reg. Z/226.8(b)(2)(i) and (ii)) 4. The number, am ounts and due dates of payments. 5. The total paym ents— except in the case o f first mortgages on dwelling purchases. 6. The am ount you charge for any default, delinquency, etc., or method you use for calculating that amount. 7. Description of any security you will hold. 8. Description of any penalty charge for prepaym ent of principal. 9. Identification of the method used to com pute the am ount of any finance charge rebate in the case of prepaym ent of contracts involving precom puted finance charges. Charges deducted from any rebate must be stated. Q: Are there any other things customers must be told? A: T hat depends on the transaction— w hether it is a loan or a credit sale. Q: In the case of a loan, what do I have to tell my customers? A: In addition to the inform ation given your customer, as previously indicated, you m ust also provide this information: (Reg. Z/226.8(d)) 1. T he am ount o f credit to be given to your customer. This includes all charges which are p art of the am ount of credit extended but are not a p art of the finance charge. This inform ation must be itemized. 2. A m ounts that are deducted as prepaid finance charges and required deposit balances. (Reg. Z / 226.8(e)) Q: Regarding credit sales, what additional information do I give these customers? A: Again, you must give your customers all the inform ation in the answer to the second question in this section, and the following additional inform ation as applicable: (Reg. Z /226.8(c)) 1. 2. 3. 4. 5. 6. 7. 8. The cash price. T he down paym ent, including trade-in. T he difference between the two. All other charges, itemized, that are included in the am ount financed but not part of the finance charge. The unpaid balance. A m ounts deducted as prepaid finance charges or required deposit balances. T he am ount financed. The deferred paym ent price, which is the total of the cash price, finance and all other charges. (This does not apply to the sale of a dwelling.) Q: When must customers receive all this information on loans A: Before the credit is extended. (Reg. Z /226.8(a)) or creditsales? Q: Must this information be given to customers in writing? A: Yes. You m ust include the inform ation on the face o f the note or other instrum ent evidencing the obligation, or on a separate sheet that identifies the transaction. (Reg. Z /226.8(a)) Q: Are monthly statements required? A: No. But if you do send out m onthly statements, you must show clearly the annual percentage rate, and the period in which a paym ent must be m ade to avoid late charges. (Reg. Z /226.8(n)) APPENDIX A Q: How is the annual percentage rate calculated on loans or credit other than open end? A: By the actuarial method— paym ents are applied first to interest due and any rem ainder is then applied to reduce principal. (Reg. Z/226.5(b)) Q: What are examples o f the actuarial method? A: H ere are tw o simple examples: 1. A bank loan of $100 repayable in equal monthly instalments over one year is made, at a 6 % add-on finance charge. T he annual percentage rate would be 11% . T he borrow er would repay $106 over one year. He would only have use o f the full $100 until he made his first paym ent, and less and less each m onth as paym ents are made. The effect is that the actual annual percentage rate is almost twice the add-on percentage rate. 2. Using the same example as above with the 6 % finance charge discounted in advance, the annual percentage rate would be 11 Vi % because the custom er would only receive $94 and have to repay $100. H e would have full use of only $94 of the loan up to the time he m akes his first payment. Q: But isn’t the actuarial method very complicated? A: Yes, it is. Recognizing this, the Federal Reserve Board has prepared tables showing the annual per centage rate based on the finance charge and the num ber o f weekly or monthly paym ents to be made. These tables are available from the Federal Reserve Board and Federal Reserve Banks at $1.00 per copy. (Reg. Z /226.5(c)) Q: A: Must I use the Board’s Annual Percentage Rate tables? No. Y ou may wish to purchase specially prepared tables for your type of business from one of sev eral table o r chart publishers. T rade associations and financial institutions can be helpful also. (Reg. Z/226.5(c)(2)) Q: Must the creditor always show the annual percentage rate? A: Generally, yes, except that on credit other than open-end credit, if the finance charge is $5 or less, and applies to credit of $75 o r less, it need not be shown. T he same exception applies to a finance charge of $7.50 or less on credit o f m ore than $75. (Reg. Z/226.8(b)(2)(i) and (ii)) SOME QUESTIONS A N D ANSW ERS ABOUT REAL ESTATE Q: Is real estate credit covered under Regulation Z? A: Yes. All real estate credit in any am o u n t is covered under this Regulation when it is to an individual and not for business purposes, unless the business purpose is agricultural. Q: D oes such real estate credit cover more than mortgages? A: Yes, very definitely. A ny credit transaction (other than a business credit transaction) that involves any type o f security interest in real estate o f a consum er is covered. Reg. Z /226.2(w ), (x), (y) and (z)) Q: Are there any special provisions that apply to real estate credit? A: Tw o basic points: 1. Y ou do not have to show the total dollar am ount of the finance charge on a credit sale or first mortgage loan to finance the purchase of the custom er’s dwelling. (Reg. Z/226.8(c)(8) and (d)(3)) 2. In m any instances, your custom er has th e right to cancel a credit arrangem ent within three business days if his residence is used as collateral for credit. (Reg. Z / 226.9) APPENDIX A Q: Must a creditor inform his customer of the right to cancel? A: Yes. H e m ust furnish the N otice prescribed by the Regulation. (Reg. Z/226.9(b)) Q: What must the customer do to cancel a real estate transaction under the Regulation? A: A custom er m ay cancel a transaction or or or or 1. by signing and dating the N otice to custom er required by Federal law, which he receives from the creditor, and either (a) mailing the Notice to the creditor at the address shown on the Notice, (b ) delivering the N otice to the creditor at the address shown on the N otice either person ally or by messenger (o r by other agents), 2. by sending a telegram to the creditor at the address shown on the Notice. A brief description of the transaction which the custom er wishes to cancel should be included in the telegram. 3. by preparing a letter (o r other writing) w hich includes a brief description of the transaction which he wishes to cancel, and either (a ) mailing the letter (or other writing) to the creditor at the address shown on the Notice, (b ) delivering the letter (or other writing) to the creditor at the address shown on the Notice either personally or by messenger (o r by other agents). Q: What if the customer telephones that he is going to cancel? A: A telephone call to the creditor may not be used to cancel a transaction; W R I T T E N notice o f can cellation is required. If the custom er takes one o f the above steps to cancel w ithin the three day period, he has effectively cancelled the transaction. Q: What if I haven’t received the notice o f cancellation in three days? A: Y ou should allow time for a mailed letter or telegram sent within the three day period livered, and determ ine that your customer has not cancelled the transaction. to be de Q: D oes this right o f cancellation apply to a first mortgage? A: A first m ortgage to finance the purchase of your custom er’s dwelling carries no right to cancel. However, a first mortgage for any other purpose and a second mortgage on the same dwelling may be cancelled. (Reg. Z/226.9(g)) Q: What happens regarding cancellation in the case of a mechanic’s lien or similar security interest acquired by a craftsman who works on credit? A: T ake a craftsm an, for example, w ho charges his customers a finance charge or agrees to accept paym ent in m ore than four instalments. His custom er does have a right to cancel, but only within three business days. Unless there is an em ergency the craftsm an should wait the three days before starting work. (Reg. Z /226.9(c)) Q: Suppose a customer needs emergency repairs and cannot wait for three days? A: A custom er m ay waive his right to cancel a credit agreement if credit is needed to meet a bona fide personal financial em ergency and if failure to start repairs would endanger him, his family, o r his property. Preprinted waiver form s m ay not be used. (Reg. Z /226.9(e)) SOME QUESTIONS A N D ANSW ERS A BO U T CREDIT CARDS Q: What is a credit card? A: A credit card is a single credit device existing fo r the purpose o f being used from time to time upon presentation to obtain money, property, labor, o r services on credit. (Reg. Z /226.13(a)) APPENDIX A Q: Are there restrictions on issuance o f credit cards? A: Yes. A credit card m ay n o t be issued except in response to a request or application or as a renewal of, o r in substitution for, an accepted credit card. (Reg. Z/226.13(b)) Q: What is an accepted credit card? A: A n accepted credit card is a credit card which the cardholder has requested or applied for and re ceived, o r has signed, o r has used, or has authorized another person to use. A ny credit card issued in renewal of, o r in substitution for, an acceptedcredit card becomes an accepted credit card w hen re ceived by the cardholder. (Reg. Z /226.13(a)) Q: D oes Regulation Z apply to credit cards issued fo r business purposes? A: Yes. Regulation Z applies to all credit cards w hether issued for personal, family, household, agricul tural, business, o r com mercial purposes, regardless of w hether issued to an individual person or to an organization. (Reg. Z /2 26 .1 3(a) and (b)) Q: Is a cardholder liable for unauthorized use o f a credit card? A: A cardholder is liable for unauthorized use of a credit card only if (1 ) the credit card is an accepted credit card; (2 ) the liability does not exceed the lesser o f $50 or the am ount o f money, property, labor, or services obtained by unauthorized use prio r to notification of the card issuer; (3 ) the card issuer has given the cardholder adequate notice of his potential liability on the credit card o r within two years preceding unauthorized use; (4 ) the card issuer has provided the cardholder with an addressed postage-paid notification to be mailed in event o f loss, theft, or possible unauthorized use of the credit card, and (5 ) the card issuer has provided a m ethod w hereby the user of the card can be identified as the person authorized to use it, such as by signature, photograph, or fingerprint on the card, or by electronic or mechanical confirmation. SOME QUESTIONS A N D ANSW ERS ABOUT TH E ADV ERTISING OF CREDIT Q: D oes Regulation Z affect credit advertising? A; Yes it does. It affects all advertising to aid o r prom ote any extension of consum er credit regardless of w ho the advertiser may be. A n association, fo r example, which advertises that its members ex tend consum er credit is subject to the advertising provisions o f Regulation Z. Q: What kinds o f advertising are affected? A: All types of advertising: television, radio, newspapers, magazines, leaflets, flyers, catalogs, public ad dress announcem ents, direct mail literature, window displays, billboards, etc. (Reg. Z /226.2(b)) Q: H ow does Regulation Z affect your advertising as a creditor? A: Generally, you m ay not advertise th at the down paym ent, instalment plan o r am ount of credit can be arranged unless you usually arrange term s o f this type. (Reg. Z /226.10(a)) Q: How else is credit advertising affected? A: If it is open end credit, see Reg. Z /2 2 6 .1 0 (c ). F o r credit other than open end, see Reg. Z /2 2 6 .1 0 (d ) . If you advertise in catalogs, see Reg. Z /2 2 6 .1 0 (b ). But generally you are not permitted to advertise any specific credit term unless all other term s involved are stated clearly and can be easily seen. t APPENDIX B NOTICE OF RIGHT OF RESCISSION T he following form is the form of notice of the right to rescind a transaction required to be given to customers u n der certain circumstances set forth in Section 226.9 of Regulation Z. W here the property on which the security interest m ay arise does not include a dwelling, the creditor may substitute the words “the property you are purchasing” for “y o u r hom e” o r “lot” fo r “h o m e” where these words appear in the form of notice. This exhibit is set in capitals and lower case letters of 12 point bold faced type, the m inim um size permissible un d er Regulation Z. ( Id e n t i f ic a t i o n of T r a n s a c t i o n ) Notice To Customer Required By Federal Law: You have entered into a transaction o n ___________________ which may (D a t e ) result in a lien, mortgage, or other security interest on your home. You have a legal right under federal law to cancel this transaction, if you desire to do so, without any penalty or obligation within three business days from the above date or any later date on which all material disclosures required under the Truth in Lending Act have been given to you. If you so cancel the transaction, any lien, mortgage, or other security interest on your home arising from this transaction is automatically void. You are also entitled to receive a refund of any downpayment or other consideration if you cancel. If you decide to cancel this transaction, you may do so by notifying ( N a m e of C r e d it o r ) at_________________________________________________________________ (A ddres s of C r e d i t o r ’s P la c e of B u sin es s) by mail or telegram sent not later than midnight o f __________________You (D a t e ) may also use any other form of written notice identifying the transaction if it is delivered to the above address not later than that time. This notice may be used for that purpose by dating and signing below. I hereby cancel this transaction. (Date) (Customer's signature) 69 APPENDIX B T he following paragraph shall appear on the face o r the reverse side of the notice shown on the opposite page. If it appears on the reverse side of the notice, the face of the notice shall state, “See reverse side fo r im portant inform ation about your right of rescission.” EFFECT OF RESCISSION. When a customer exercises his right to rescind under paragraph (a) of this section, he is not liable for any finance or other charge, and any security interest becomes void upon such a rescission. Within 10 days after receipt of a notice of rescission, the creditor shall return to the customer any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the customer, the customer may retain possession of it. Upon the performance of the creditor’s obligations under this section, the customer shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the customer shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the customer, at the option of the customer. If the creditor does not take possession of the property within 10 days after tender by the customer, ownership of the property vests in the customer without obligation on his part to pay for it. 70 APPENDIX C SA M P L E P A G E F R O M T A B L E F O R C O M P U T IN G A N N U A L P E R C E N T A G E R A T E F O R L E V E L M O N T H L Y P A Y M E N T PLA N S EXAM PLE Finance charge = $35.00; Total am ount financed = $200; N u m b er of m onthly p ay m en ts= 2 4 . SO L U T IO N Step 1— Divide the finance charge by the total am ount financed and multiply by $100. This gives the finance charge per $100 of am ount financed. T h at is, $ 3 5 .0 0 -^ $ 2 0 0 = .1 7 5 0 X $ 1 0 0 = $17.50. Step 2— Follow dow n the left hand colum n o f the table to the line for 24 months. Follow across this line until you find the nearest num ber to $17.50. In this example $17.51 is closest to $17.50. Reading up the column o f figures shows an annual percentage rate of 16% . NUMBER OF PAYMENTS ANNUAL PERCENTAGE RATE l*.0 0 l 14.251 14.501 14.751 3 4 5 1.17 1.75 2.3* 2.93 3.53 1.19 1.78 2.38 2.99 3.59 1.21 1.82 2.43 3.04 3.65 1.23 1 . 85 2.47 3.09 3.72 1.25 1.88 2.51 3.14 3.78 1.27 1.91 2.55 3.20 3.84 1.29 1.94 2.59 3.25 3.91 1.31 1.97 2.64 3.30 3.97 1.33 2.00 2.68 3 . 36 4.0* 1.35 2.04 2.72 3.41 4.10 1.37 2.07 2.76 3.46 4.16 6 7 8 9 10 4.12 4.72 5.32 5.92 6.53 4.20 4 . 81 5.42 6.03 6.65 4.27 4.89 5.51 6.14 6.77 4 . 35 4.98 5.61 6. 25 6 . 88 4.42 5.06 5 . 71 6.35 7.00 4.49 5 . 15 5.80 6.46 7.12 4.57 5.23 5.90 6.57 7.2* 4.64 5 . 32 6.00 6.68 7.36 4.72 5.40 6.09 6.78 7.48 4.79 5.49 6.19 6.89 7.60 11 12 13 14 15 7.14 7.74 8.36 8.97 9.59 7.27 7 . 89 8.51 9 . 13 9 . 76 7.40 8.03 8.66 *.30 9.94 7.53 8. 17 8. 81 9.46 1 0. 11 7.66 8.31 8.97 9.63 10.29 7.79 8.45 9.12 9.79 10.47 7.92 8.59 9.27 9.96 10.64 8.05 8 . 7* 9.43 10.12 10.82 8.18 8.88 9.58 1 0 . ?9 11.00 16 17 16 19 20 10.20 10.82 11.45 12.07 12.70 10.39 11.02 11.66 1 2 . 30 12.93 10.58 11.22 11.87 12.52 13.17 1 0 . 77 11.42 1 2 . 08 1 2. 74 13.41 10.95 11.62 12.29 12.97 13.64 11.14 11.82 12.50 13.19 13.88 1 1.33 12.02 12.72 13.41 14.1 1 1 1.52 12.22 12.93 13.64 14.35 21 25 13.33 13.96 14.59 15.23 15.87 1 3. 58 14.22 1 4 . 87 1 5 . 51 1 6 . 17 13.82 14.48 15.14 15.80 16.46 14.07 1 4. 74 15 .41 L6. 0 8 1 6. 76 14.32 15.00 15.68 16.37 17.06 14.57 15.26 15.96 16.65 17.35 26 27 28 29 30 16.51 17.15 17.80 18.*5 19.10 16.82 17.47 1 8 . 13 1 8. 79 19.45 17.13 17.80 18.47 19.14 19.81 17.44 1 8 . 12 18.80 19.49 2 0 . 17 17 . 75 18. 44 1 9 . 14 19.83 20.54 31 32 33 34 35 19.75 20.40 21.06 21.72 22.38 2 0 . 12 20.79 21.46 2 2 . 13 22.80 20.49 21.17 21.85 22.54 23.23 2 0 . 87 21.56 2 2 . 25 22.95 2 3 . 65 21.24 21.95 22.65 23.37 24.08 15.001 15.25* 17.00* 17.25* 17.501 17.751 1.40 2 . 10 2.80 3.51 4.23 1.42 2.13 2.85 3.57 4.29 1.44 2 . 16 2 . 89 3 . 62 4.35 1. *6 2.19 2.93 3.67 *.42 1.48 2.22 2.97 3. 73 4.48 4.87 5.58 6.29 7.00 7.72 4.94 5.66 6.38 7.11 7.84 5.02 5.75 6.48 7.22 7.96 5.09 5 . 83 6.58 7.32 8.08 5 . 17 5.92 6 . 67 7.43 8. 19 5.24 6.00 6.77 7.54 fl. 31 8.31 9.02 9.73 10.45 1 1. 17 8.44 9 . 16 9.89 10.6? 11.35 8.57 9.30 10.04 1 0 . 78 11.53 8.70 9.45 10.20 10.95 11.71 8.83 9.59 10.35 11.11 1 1 . 88 8.96 9.73 10.5 0 11.28 1 2 . 06 9.09 9.87 10.66 11.45 12 .24 11 .71 12.42 13.14 13.86 14.59 11.90 12.62 13.35 14.09 14.82 12.09 12.83 13.57 1* . 3 1 15.06 12.28 13.03 1 3 . 78 14.54 1 5 . 30 12.46 13.23 13.99 14.76 15.5* 12.65 13.43 14.21 14.99 15.77 12.8* 13.63 1*.42 15.22 16.01 13.03 13.83 14.64 15.44 16.25 14.82 15.52 16.23 16.94 17.65 15.06 15.31 15.78 16.04 1 6 . 50 17.22 1 17.95 15.56 16.30 17.05 17.80 18.55 15.81 16.57 17.32 18.09 18.85 16.06 16.83 17.60 1 8 . 37 1 9 . 15 16.31 17.09 17.88 18.66 19.45 16.56 17.36 1 8. 15 18.95 1 9 . 75 16.81 17.62 18 . * 3 19.2* 20.05 17.07 1 7 . 88 18.70 19.53 20.36 1 8.06 18.76 19.47 20.18 20.90 18.37 19.09 19.81 20.53 21.26 18.68 19.41 20.15 20.88 21 . 6 2 18.99 19.74 20.48 21 . 2 3 21.99 19.30 20.06 20.82 21.58 22.35 19.62 20.39 21.16 21.94 22.72 19.93 20.71 21.50 22.29 23.08 20.24 21.0* 21.84 22.64 23.45 20.56 21 . 3 7 22.18 22.99 23.81 20.87 2 1 . 69 22.52 23.35 2 * . 18 21.19 22.02 22.86 23.70 24.55 21.61 22.33 2,3.06 2 * . 78 24.51 21.99 22.72 23.46 24.19 24.94 22.37 2 3 . 11 23.86 24.61 25.36 22.74 23.50 24.26 25.0 3 25.79 23.12 23.89 24.67 25.4* 26.23 23.50 24.28 25.07 25.86 26.66 23.98 24.68 25.48 26.28 27-09 24.26 25.07 25.88 26.70 27.52 24.6* 2 5 . *6 26.29 27.1? 27.96 75.02 25.86 26.70 2 7.5* 28.39 25.40 26.25 27.11 27.97 28.83 15.50* 1 5 . 7 5 * ( L6.001 16.25* 1 6 . 5C1 1 6 * 7 5 * IF!NANCE CHARGE PER MOO OF AMOUNT FINANCED) 1 2 22 ^ 23 (This table is one page of the tables compiled by the Federal Reserve Board to assist creditors in figuring o u t the annual percentage rate of the cost of credit, or the am ount o f the finance charge fo r a given rate.) 71 APPENDIX D FED ER A L ENFORCEM ENT AGENCIES F ro m the list that follows, you will be able to tell which Federal Agency covers your particular busi ness. A ny questions you have should be directed to th at agency. These agencies are also responsible for enforcing Regulation Z. National Banks Com ptroller of the Currency U nited States T reasury D epartm ent Washington, D. C. 20220 State Member Banks Federal Reserve Bank serving the area in which the State m em ber bank is located. Nonmember Insured Banks Federal Deposit Insurance C orporation Supervising E xam iner for the District in which the nonm em ber insured bank is located. Savings Institutions Insured by the FSLIC and Members o f the FHLB System (except for Savings Banks insured by FDIC) T he F H L B B ’s Supervisory A gent in the Federal H o m e Loan Bank District in which the institution is located. Federal Credit Unions Regional Office of the N ational Credit Union Administration, serving the area in w hich the Federal C redit U nion is located. Creditors Subject to Civil Aeronautics Board **• D irector, Bureau of E nforcem ent Civil Aeronautics Board 1825 Connecticut Avenue, N.W . Washington, D.C. 20428 Creditors Subject to Interstate Commerce Commission Office of Proceedings Interstate Com m erce Commission W ashington, D.C. 20523 Creditors Subject to Packers and Stockyards Act N earest Packers and Stockyards Adm inistration area supervisor. Retail, Department Stores, Consumer Finance Companies, All Other Creditors, and A ll Nonbank Credit Card Issuers T ru th in Lending Federal T rade Commission W ashington, D.C. 20580
