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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 10411 ”1
December 13, 1990
J
CONSUMER CREDIT PROTECTION REGULATIONS
Proposed Changes in Official Staff Commentaries
on Regulations B and Z
Comments Invited by January 28, 1991
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Board of Governors of the Federal Reserve System has issued for com
ment proposed revisions to the official staff com m entaries to its Regulations B
(Equal Credit Opportunity) and Z (Truth in Lending).
The proposed changes in the Regulation B com m entary address the definition
of adverse action and the preem ption of a revision in an Ohio state law by Federal
law.
The proposed changes in the Regulation Z com m entary address issues such
as renewals of home equity lines of credit, credit card substitution, and renewable
balloon payment mortgages.
Printed on the following pages is the text of the proposals, which have been
reprinted from the Federal Register of November 28. Comments thereon should be
subm itted by January 28, 1991, and may be sent to the Board of Governors, as spec
ified in the B oard’s notices, or to our Com pliance Exam inations Departm ent.
E. G erald C orrigan ,
President.
Proposed Rules
Federal Register
Vol. 55, No. 229
Wednesday, November 28, 1990
FEDERAL RESERVE SYSTEM
SUPPLEMENTARY INFORMATION:
Section 202 .11 —Relation to State Law
12CFR Part 202
(1) General
11(a) Inconsistent state laws
[Reg. B; E C -1 ]
The Equal Credit Opportunity Act
(ECOA), 15 U.S.C. 1691-169lf, makes it
unlawful for creditors to discriminate in
any aspect of a credit transaction on the
basis of race, color, religion, national
origin, sex, marital status, age, receipt of
public assistance, or the exercise of
rights under the Consumer Credit
Protection Act. This statute is
implemented by the Board’s Regulation
B (12 CFR part 202).
The Board has published an official
staff commentary (12 CFR part 202
(Supp. I)) to interpret the regulation. The
commentary provides guidance to
creditors in applying the regulation to
specific transactions, and its updated
periodically to address significant
questions that arise.
Comment 11(a)— would be added to
2
reflect a preemption determination
relating to Ohio law that took effect on
July 23,1990 (55 FR 29566).
Equal Credit Opportunity; Proposed
Update to Official Staff Commentary
agency:
Board of Governors of the
Federal Reserve System.
Proposed official staff
interpretation.
a c t io n :
s u m m a r y : The Board is publishing for
comment proposed revisions to the
official staff commentary to Regulation
B (Equal Credit Opportunity). The
commentary applies and interprets the
requirements of Regulation B and is a
substitute for individual staff
interpretations of the regulation. The
proposed revisions address the
definition of adverse action and state
law preemption.
d a tes :
Comments must be received on
(2) Proposed Revisions
Following is a brief description of the
proposed revisions to the commentary:
Section 202 .2 —Definitions
2(c) Adverse action
Comments should refer to
Docket No. EC-1 and be sent to William
W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, or
delivered to Room B-2222 of the Eccles
Building between 8:45 and 5:15 p.m.
weekdays or the guard station in the
Eccles Building courtyard entrance on
20th Street NW (between Constitution
Avenue and C Street NW.) any time. All
comments received at the above address
will be available for inspection and
copying by any member of the public in
the Freedom of Information Office,
Room B-1122 of the Eccles Building,
between 9 a.m. and 5 p.m. weekdays.
In
the Division of Consumer and
Community Affairs, Adrienne D. Hurt,
Senior Attorney, or Jane Ahrens, Staff
Attorney, at (202) 452-2412; for the
hearing impaired only, contact
Eamestine Hill or Dorothea Thompson,
Telecommunications Device for the Deaf
(TDD), at (202) 452-3544, Board of
Governors of the Federal Reserve
System, Washington, DC 20551
FOR FURTHER INFORMATION CONTACT:
Comment 2(c)(2)(ii}-2 would be added
to clarify the Board’s long-standing
position that a notice of adverse action
need not be provided in instances where
a creditor takes action regarding a
current delinquency or default on an
account. Notification in accordance with
section 202.9 of the regulation generally
is required, however, for action on an
account based on a past delinquency or
default on that account.
One of the purposes of an adverse
action notice is to inform an
accountholder of the reason for an
adverse change on a credit account
because the reason may not be
immediately evident. When an account
is to be terminated because the
accountholder is currently delinquent or
in default on that account, the
accountholder presumably is aware of
the fact and the formal notification
procedure of section 202.9 is
unnecessary. When a termination is
based on a past delinquency, on the
other hand, the reason for the creditor’s
action may not be readily apparent to
the accountholder. An adverse action
notice must be given in such a case.
PRINTED IN NEW YORK. FROM
F E D E R A L R E G IS T E R ,
2
Banks; Banking; Civil rights;
Consumer protection; Credit; Federal
Reserve System; Marital status
discrimination; Minority groups;
Penalties; Religious discrimination; Sex
discrimination; Women.
PART 202— [AMENDED]
Pursuant to authority granted in
section 703 of the Equal Credit
Opportunity Act (15 U.S.C. 1691b), the
Board proposes to amend the official
staff commentary to Regulation B (12
CFR part 202 Supp. I) as follows:
1. The authority citation for part 202
continues to read as follows:
Authority: 15 U.S.C. 1091-169lf
2. In section 202.2, comment 2(c)(2)(ii)2 would be added to read as follows:
Section 202.2—Definitions
or before January 28,1991.
addresses:
List of Subjects in 12 CFR Part 202
2(c) Adverse action
* * * * *
Paragraph 2(c)(2)(h)
*
*
*
*
*
2. Current delinquency or default. The term
adverse action does not include a creditor’s
termination of an account when the
accountholder is currently in default or
delinquent on that account. Notification in
accordance with section 202.9 of the
regulation generally is required, however, if
the creditor's action is based on a past
delinquency or default on the account.
* * * * *
3. In section 202.11, comment ll(a )-2
would be added to read as follows:
Section 202.11— Relations to State Law
11(a) Inconsistent state laws
* * * * *
2. Preemption determination — Ohio.
Effective July 23,1990, the board has
determined that the following provision in the
state law of Ohio is preempted by the federal
law:
• Section 4112.021(B)(1)—Unlawful
discriminatory practices in credit
transactions. This provision is preempted to
the extent that it bars asking or favorably
considering the age of an elderly applicant;
prohibits the consideration of age in a credit
scoring system; permits without limitation the
consideration of age in real estate
VOL. 55. NO. 229, pp. 49391-49397
transactions; and limits the consideration of
age in special-purpose credit programs to
certain government-sponsored programs
identified in the state law.
* * * * *
Board of Governors of the Federal Reserve
System, November 21,1990.
Jennifer J. Johnson,
Associate Secretary o f the Board.
(FR Doc. 90-27893 Filed 11-27-90; 8:45 am]
BILLING CODE 6210-01-*!
12 CFR Part 226
[Reg. Z; T IL -1 ]
Truth in Lending; Proposed Update to
Official Staff Commentary
Board of Governors of the
Federal Reserve System.
ACTION: Proposed official staff
interpretation.
AGENCY:
The Board is publishing for
comment proposed revisions to the
official staff commentary to Regulation
Z (Truth in Lending). The commentary
applies and interprets the requirements
of Regulation Z and is a substitute for
individual staff interpretations. The
proposed revisions address several
issues, including renewals of home
equity lines, credit card substitution,
and renewable balloon payment
mortgages.
sum m ary:
Comments must be received on
or before January 28,1991.
ADDRESSES: Comments should refer to
Docket No. TIL-1 and be sent to Mr.
William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, Washington, DC 20551. They
may be delivered to Room B-2222 of the
Eccles Building between 8:45 a.m. and
5:15 p.m. weekdays or delivered to the
guard station in the Eccles Building
Courtyard on 20th Street NW. (between
Constitution Avenue and C Street NW.)
any time. All comments received at the
above address will be available for
inspection and copying by any member
of the public in the Freedom of
Information Office Room B-1122 of the
Eccles Building between 9 a.m. and 5
p.m. weekdays.
DATES:
FOR FURTHER INFORMATION CONTACT:
The following attorneys in the Division
of Consumer and Community Affairs, at
(202) 452-3667 or (202) 452-2412: Jane
Ahrens, Sharon Bowman, Leonard
Chanin, Adrienne Hurt, Thomas Noto,
Kurt Schumacher, Mary Jane Seebach,
John Wood. For the hearing impaired
only. Telecommunications Device for
the Deaf (TDD). Eamestine Hill or
Dorothea Thompson, at (202) 452-3544.
Board of Governors of the Federal
Reserve System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
(1) General
The Truth in Lending Act (15 U.S.C.
1601 et seq .) governs consumer credit
transactions and is implemented by the
Board’s Regulation Z (12 CFR part 226).
Effective October 13,1981, an official
staff commentary (TIL-1, supp. I to 12
CFR part 226) was published to interpret
the regulation. The Commentary is
designed to provide guidance to
creditors in applying the regulation to
specific transactions and is updated
periodically to address significant
questions that arise. It is expected that
the proposed update will be adopted in
final form in March 1991 with optional
compliance until the uniform effective
date of October 1,1991, for mandatory
compliance.
(2) Proposed Revisions
The following is a description of the
proposed revisions to the commentary:
Subpart A—General
Section 226.4—Finance Charge
4(a) Definition
Comment 4(a)-2 would be revised to
explain that a tax imposed on a creditor
by a state is a finance charge if the
creditor separately imposes the charge
on the consumer in connection with a
credit transaction (instead of absorbing
the charge as a cost of doing business),
even if the creditor is authorized by the
state to pass the charge on to the
consumer.
Subpart B—Open-End Credit
Section 226.5a—Credit and Charge Card
Applications and Solicitations
5a(b) Required Disclosures
5a(b)(2) Fees for Issuance or
Availability
Comments 5a(b)(2)-l and 5a(b)(2)-2
would be revised to clarify that
disclosures presented in the tabular
format should not include certain
membership fees and fees for
enhancements. 5a(c) Direct-Mail
Applications and Solicitations.
Comment 5a(c)-l would be revised to
correct an error. Under section
226.5a(b)(l)(ii), for direct-mail
applications and solicitations, an
accurate variable annual percentage
rate is one in effect within 60 days
before mailing.
Comment 5a(c)-2 currently indicates
that a single application form can be
used both in direct mailings and in
public locations as “take-ones,”
3
provided the card issuer meets certain
conditions. One of the conditions is that
the form not include the disclosures
referred to in section 226.5a(e)(l) (ii) and
(iii) (the printing date, the statement that
the credit terms are accurate as of that
date and subject to change thereafter,
the statement that the consumer should
contact the issuer for updated
information, and a toll-free telephone
number or a mailing address). The
comment would be revised to give card
issuers more flexibility, in that the
disclosures identified above could either
be omitted or included, provided the
issuer adheres to certain requirements
relating to the accuracy of the credit
terms in each case.
5a(e) Applications and Solicitations
Made Available to General Public
5a(e)(l) Disclosure of Required Credit
Information
Comment 5a(e)(l)-2 would be revised
by making a technical correction.
Currently the comment states that the
disclosures specified in section
226.5a(e)(l)(i), (ii), and (iii) may appear
either in or outside the table containing
the credit term disclosures. Since the
disclosures referred to in section
226.5a(e)(l)(i) are themselves the credit
term disclosures, the comment would be
revised to refer only to section
226.5a(e)(l) (ii) and (iii).
Section 226.5b—Requirements for Home
Equity Plans
Existing comments 5b-2 through 5b-5
would be redesignated as comments 5b3 through 5b-6, respectively. New
comment 5b-2 would be added to
provide guidance on when changes to a
home equity plan are governed by the
change in terms rules in section 226.9(c),
and when changes constitute a new plan
requiring completely new disclosures.
5b(d) Content of Disclosures
5b(d)(4) Possible Actions by Creditor
Paragraph 5b(d)(4)(iii)
A technical change would be made to
comment 5b(d)(4)(iii)-l to provide
guidance concerning the ability of
creditors to retain the right to freeze a
line of credit if the maximum annual
percentage rate is reached. This
provision is added in light of the recent
amendment to section 226.5b(f)(3)(i) (55
FR 38310, September 18,1990; correction
notice at 55 FR 39538, September 27,
1990). That amendment permits a
creditor to provide in its initial
agreement that further advances will be
prohibited or the credit limit reduced
when the maximum annual percentage
rate is reached.
5b(d)(5) Payment Term9
Paragraph 5b(d)(5)(iii)
Comment 5b(d)(5)(iii}-4 would be
revised to clarify the treatment of
reverse mortgages with shared
appreciation features. The comment
would correct a cross reference. A
reverse mortgage with an appreciation
feature is not a variable rate plan if the
underlying interest rate is fixed. As
discussed in the commentary to section
226.6(a)(2), a plan is variable rate only if
the rate may change. Under open-end
credit, the rate is not affected by a
shared appreciation feature.
5b(d) (8) Fees Imposed by Third Parties
to Open a Plan
Comment 5b(d)(8)~2 would be revised
to clarify that while a creditor must
always state the total of third party fees,
the total sum need not include costs for
property insurance if the creditor
discloses that such insurance is
required. The comment also would
clarify that an itemization of third party
fees provided in response to a
consumer’s request must contain the
disclosure about property insurance.
(The creditor either may disclose the
amount of the premium or state that
property insurance is required.)
5b(f) Limitations on Home Equity Plans
Paragraphs 5b(f)(3)(i) and (vi)
Comments 5b(f)(3)(i]-l and
5b(f)(3)(vi)-l would be revised in light of
the recent amendments to section
226.5b(f)(3)(i) and 226.5b(f)(3)(vi). These
amendments permit a creditor to
provide in its initial agreement that
further advances will be prohibited or
the credit limit reduced when the
maximum annual percentage rate is
reached.
Section 226.6—Initital Disclosure
Statement
6(e) Home Equity Plan Information
Comment 6(e}-4 would be revised to
clarify that when disclosures are the
same for the draw and repayment
phase, creditors need not explicitly state
that the information applies to both
phases, as long as this fact is clear.
Section 226.9—Subsequent Disclosure
Requirements
9(c) Change in Terms
Paragraph 9(c)(1) Written Notice
Required
Section 226.9(c)(1) requires creditors
to provide a notice whenever any term
required to be disclosed under section
226.6 is changed. Section 226.6(e)(7)
requires creditors to give certain
variable-rate and payment examples for
home equity plans, unless the
disclosures provided with the
application were in a form the consumer
could keep and included representative
payment examples covering the
payment option chosen by the
consumer.
Comment 9(c)(l)-6 would be revised
to clarify that if the index is changed,
the maximum annual percentage rate is
increased, or a variable rate feature is
added to a fixed rate plan, the creditor
must give the maximum rate information
required by section 226.5b(d)(12)(x) and
historical example required by section
226.5b(d)(12)(xi), unless these
disclosures are unchanged from those
given earlier. A parenthetical
referencing section 226.30 is included to
alert creditors to the fact that comment
30-11 permits a creditor to increase the
maximum rate on a home equity plan
only for the period after the original
maturity. The comment also would
clarify that if the minimum payment
requirement is changed, the creditor
must give the payment disclosures
required by section 226.5b(d)(5)(iii) (and,
in variable rate plans, the disclosures
required by section 226.5b(12)(x) and
(d)(12)(xi)) unless the disclosures given
earlier contained representative
examples covering the new minimum
payment requirement. As provided
under section 226.5b(f)(3)(iv) (discussing
beneficial changes), a creditor may offer
the consumer the option of making
lower payments without giving a change
in terms notice.
Section 226.12—Special Credit Card
Provisions
12(a) Issuance of Credit Cards
Comment 12(a)(2}-2 currently
indicates that a card issuer may replace
one card with an unsolicited substitute
card in a number of instances, including
where credit features are added or
changed. The comment would be
revised to explain that certain
replacements are not considered
permissible substitutions for purposes of
section 226.12(a). The proposed revision
provides that certain additions or
changes may so alter an underlying
credit card account relationship that the
unsolicited replacement of the card on
the original account by a new card
cannot be deemed to be a substitution,
and is impermissible. Such a situation
w'ould occur, for example, if a second
credit account is established that will be
accessed by the same card and for
which the creditor must give initial
disclosures to the cardholder.
4
Section 226.16—Avertising
16(d) Additional Requirements for Homp
Equity Plans
Comment 18(d)-4 would be revised to
clarify that creditors may state, for
example, “no closing costs” in cases
where property insurance may be
required as long as the creditor includes
a disclosure that such insurance may be
required. Such treatment would address
the concern that, in many cases,
insurance already is being carried on the
property, and would parallel the
treatment of such insurance in other
parts of the regulation.
Subpart C—Closed-End Credit
Section 226.17—General Disclosure
Requirements
17(a) Form of Disclosures
Paragraph 17(a)(1)
There have been occasional requests
(particularly by creditors using multi
purpose disclosure forms) to allow
disclosure of the assumability of nonresidential mortgage transactions.
Comment 17(a)(1)— would be revised to
5
indicate that a creditor may disclose in
the segregated disclosures (“federal
box”) whether or not a secured credit
transaction is assumable (even if the
transaction is not a residential mortgage
transaction).
17(c) Basis of Disclosures and Use of
Estimates
Paragraph 17(c)(1)
Comment 17(c)(1)— would be revised
11
to provide additional guidance on when
a renewable loan with a balloon
payment (formerly referred to as a
“renegotiable-rate” mortgage
instrument) should be disclosed as a
long-term variable-rate loan as opposed
to a short-term balloon loan. The
comment would provided that such
loans should be disclosed as variablerate transactions when the creditor is
either unconditionally obligated to
renew the loan or is obligated to renew
subject only to conditions within the
consumer’s control. The proposed
comment provides examples of
conditions within the consumer’s control
and those outside the consumer’s
control. As an example of applying the
analysis, the Federal National Mortgage
Association (FNMA) seven-year
expendable balloon product (which
provides that the creditor need not
renew if the rate would be more than 5%
higher than the initial loan rate) would
be disclosed as a balloon payment loan
and not as a variable-rate transaction.
Section 226.19—Certain Residential
Mortgage Transactions
19(b) Certain Variable-Rate
Transactions
Comment 19(b)— provides factors to
3
determine whether or not a transaction
involves an “intermediary agent or
broker,” which affects the timing rules
for certain disclosures. The factors look
to whether there is a relationship
between the creditor and the broker in
which the creditor has knowledge of and
exercises control over the broker’s
actions. The third factor describing the
amount of work completed by the broker
would be revised to recognize that a
large amount of work performed by a
broker may not necessarily evidence
this sort of relationship. For example, for
purposes of this factor, a broker’s
submission of a completed loan package
to a creditor may not indicate a close
relationship between the two if such a
practice is customary in a particular
area.
Comment 19(b)— would be revised to
5
parallel the proposed revisions to
comment 17(c)(1)— describing
11
renewable balloon-payment mortgage
instruments.
Section 226.20—Subsequent Disclosure
Requirements
29(a) Refinancings
Comment 20(a)-3 would be revised to
reflect the name change for describing a
renewable balloon-payment mortgage
(formerly referred to as a “renegotiablerate” mortgage) in proposed comments
17(c)(l)-ll and 19(b)-5.
20(c) Variable-Rate Adjustments
An issue concerning the accuracy of
adjustments made to variable-rate loans
has arisen in recent months. Concern
has been raised that some creditors may
not be adjusting such loans consistent
with the terms of the underlying legal
obligation, resulting in inaccurate
interest rate and payment adjustments.
Just as rate and payment adjustments
must reflect the terms of the legal
obligation, the subsequent disclosures
under Regulation Z, required for certain
variable-rate transactions, must reflect
the terms of the legal obligation. Section
226.20(c) requires disclosures to be
provided to consumers in cases where
the interest rate is adjusted in variablerate transactions subject to section
226.19(b), including disclosures about
the new interest rate and payment.
Comment 20(c)— would be added to
3
reiterate that the general requirement of
section 226.17(c)(1), that disclosures
reflect the terms of the legal obligation
between the parties, applies to the
disclosures for variable rate
transactions required under section
226.20(c). Thus, for example, disclosures
about the new interest rate and payment
must be based on the index type and
index value specified in the legal
obligation.
2. C osts of doing b u sin ess. * * *
• A tax im posed by a state on a creditor is
a finance charge if the creditor separately
im poses the charge on the consum er, even if
the state perm its the creditor to p a ss the tax
on the consum er.
★
*
*
*
★
Subpart D—Miscellaneous
Subpart B—Open-End Credit
Section 226.28—Effect on State Laws
28(a) Inconsistent Disclosure
Requirements
Comment 28(a)-15 would be added to
reflect the Board’s recent determination
of the effect of the Truth in Lending Act
and Regulation Z on certain provisions
of the law of Wisconsin dealing with
disclosures for home equity plans and
the right of a creditor to accelerate the
outstanding balance when a
nonapplicant spouse terminates a plan.
The notice of this determination was
published at 55 FR 31815 (August 6,
1990).
Section 226.30—Limitation on Rates
Comment 30-1 would be revised to
reflect the name change for describing a
renewable balloon-payment mortgage
(formerly referred to as a “renegotiablerate” mortgage) in proposed comment
17(c)(1)—
11.
Section 226.5a—Credit and Charge Card
Applications and Solicitations
List of Subjects in 12 CFR Part 226
Advertising, Banks, Banking,
Consumer protection, Credit, Federal
Reserve System, Finance, Penalties,
Rate limitations, Truth in Lending.
Certain conventions have been used
to highlight the proposed revisions. New
language is shown inside bold-faced
arrows, while language that would be
deleted is set off with brackets.
(3) Text of Proposed Revisions
Pursuant to authority granted in
section 105 of the Truth in Lending Act
(15 U.S.C. 1604 as amended), the Board
proposes to amend the official staff
commentary to Regulation Z (12 CFR
part 226 Supp. I) as follows:
PART 226—[AMENDED]
1. The authority citation for part 226
continues to read:
Authority: Truth in Lending Act, 15 U.S.C.
1604 affd sec. 2, Pub. L. 100-583,102 Stat.
2960; sec. 1204(c), C om petitive Equality
Banking A ct, 12 U.S.C. 3806.
Subpart A—General
Section 226.4—Finance Charge
2 . Comment 4(a)-2 would be amended
by adding a second bullet after the first
bullet to read as follows:
4(a) Definition.
★
★
★
★
*
5
3. Comments to 5a(b)(2) would be
amended by revising the third sentence
in comment 5a(b)(2)-l, and by revising
comment 5a(b)(2)-2 to read as follows:
5a(b) Required Disclosures
*
*
*
*
*
5a(b)(2) Fees fo r Issuance or A vailability
1. M embership fees. * * * Such a fee
► sh ou ld -* [ n e e d ] not be d isclo sed ►in the
t a b l e s if m em bership results m erely in
eligibility to apply for an account.
2. E n h a n c e m e n t s . F ees for optional services
in addition to b asic m em bership privileges in
a credit or charge card account (for exam ple,
travel insurance or card-registration services)
► sh ou ld -* [ n e e d ] not be d isclo sed ►in the
tab le-* [u n d er this p aragrap h ] if the b asic
account m ay be opened w ithout paying such
fees.
★
*
★
*
*
4. Comments to 5a(c) would be
amended by revising the second
sentence in comment 5a(c)-l, and by
revising the third sentence and adding a
new sentence after the third sentence in
comment 5a(c)-2 to read as follows:
5a(c) D irect-M ail Applications and
Solicitations
1. A c c u r a c y . * * * (An accurate variable
annual percentage rate is one in effect within
E 3 0 ] ► 60-* d ays before m ailing.)
2. M ailed publications. * * * In addition, a
card issuer m ay u se a single app lication form
as a “take-on e” (in racks in public locations,
for exam ple) and for direct m ailings, if the
card issu er com p lies w ith the requirem ents of
section 226.5a(c) even w hen the form is used
as a “take-on e”— that is, by [p ro v id in g
current inform ation a n d ] presenting the
required ► section 226.5a(b)-* d isclosu res in
a tabular format [ a n d elim inate the
inform ation required under section
226.5a(e)(l)(ii) and ( iii) ] . ► W hen used in a
direct m ailing, the credit term disclosu res
must be accurate as o f the m ailing date
w hether or not the section 226.5a(e)(l)(ii) and
(iii) d isclosu res are included; w h en used in a
take-one, the d isclosu res must be accurate for
as long as the take-one forms remain
availab le to the public if the section
226.5a(e)(l)(ii) and (iii) d isclosu res are
om itted. (If those d isclosu res are included in
the take-one, the credit term disclosu res need
only be accurate as of the printing date.)-*
*
*
*
*
★
5. Comment 5a(e)(l)-2 would be
revised to read as follows:
5a(e) Applications and Solicitations Made
A vailable to General Public
*
*
*
*
*
5 a(e)(l) Disclosure o f Required Credit
Information
*
*
*
*
*
2. Form o f disclosures. The d isclosu res
sp ecified in section 2 2 6 .5 a ( e ) [ ( i) ,] ( ii) [ ,]
and (iii) m ay appear either in or outside the
table containing the required credit
disclosures.
*
*
*
*
*
6. Comments 5b-2 through 5b-5 would
be redesignated as comments 5b-3
through 5b-6, respectively, and new
comment 5b-2 would be added to read
as follows:
Section 226.5b— Requirements fo r Home
Equity Plans
*
*
*
*
*
Changes to home equity plans entered
into on or after November 7,1989. S ection
2.
226.9(c) ap p lies if, by w ritten agreem ent
under section 226.5b(f)(3)(iii), a creditor
changes the terms of a hom e equity plan
before its schedu led expiration, for exam ple,
b y renew ing a plan on different terms. A n ew
plan results, h ow ever, if the plan is ren ew ed
(w ith or w ithout changes to the terms) after
the schedu led expiration. The n ew plan is
subject to all open-end credit rules, including
sectio n s 226.5b, 226.6, and 226.15.-*
*
*
*
*
*
7. Comment 5b(d)(4)(iii)-l would be
amended by revising the fourth sentence
to read as follows:
5b(d) Content o f D isclosures
*
*
*
*
*
5b(d)(4) Possible Actions by Creditor
*
*
*
*
*
Paragraph 5b(d)(4)(iii)
1. Disclosure o f conditions. *
* * A s an
alternative to d isclosin g the con d ition s in this
m anner, the creditor m ay sim ply describe the
con d ition s using the language in section
226.5b(f)(2)^, 226.5b(f)(3)(i) (regarding
freezing the line w h en the m axim um annual
percentage rate is reached),-* and
226.5b(f)(3)(vi) or language that is
su b stan tially similar.
*
*
*
*
and by adding a new sentence after the
fourth sentence to read as follows:
Section 226.9—Subsequent Disclosure
Requirements
5b(d)(8) Fees Imposed by Third Parties to
Open a Plan
13. Comment 9(c)(1)— would be
6
amended by revising the heading, by
revising the first, and by adding three
new sentences after the first sentence to
read as follows:
*
*
*
*
*
2. Itemization o f third-party fees. In all
c a s e s creditors must state the total of thirdparty fees as a single dollar am ount or a
range ► except that the total n eed not include
co sts for property insurance if the creditor
d isclo ses that such insurance is
required-*. * * * ► Any item ization
provided upon the consum er’s request m ust
include the disclosu re about property
insurance (either the am ount o f the premium
or the fact that property insurance is
required).-*
*
*
*
*
*
10. Comment 5b(f)(3)(i)-2 would be
amended by revising the first sentence,
and by adding a new sentence after the
first sentence to read as follows:
5b(f) Limitations on Home-Equity Plans
*
*
*
*
*
Paragraph 5b(f)(3)(i)
1. Changes provided fo r in the agreement.
A creditor m ay provide in the initial
agreem ent [ f o r ] ► that further ad van ces w ill
b e prohibited or the credit line reduced
during an y period in w h ich the m axim um
annual percentage rate is reached. A creditor
a lso m ay provide for other-* sp ecific ch an ges
to take p lace upon the occurrence o f sp ecific
even ts. * * *
*
* * * *
11. Comment 5b(f)(3)(vi}-l would be
amended by revising the first sentence
and by adding a new sentence after the
first sentence to read as follows:
Paragraph 5b(f)(3)(vi)
1. Suspension o f credit privileges or
reduction of credit limit. A creditor m ay
prohibit additional ex ten sio n s of credit or
reduce the credit lim it in the circum stances
sp ecified in ► this section of-* the regulation.
►In addition, as d iscu ssed under section
226.5b(f)(3)(i), a creditor m ay contractually
reserve the right to take such action w h en the
m axim um annual p ercentage rate is
reach ed .-* * * *
*
*
*
*
*
* * * *
8. Comment 5b(d)(5)(iii)— would be
4
amended by revising the second
sentence in the fourth bullet to read as
follows:
Section 226.6—Initial Disclosure
Statement
12. Comment 6(e)-4 would be
amended by revising the third sentence
to read as follows:
5b(d)(5) Payment Terms
6(e) Home Equity Plan Information
*
*
*
*
*
*
*
*
*
*
Reverse mortgages * * *
4.
The appreciation feature must be
d isclo sed in accord an ce w ith ► this-* section
[2 2 6 .5 b (d )(1 2 )].
•
*
*
*
*
* * * *
9. Comment 5b(d)(8)-2 would be
amended by revising the first sentence,
*
*
*
4.
Paragraph 5b(d)(5)(iii)
*
*
D isclosures fo r the repayment
period. * * * To the extent the
corresponding annual percentage rate, the
information in footnote 12, and any other
required disclosures are the same for the
draw and repayment phase, the creditor need
not repeat such information, as long as [the
disclosure clearly states] ►it is clear-* that
the information applies to both phases.
*
*
*
*
*
6
9(c) Change in Terms:
*
*
*
*
*
9(c)(1) Written notice required.
*
*
*
*
*
[H om e-equityplans.] ► Changes to
home-equity plans. •* [ I f a creditor ren ew s
6.
the draw period for a hom e equity p la n ]
► S ection 226.9(c) applies w hen, by w ritten
agreem ent under section 226.5b(f)(3)(iii), a
creditor ch an ges the term s o f a hom e equity
plan before its schedu led expiration, for
exam ple, by renew ing a p lan -* on term s
different from those o f the original plan [ , the
requirem ents o f section 226.9(c) apply to such
a c h a n g e ]. ►In d isclosin g the change:
• If the in d ex is changed, the m aximum
annual p ercentage rate is in creased (to the
lim ited exten t perm itted by sectio n 226.30), or
a variable-rate feature is added to a fixedrate plan, the creditor must include the
d isclosu res required b y sectio n
226.5b(d)(12)(x) and (d)(12)(xi), u n less these
d isclosu res are unchanged from th ose given
earlier.
• If the minimum paym ent requirem ent is
changed, the creditor m ust include the
d isclosu res required by section
226.5b(d)(5)(iii) (and, in variable-rate plans,
the d isclosu res required by section
226.5b(d)(12)(x) and (d)(12)(xi)) u n less the
d isclosu res given earlier contained
rep resen tative exam p les covering the n ew
minimum paym ent requirement. (See the
com m entary to section 226.5b(d)(5)(iii),
(d)(12)(x), and (d)(12)(xi) for a d iscu ssion o f
representative exam p les.)-* * * *
*
*
*
*
*
Section 226.12—Special Credit Card
Provisions
14. Comment 12(a)(2)-2 would be
amended by adding two sentences at
the end of the third bullet to read as
follows:
12(a) Issuance o f credit cards.
*
*
*
*
*
Paragraph 12(a)(2)
*
*
*
*
*
2.
Substitution — examples.
•
*
*
*
*
*
*
*
*
If, however, in changing the credit or other
features available on the account, a new
open-end credit card account is opened
(which would require initial disclosures to be
given), the unsolicited replacement of one
card with another is not a permissible
substitution. For example, if a retail card
issuer replaces its credit card with a co
branded bank card and the creditors
maintain two separate accounts, the
replacement card cannot be provided to
consum ers w ithout solicitation sin ce the
addition o f the bank card account w ould
require initial disclosure under § 226.6.
*
*
*
*
*
Section 226.16—Advertising
15.
Comment 16{d}-4 would be
amended by adding two new sentences
after the second sentence to read as
follows:
16(d) Additional Requirements for Home
Equity Plans
*
*
*
*
*
4. Misleading terms prohibited. * * * ►In
the case of property insurance, however, a
creditor may state, for example, “no closing
costs” even if property insurance may be
required, as long as the creditor also provides
a statement that such insurance may be
required. (See the commentary to this section
regarding fees to open a plan.) *
* * * * *
Subpart C—Closed End Credit
18. Comment 17(a){l)-5 would be
amended by adding a bullet after the
thirteenth bullet to read as follows:
Section 226.17—General Disclosure
Requirements
17[a) Form of disclosures
Paragraph 17(a)(1).
*
*
5.
*
*
*
Directly related.
* * *
• A statement whether or not a subsequent
purchaser of the property securing an
obligation may be permitted to assume the
remaining obligation on its original terms.
* * * * *
17. Comment 17{c)(l}-ll would be
amended by revising the first bullet to
read as follows:
17(c) Basis of disclosures and use of
estimates
Paragraph 17(c)(1)
*
*
11.
*
*
*
Other variable-rate transactions. * * *
• [Renegotiable-rate mortgage
instruments that involve a series of short
term loans secured by a long-term
obligation,] ►Renewable balloon-payment
instruments* where the Cinder is]
►creditor is unconditionally* obligated to
renew the short-term loan[s] at the
consumer’s option ►(or is obligated to renew
subject to conditions within the consumer's
control) and at* [. At] the time of renewal,
the [lender] ►creditors has the option of
increasing the interest rate. Disclosures must
be [given for the longer term of the
obligation] ►based on the payment
authorization (unless the specified term of the
obligation with renewals is shorter)*, with
all disclosures calculated on the basis of the
rate in effect at the time of consummation of
the transaction. ►Examples of conditions
within a consumer's control include
requirements that a consumer be current in
payments or continue to reside in the
mortgaged property. In contrast, setting a
limit on the rate at which the creditor would
be obligated to renew or reserving the right to
change the credit standards at the time of
renewal are examples of conditions outside a
consumer’s control. Thus, for example,
language in the obligation allowing the
creditor to obtain a credit report at the time
of renewal to verify the continuation of the
consumer’s credit standing would not affect
disclosure of the transaction as a long term
variable-rate obligation. If the obligation
permits the creditor to apply a new credit
standard at the time of renewal, however, the
transaction must be disclosed as a short-term
balloon-payment loan.*
* * * * *
Section 226.19—Certain Residential
Mortgage and Variable-Rate
Transactions
18. Comment 19(b)— would be
3
amended by revising the third bullet and
the paragraph following that bullet to
r°°d as follows:
19(b) Certain Variable-Rate Transactions.
*
*
*
*
*
3. Intermediary agent or broker. * * *
• The amount of work (such as document
preparation) the creditor expects to be done
by the broker cm an application based on the
creditor’s prior dealings with the broker and
on the creditor's requirements for accepting
applications ►, taking into consideration the
customary practice of brokers in a particular
area*. The more [preparation] ►work-*
that the creditor expects the broker to do on
an application, ►in excess of what is usually
expected o f a b r o k e r in that area.* the less
likely it is that the broker would be
considered an “intermediary agent or broker”
of the creditor.
An example of an “intermediary agent or
broker” is a broker who, customarily within a
brief period of time after receiving an
application, inquires about the credit terms of
several creditors with whom the broker does
business and submits the application to one
of them. The broker is responsible for only a
small p e r c e n ta g e o f th e a p p l i c a t i o n s r e c e iv e d
by that creditor. During the time the broker
has the application, it might request a credit
report and an appraisal ►(or even prepare an
entire loan package if customary in a
particular area)-4.
*
* * * *
19. Comment 19(b)-5 would be
amended by revising the first bullet to
read as follows:
5 . Examples of variable-rate transactions.
*
*
*
• [Renegotiable-rate mortgage
instruments that involve a series of short
term loans secured by a long-term
obligation,] ►Renewable balloon-payment
instrumentswhere the [lender]
► c r e d i t o r s i s ► u n c o n d itio n a lly - * o b lig a te d
to r e n e w t h e s h o r t- te r m l o a n [ s ) a t t h e
c o n s u m e r ’s o p tio n ► (o r is o b lig a te d to r e n e w
t h e s u b j e c t to c o n d itio n s w ith in t h e
c o n s u m e r ’s c o n tr o l) a n d a t * [ . A t ] t h e tim e
o f r e n e w a l, t h e [ l e n d e r ] ► c r e d i t o r * h a s t h e
o p tio n o f in c r e a s in g t h e in t e r e s t r a t e . ► (S e e
th e c o m m e n ta r y to s e c tio n 228.17(c)(1) o n
7
e x a m p le s o f v a r i a b l e - r a t e t r a n s a c t i o n s f o r
d i s c u s s io n o f c o n d itio n s w ith in a c o n s u m e r ’s
c o n tr o l in c o n n e c tio n w ith r e n e w a b le
b a llo o n - p a y m e n t l o a n s . ) *
*
*
*
*
*
Section 226.19 [Amended]
20. In section 226.19, under
‘‘References,’’ in the paragraph
designated “1981 changes,” the phrase
“ection 226.20—Subsequent Disclosure
Requirements” at the end of the
paragraph would be deleted, and a new
heading "Section 228.20—Subsequent
Disclosure Requirements” would be
added, directly below that paragraph.
Section 226.20—Subsequent Disclosure
Requirements
21. Comment 20(a)-3 would be
amended by revising the second
sentence to read as follows:
20(a) Refinancings
*
*
*
*
*
3. Variable rate. * * * F o r e x a m p le , a
[ r e n e g o t i a t e r a t e ] ► r e n e w a b le b a llo o n p a y m e n t * m o rtg a g e t h a t w a s d i s c lo s e d a s a
v a r i a b l e - r a t e t r a n s a c t i o n is n o t s u b je c t to
n e w d is c lo s u r e r e q u ir e m e n ts w h e n th e
v a r i a b l e - r a t e f e a t u r e i s in v o k e d .
*
*
*
*
*
22. Comment 20(c)-3 would be added
to read as follows:
* * * * *
20(c) Variable-Rate Adjustments
*
*
*
*
*
3. Legal obligation. T h e d i s c lo s u r e s
r e q u ir e d u n d e r th is s e c tio n m u s t r e f le c t th e
te r m s o f t h e p a r t i e s ’ le g a l o b lig a tio n , a s
r e q u ir e d u n d e r s e c tio n 226.17(c)(1).
*
*
*
*
*
Subpart D—Miscellaneous
Section 22628—Effect on State Laws
23. Comment 28(a)-15 would be added
to read as follows:
28(a) Inconsistent disclosure requirements
*
*
*
*
*
15. Preemption determination— Wisconsin.
E ffe c tiv e O c to b e r 1 ,1 9 9 1 , th e B o a rd h a s
d e te r m in e d th a t th e f o llo w in g p r o v is io n s in
th e s t a t e la w o f W i s c o n s in a r e p r e e m p te d b y
th e f e d e r a l la w :
• S e c tio n 422.308(1)— th e d is c lo s u r e o f th e
a n n u a l p e r c e n ta g e r a t e in c a s e s w h e r e t h e
a m o u n t o f th e a n n u a l p e r c e n ta g e r a t e
d is c lo s e d to c o n s u m e r s u n d e r th e s t a t e la w
d if fe r s fro m th e a m o u n t th a t w o u ld b e
d i s c lo s e d u n d e r f e d e r a l la w , s i n c e in th o s e
c a s e s th e s t a te la w r e q u ir e s th e u s e o f th e
s a m e te r m a s th e f e d e r a l la w to r e p r e s e n t a
d if f e r e n t a m o u n t th a n t h e f e d e r a l la w .
• S e c tio n 766.565(5)— t h e p r o v is io n
p e r m ittin g a c r e d ito r to i n d u d e in a n o p e n e n d h o m e e q u ity a g r e e m e n t a u th o r iz a tio n to
d e c la r e th e a c c o u n t b a l a n c e d u e a n d p a y a b le
u p o n re c e iv in g n o tic e o f te r m in a tio n (bom a
n o n - o b lig o r s p o u s e , s i n c e s u c h p r o v is io n is
inconsistent with the purpose of the federal
law. s
*
*
*
*
*
fourth bullet to read as follows:
1.
S c o p e o f co v e ra g e . * * *
• * * * (Contrast with the [renegotiablerate] ►renewable balloon-payments
instrument described ' ; comment 17(c)(1)-
Section 226.30—Limitation on Rates
24.
Comment 30-1 would be amended ( 11 .)
* *
by revising the second sentence in the
*
*
Board of G overnors of the Federal R eserve
System , N ovem ber 21,1990.
Jennifer J. Johnson,
A s s o c ia t e S e c r e ta r y o f th e B o a rd .
[FR Doc. 90-27894 Filed 11-27-90; 8:45 am]
BILLING CODE 6210-01-M
*
8
@FedFRASER