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FEDERAL RESERVE BANK OF N E W YORK Interpretations of Regulation Z - - C ir cu la r No ro. 6406~| Septem ber 19, 1969 - - - - - in the Second Federal Reserve D istrict: Printed below is an excerpt from the Federal Register of September 18, containing the text of three interpretations, including a technical change in an interpretation issued previ ously, by the Board of Governors of the Federal Reserve System of provisions in its Truth in Lending Regulation Z. [ Additional copies of this circular will be furnished upon request. Alfred Hayes, President. Title 12— BANKS AND BANKING Chapter II— Federal Reserve System SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. Z] PART 226— TRUTH IN LE N D IN G M iscellan eou s Interpretations Interpretation § 226.405 is am ended to read as follow s: § 226.405 Property insurance written in connection with a transaction----ob tained from or through the creditor. (a ) F ootn ote 4 to § 226.4(a) (6) speci fies th at a policy o f insurance against loss or dam age to property or liability arising out o f its use is n ot considered to be “ w ritten in con n ection w ith” a transaction w hen it “ * * * was n ot pu r chased by the custom er fo r the purpose o f being used in con n ection w ith that extension o f credit.” T herefore, w hen ever such a policy is purchased by the custom er fo r the purpose o f being used in con n ection w ith a specific extension o f credit, it is insurance "w ritten in c o n n ection w ith” that transaction. (b ) I f the custom er elects to purchase such insurance otherwise th an from or th rough the creditor, the creditor is n ot required to disclose the cost o f the insur an ce or include the prem ium in the fi nan ce charge. However, if the cost o f such insurance is to be fin an ced th rough the creditor, the prem ium s m ust be in cluded in the “ am ount fin an ced” and dis closed under § 226.8 (c) (4) or (d ) (1 ), as the case m ay be. (Interprets and applies 15 U.S.C. 1605) § 226.504 Treatment o f “ pick-up pay ment” in an installment contract. (a) In som e instances involving an in stallm ent con tra ct arising from a credit sale, the purchaser m ay n ot pay the full am ount o f th e required dow npaym ent at the tim e he signs the con tra ct or oth er wise enters in to the credit transaction. In such cases, the creditor m ay include in the installm ent con tra ct or accept a separate obligation fo r the unpaid p o r tion o f th e dow npaym ent, com m on ly called a “ p ick -u p paym en t,” the am ount o f w hich usually carries n o finance ch arge and it is to be paid on o r before a specified date independent o f the other scheduled paym ents. (b ) T h e question arises w hether the “ p ick -u p pa ym en t” m ust be treated as pa rt o f th e “ am oun t fin an ced ” fo r pu r poses o f disclosure and determ ination o f the “ annual percentage rate” or w hether It m ay be treated as a deferred portion o fFRASER the dow npaym ent. Digitized for (c ) In determ ining the “ am ount fi n an ced” the creditor m ay exclude the am ount o f the “ p ick -u p paym en t” p ro vided t h a t: (1) T h e am ount o f the finance charge applicable to the transaction does n ot exceed the am ount th at w ould have been im posed h ad the required dow npaym ent been paid in fu ll upon consum m ation o f the tran saction ; and (2) T h e due date o f the “ p ick -u p pa y m en t” is n ot later th an the due date o f the second paym ent otherwise scheduled. (d) In m aking the disclosures required under § 226.8(b) (3 ), if such “ pick -u p paym en t” is m ore than tw ice the am ount o f an otherwise regularly scheduled equal paym ent, the creditor shall state the c o n ditions, if any, under w hich such “ p ick up paym en t” m ay be refinanced if not paid w hen due; and such “ p ick -u p p a y m en t” m ay be identified using th at term or the term “ balloon paym ent.” (Interprets and applies 15 U.S.C. 1606) § 226.505 Application o f the m inor ir regularities provisions in determin ing the amount o f the finance charge. (a) Som e creditors calculate finance charges in a credit transaction on the basis o f predeterm ined percentage rate or rates, e.g., 1 percent per m on th on the unpaid balances. D eterm ination o f the am ount o f the finance charge is fairly routine fo r these creditors if th e c o n tracts are w ritten fo r regular paym ents at regular intervals. However, m any times the first paym ent m ay be irregular either in am ount or paym ent period, or both, especially in those instances where creditors require paym ents to fall due on fixed dates or those w ho are paid by m eans of payroll deductions. T h e m inor irregularities provisions o f § 226.5(d) o f the R egulation and § 226.503 o f the in ter pretations to R egu lation Z, w hich p er tain to the determ ination o f the annual percentage rate, also apply to the de term ination o f the finance charge. F or convenient reference, the applicable p r o visions o f §§ 226.5(d) and 226.503 as they apply to the determ ination o f the finance charge are set fo rth below. (b ) In determ ining the fin an ce ch a rg e, a creditor may, at his option, consider the paym ent irregularities set forth be low in subparagraphs (1) and (2) o f this paragraph as if they were regular in am ount or time, as applicable, provided th at the tran saction to w hich they relate is otherwise payable in equal installm ents scheduled at equal intervals. (1) I f the period from the date on w hich the finance ch arge begins to a c crue and the date the final paym ent is due is n ot less than 3 m onths in the case o f weekly paym ents, 6 m on th s in the case o f biweekly or sem im onthly pa y ments, or 1 year in the case o f m onthly paym ents either or both o f the follow in g: (1) The am ount o f one paym ent other than any dow npaym ent is n ot m ore than 50 percent greater n or 50 percent less than the am ount o f a regular paym ent; or (ii) The interval between the date on w hich the finance charge begins to a c crue and the date the first paym ent is due is n ot less than 5 n or m ore than 12 days fo r an obligation otherwise payable in weekly installm ents, not less than 10 nor m ore than 25 days for an obligation otherwise payable in biweekly or sem i m onthly installments, or n ot less than 20 n or m ore than 50 days for an obli gation otherwise payable in m onthly installm ents. (2) If the period from the date on w hich the finance charge begins to a c crue and the date the final paym ent is due is less than 3 m onths in the case o f weekly paym ents, 6 m onths in the case o f biweekly or sem im onthly payments, or 1 year in the case o f m onthly payments, either or both o f the follow in g: (i) T h e am ount o f one paym ent other than any dow npaym ent is n ot m ore than 25 percent greater nor 25 percent less than the am ount o f a regular paym ent; or (ii) T h e interval between the date on w hich the finance charge begins to a c crue and the date the first paym ent is due is n ot less than 6 nor m ore than 10 days for an obligation otherwise payable in weekly installments, n ot less than 12 nor m ore than 21 days for an obligation otherwise payable in biweekly or sem i m onthly installm ents, or n ot less than 25 nor m ore than 42 days fo r an ob liga tion otherwise payable in m onthly installm ents. (e) F or the purposes o f § 226.8<b) (3) in disclosing the num ber, am ount and due dates or periods o f paym ents sch ed uled to repay the indebtedness and the “ total o f paym ents,” the creditor may treat such irregular paym ents or pa y m ent periods, or both, as if they were regular. I f the creditor so elects, he may indicate the exact am ount or paym ent period involved in the m inor irregularity. (Interprets and applies to 15 U.S.C. 1605) D ated at W ashington, D.C., the 11th day o f Septem ber 1969. By order o f the B oard o f G overnors. [seal] R obert P. F orrestal , Assistant Secretary. [F.R. Doc. 69-11105; Filed, Sept. 17, 1969; 8:45 a.m.]
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