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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No.
10634 1
A pril 16, 1993
T R U T H IN LE N D IN G
Amendments to the Official Commentary on Regulation Z
To All Depository Institutions in the Second Federal
Reserve District, and Others Concerned:
The following is from the text of a statement issued by the Board of G overnors of the Federal
Reserve System:
T h e F ed eral R e se r v e B oard has p u b lish ed r e v isio n s to its s ta ff co m m en ta ry to R eg u la tio n Z (Truth
in L en d in g ). T h e ru les are e ffe c tiv e im m ed iately, but c o m p lia n c e is o p tio n a l u n til O cto b er 1, 1 9 9 3 .
T h e r e v isio n s ad d ress th e interplay b e tw e e n th e Truth in L en d in g ru les on d em a n d featu res and o th er
F ed eral ru les d e a lin g w ith cred it e x ten d ed to e x e c u tiv e o ffic e r s o f d e p o sito r y in stitu tio n s, p rovid in g
greater fle x ib ility in c o m p ly in g w ith d isc lo su r e requirem ents. T h e r e v isio n s a lso o ffe r cred itors
a ltern a tiv e m e th o d s o f d is c lo sin g secu rity in terests in rescin d a b le tran saction s.
E nclosed, for depository institutions and others who m aintain sets of the B oard’s regulations,
is a copy of the am endm ents to the official staff com m entary for Regulation Z , as published in the
Federal Register of A pril 1. Additional, single copies may be obtained at this Bank (3 3 Liberty
Street) from the Issues Division on the first floor, or by contacting the Circulars Division (Tel. No.
2 1 2 -7 2 0 -5 2 1 5 or 5216 ).
E. G e r a l d C o r r i g a n ,
President.
BO A R D O F G O V ER N O RS O F T H E F E D E R A L R E SER V E SY STEM
T R U T H IN LEN D IN G
A M E N D M E N T S T O T H E O F FIC IA L STA FF CO M M EN TA RY ON RE G U L A TIO N Z
(Effective April 1, 1993)
Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, Washington, DC 29551,
at (202) 452-3667. For the hearing
impaired only, contact Dorothea
Thompson, Telecommunications Device
for the Deaf (TDD), at (202) 452-3544.
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. T IL -1 ]
Truth in Lending; Update to Official
Staff Commentary
AGENCY: Board of Governors of die
Federal Reserve System.
ACTION: Final rule; o ffic ia l staff
in terp retatio n .
SUMMARY: The Board is revising the
official staff commentary to Regulation
Z (Truth in Lending). The commentary
applies and interprets the requirements
of Regulation Z. The revisions are
limited, and address regulatory
provisions needing clarification or
issues for which there may be a general
need for more guidance. The revisions
address the interplay between the Truth
in Lending rules on demand features
and other federal rules dealing with
credit extended to executive officers of
depository institutions. They provide
greater flexibility in complying with the
disclosure requirements under
Regulation Z in these transactions. The
disclosure rules for security interests
(particularly those in rescindable
transactions) are also clarified. The
commentary offers creditors alternative
methods of disclosing security interests
in rescindable transactions.
OATES: Effective April 1 ,1 9 9 3 ; but
compliance is optional until October 1,
1993.
FOR FURTHER i t FORMATION CONTACT:
Kyung Cho, Jane Cell or Kurt
Schumacher, Attorneys, Division of
(2) Revisions
The following is a description of the
revisions to the commentary:
Subpart A—General
Section 226.2 Definitions and Buies of
Construction
Section 2(a) Definitions
SUPPLEMENTARY INFORMATION:
Section 2(aJ(25J Security Interest
The Board received numerous
(1) General
The Truth in Lending Act (15 U.S.C. questions about the disclosure of
security interests—particularly in
1601 et seq.) governs consumer credit
transactions and is implemented by the rescission notices—and about the
Board’s Regulation Z (12 CFR part 226). appropriate use of the model rescission
form for a refinancing with an original
Effective October 13,1981, an official
staff commentary (TIL-1, Supp. I to 12 creditor. Comment 2(a)(25)-6 is revised
to clarify that disclosures about
CFR part 226) was published to
collateral securing an open-end or
interpret the regulation. The
dosed-end credit transaction need not
commentary is designed to provide
specify how the security interest is
guidance to creditors in applying the
regulation to specific transactions and is taken, for example, by "acquiring” a
new security interest or by "retaining”
updated periodically to address
an existing security interest The
significant questions that arise.
revision expands on an interpretation
The Board published proposed
added in the 1 9 8 9 commentary update
revisions to the official staff
commentary to Regulation Z (Truth in (54 FR 9417, March 7,1989).
Lending) on December 9,1992 (57 FR Commentary to the definition of
"security interest” is revised because of
58159). The Board received 44
its applicability to the security interest
comments on the proposal relating to
demand features in credit transactions disclosures under multiple sections of
to executive officers and disclosure of a the regulation (§§ 226.6, 226.15, 226.18
security interest in rescindable
and 226.23). Sample language is
transactions. Commanters generally
provided to illustrate how a rescission
supported the proposal. Based on a
notice could disclose the fact that a
review of the comments and further
transaction is secured by the consumer's
analysis, the Board is adopting the
home without any additional detail
commentary update which, except for about the security interest.
minor editorial changes, is virtually
The comment refers to the model form
identical to the proposed commentary for rescission of refinancings with an
language. Compliance with the
original creditor (model form H-9) to
commentary revision is optional until illustrate that it adequately discloses the
October 1,1993.
fact of a security interest where a new
PRINTED IN NEW YORK, FROM FEDERAL REGISTER , VOL. 58, NO. 61, pp. 17083-17085
For this Commentary to be com plete, retain:
1) Commentary pamphlet dated April 1, 1990.
2) A m endm ents to Commentary effective April 1, 1991.
3) This slip sheet.
[Enc. Cir. No. 10634]
security interest is acquired (and the
preexisting security interest is replaced
by the new one). As stated in the
Supplementary Information to the 1989
commentary update, comment 2(a){25)6 was intended to clarify “that the
disclosure that an interest is retained, as
in form H-9, is adequate in a
refinancing where a new mortgage is
filed and a new advance is made/' Hie
revision specifically incorporates that
position into the commentary.
The commentary revisions make clear
that the requirements about disclosure
of a security interest in a rescission
notice may be satisfied with either a
generic statement of the fact that the
consumer's home is security for the
transaction or with a more detailed
disclosure about that security interest It
further makes clear, as an alternative to
modifying rescission notices to include
more generic disclosures, that the form
H-9 may be used, without modification,
in any case in which an original creditor
refinances a transaction (whether or not
the refinancing involves keeping in
place an existing security interest for
any period of time or involves taking a
new security interest).
Subpart B—Open-End Credit
Section 226:5b Requirements for
Home-Equity Plans
Section 5b(d) Content of Disclosures
Section 5b(dU4) Possible Actions by
Creditor—Paragraph 5b(d)(4Miul
Comment 5b(d)(4)(ifi)-l is revised to
reflect the amendment to $ 226.5b(fH2)
adopted by the Board in August 1992.
(57 FR 34676. August 6,1992.) The
Board amended the regulation to
provide that a depository institution
may terminate and demand payment of
the balance on any home equity line of
credit extended to its executive officers
to the extent federal law requires that
the credit shall be due and payable on
demand. (See § 226.5b(f)(2)(iv).) For
example, Regulation O contains this
requirement for state member banks of
the Federal Reserve System. (See 12
CFR 215.5.)
In the Supplementary Information
accompanying the amendment, the
Board stated that the regulation requires
that this provision be part of the homeequity agreement, although this feature
is not required to be disclosed with the
preapplication disclosures. The
commentary restates this position.
Section 5b(f) Limitations on Home
Equity Plans—Paragraph 5b(f)(2) Comment 5b(f)(2)-l is revised to
clarify that a creditor may terminate a
plan as provided in § 226.5b(f)(2)(iv).
Section 226.6 Initial Disclosure
Statement
Section 6(e) Home Equity Plan
Information
Comment 6 (e)-l is revised to add a
cross reference to comment 5b(d)(4)(iii)1. This reflects the position taken in the
Supplementary Information of the
August 6,1992 Federal Register notice
that the termination feature in
§ 226.5b(f)(2)(iv) also need not be
specifically disclosed under § 226.6(e).
Appendix G Open-End Model Forms
and Clauses
Comment 4 to Appendix G is revised
to add a cross reference to comment
226.2(a)(25) regarding the specificity of
the security interest disclosure for
model form G-7.
Subpart C—Closed-End Credit
Section 226.18 Content of Disclosures
Section 18(i) Demand Feature
Comment 18(i)—2 is revised to address
how the rule in die Board’s Regulation
O (and other comparable federal
financial regulatory agency rules) relates
to the disclosure rules for demand
features in closed-end credit
transactions. It parallels the treatment of
such features in open-end credit. The
revised comment provides that if an
institution retains the ability to demand
payment of a loan in its closed-end
credit agreement with its executive
officers to the extent required by federal
law, the institution need not provide
demand disclosures. Of course, if an
institution has a demand feature in its
closed-end agreement with its executive
officers that is broader than that
required by federal law, such a feature
would have to be disclosed under
§ 226.18(i).
Section 226.19 Certain Residential
Mortgage and Variable-Rate
Transactions
Section 19(b) Certain Variable-Rate
Transactions
Paragraph (19)(b)(2)(xi).
Demand features must be disclosed in
variable rate mortgages covered by
§ 226.19(b). Since disclosure of a
demand feature for variable-rate
mortgages is determined by reference to
§ 226.18(i). a cross-reference is added to
comment 19(b)(2)(xi)-l dealing with
demand features.
Appendix H Closed-End Model Forms
and Clauses
Comment 11 to Appendix H is revised
2
to add a cross reference to comment
226.2(a)(25) regarding the specificity of
the security interest disclosure for
model form H-9.
List of Subjects in 12 CFR Part 226
Advertising, Reporting and
recordkeeping requirements, Truth in
Lending.
Text of Revisions
For the reasons set forth in the
preamble, the Board is amending the
official staff commentary to 12 CFR part
226. Supplement I as follows:
PART 226— [AMENDED]
1. The authority citation for part 226
is revised to read as follows:
Authority: 1 2 U .S .C 3 8 0 6 , 15 U.S.C. 1 6 0 4
and 1 6 3 7 (c )(5 ); sec. 1 2 0 4 (c ).
Supplement I to Part 226—[Amended]
2. In S u p p lem en t I to part 2 2 6 , u n d er the
h ead in g " 2 ( a ) D e f in it io n s ,” com m en t
2 (a )(2 5 )—6 is am en d ed b y a d d in g fiv e n ew
se n ten ces at th e en d to read as follow s:
2 (a )(2 5 )
S e c u r it y interest.
*
*
*
*
*
6.
S p e c if ic it y o f d is c lo s u re . * * * In
d isc lo sin g the fact that th e transaction is
secu red b y th e collateral, the cred itor a lso
n eed n ot d isc lo s e h o w the secu rity in terest
arose. For exam p le, in a closed -en d cred it
transaction, a r escissio n n o tic e n e e d n ot
sp e c ific a lly state that a n e w secu rity interest
is “ acq u ired ” or an ex istin g secu rity interest
is “ retain ed ” in the transaction.
T h e a cq u isition or reten tion o f a secu rity
in terest in the co n su m er’s p rin cip a l d w e llin g
in stead m ay b e d isc lo se d in a r escissio n
n o tic e w ith a general statem ent su ch as the
follow in g: “Y our h o m e is th e secu rity for the
n e w tran saction .” A statem ent su ch as th is
m ay b e u sed , for exam p le, in stead o f the
se co n d se n ten ce in m o d e l form H - 9 an d
c o u ld a p p ly both to a refin an cing in w h ic h
a n e w secu rity in terest is taken b y the
origin al cred itor to rep lace a p reex istin g
secu rity in terest and o n e in w h ic h an ex istin g
secu rity in terest is m aintain ed . O f co u rse,
b eca u se m o d el form H - 9 ad eq u ately
d isc lo s e s th e fact that th e h o m e is secu rity for
the transaction, it m ay b e u sed w ith o u t
m o d ifica tio n in b oth a refin an cin g in w h ich
a n ew secu rity in terest is taken b y the
origin al creditor to rep lace a p reex istin g
secu rity interest and o n e in w h ic h an existin g
secu rity interest is retain ed b y that creditor.
*
*
*
*
*
3. In S u p p lem en t I to part 2 2 6 , un d er the
h ead in g ” 5 b ( d ) C o n te n t o f D is c lo s u re s ”,
com m en t 5 b (d )(4 )(iii)—1 is am en d ed by
rev isin g the fourth se n ten ce and ad d in g a
se n ten ce after th e fourth se n ten ce to read as
follow s:
P a r a g r a p h 5 b (d )(4 )(iii) .
1. D is c lo s u re o f c o n d itio n s . * * * A s an
altern ative to d isc lo s in g th e c o n d itio n s in
th is m anner, the cred itor m ay sim p ly
describe the conditions using the language in term in ate th e plan, freeze or red u ce the credit
§§ 226.5b(f)(2)(i)—
(iii), 226.5b(f)(3)(i)
lim it, an d im p lem en t sp e c ifie d m od ification s
(regarding freezing the line when the
to th e origin al term s. (S e e com m en t
maximum annual percentage rate is reached), 5 b (d )(4 )(iii)—1.)
ft
ft
ft
ft
ft
and 226.5b(f)(3)(vi) or language that is
substantially similar. The condition
6. In S u p p lem en t I to part 2 2 6 , u n d er the
contained in § 226.5b{f)(2)(iv) need not be
h ead in g " 1 8 (i ) D e m a n d f e a t u r e ," com m ent
stated. * * *
1 8 ( i) - 2 is am en d ed b y a d d in g a n ew sen ten ce
*
*
*
*
ft
at th e en d to read as follow s:
4. In Supplement I to part 226, under the
2. C o v e re d d e m a n d fe a tu re s . * * * A
heading “5b(f) Limitations on Home Equity cred itor m ay, b ut n eed not, treat its
Plans", comment 5b(f)(2)-l is amended by contractual right to d em a n d p aym ent o f a
revising the second sentence to read as
loan m ade to its e x e c u tiv e officers as a
follows:
d em an d feature to the ex ten t that the
con tractual right is required b y R egulation O
Paragraph 5b(f)(2).
(1 2 CFR 2 1 5 .5 ) or o th er federal law.
1. Limitations on termination and
*
*
*
*
*
acceleration. * * * However, creditors may
7.
In
S
u
p
p
lem
en
t
I
to part 2 2 6 , u n d er the
take these actions in the four circumstances
h ea d in g " 1 9 (b ) C e r ta in v a r ia b le -r a te
specified in § 226.5b(f)(2). * * *
t r a n s a c t io n s ," c o m m e n t 1 9 (b )(2 )(x i)—1 is
ft
ft
ft
ft
ft
a m en d ed b y rev isin g th e first se n ten ce to
5. In Supplement I to part 226, under the read as follow s:
heading "6(e) Home Equity Plan
Information", comment 6(e)-l is amended by P a r a g r a p h 1 9 (b )(2 )(x i).
adding a parenthetical at the end to read as
1. D e m a n d fe a tu re . If a variable-rate loan
follows (and the last sentence is reprinted for subject to $ 2 2 6 .1 9 (b ) req u irem en ts con tains
the convenience of the reader):
a d em and feature as d isc u s se d in the
1. Additional disclosures required. * * * com m entary to § 2 2 6 .1 8 (i), th is fact m ust be
Creditors also must disclose a list of the
d isclo sed . * * *
conditions that permit the creditor to
ft
ft
ft
ft
ft
3
8. In S u p p lem en t I to part 2 2 6 , u n d er the
h ead in g " A p p e n d i x G — -O p e n -e n d m o d e l
f o r m s a n d c la u s e s ," com m en t 4 to A p p en d ix
G is a m en d ed b y a d d in g a n e w se n ten ce at
the en d to read as follow s:
4.
M o d e ls G - 5 t h r o u g h G - 9 . * * * S ee the
com m entary to se ctio n 2 2 6 .2 (a )(2 5 ) regarding
the sp ec ificity o f th e secu rity in terest
d isclo su re for m o d e l form G -7.
ft
ft
ft
ft
ft
9. In S u p p lem en t I to part 2 2 6 , u n d er the
h ead in g " A p p e n d i x H — C lo s e d -e n d m o d e l
f o r m s a n d c la u s e s ," co m m en t 1 1 to
A p p en d ix H is a m en d ed b y a d d in g a n e w
sen ten ce at th e en d to read as follow s:
11. M o d e ls H - 8 th r o u g h H - 9 . * * * S ee the
com m entary to se ctio n 2 2 6 .2 (a )(2 5 ) regarding
th e sp ec ificity o f th e secu rity in terest
d isclo su re for m o d e l form H -9.
*
*
*
*
*
Board o f G overnors o f the F ederal R eserve
S ystem , M arch 2 6 , 1 9 9 3 .
William W. Wiles,
S e c re ta ry o f th e B o a r d .
(FR Doc. 9 3 - 7 6 4 6 F iled 3 - 3 1 - 9 3 ; 8 :45 am i
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