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FEDERAL RESERVE BANK OF N EW YORK r C ircu la r N o . 6 4 3 4 1 L N o v e m b e r 7, 1969 J Regulation Z—Amendment and Interpretation To All State Member Banlcs, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued yesterday by the Board of Governors of the Federal Reserve System: The B oard of Governors o f the Federal Reserve System today issued an amendment to its Regulation Z to make it easier fo r agricultural lenders to com ply with the Truth in Lending A ct and insure fu ll and clear descriptions of farm credit transactions. The amendment, effective immediately, provides that where the dates or amounts of payments or advances cannot be determined at the time o f a credit transaction because they are tied to the needs of the farm er as they arise during the year, the creditor may disclose the method of com puting the amount o f the finance charge rather than a total dollar figure. A t the same time, the creditor may omit disclosure of the annual percentage rate but must disclose the number, amount and due dates of the payments and the total amount to be repaid to the extent known. It should be noted that this amendment does not apply to loans fo r agricultural purposes where dates and amounts o f both advances and repayments are known at the time of the transaction. The B oard said a problem arises because some agricultural loans are made on terms governed by p ro duction and seasonal needs that cannot be determined at the time a credit transaction is made. F or example, a bank or other lender might agree at the start o f a grow ing season to advance money to a farm er fo r sup plies at times and in amounts needed during the year to sow, maintain and harvest a crop. Repayment terms are frequently tied to the sale o f crops. In such cases, the dates or amounts of advances or payments cannot be ascertained and consequently the amount of the finance charge, the repayment schedule and sometimes the annual percentage rate must be estimated. These estimates, are, at best, crude and often misleading and in some cases have proven physically impossible to make. The amendment is designed to meet these p rob lems, reduce the burden on agricultural lenders, and insure the customer a clear and fu ll description of his credit transaction. Enclosed is a copy of the amendment. In a companion measure, the Board of Governors approved an interpretation of Regulation Z, a copy of which is printed below. It will be published shortly in the Federal Register and Federal Reserve Bulletin. Additional copies of this circular and its enclosure will be furnished upon request. A lfred H a y e s , President.. § 226.812 Advances* under open end real estate mortgages for agricultural purposes U nder § 226.8(p ) disclosures are permitted in con nection with certain extensions of credit fo r agricul tural purposes which may involve advances under an open end real estate mortgage or similar lien. Section 226.8( j ) in part treats advances for agricultural p u r poses under an open end real estate mortgage or simi lar lien. The question arises as to the respective application o f these paragraphs to such advances. I f an extension o f credit involving multiple ad- vances, whether or not under an open end mortgage, meets the test o f § 226.8 ( p ) , disclosures need on ly be made prior to consummation o f the credit transaction and need not be made at the time o f each individual advance, even though suchr'advance fo r agricultural purposes may not meet the tests in § 226.8( j ) . Con versely, extensions of credit fo r agricultural purposes involving advances under an open end real estate mortgage or similar lien which do not meet the tests fo r disclosure under § 226.8(p ) are subject to the relevant provisions o f § 226.8( j ) dealing with such advances. TRUTH IN LENDING A M E N D M E N T TO R E G U L A T IO N Z Issu e d b y t h e B o a rd o f G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y ste m Effective November 6,1969, § 226.8 is amended by the addition of paragraph (p ), and § 2 2 6.9(g )(4) is amended, as follows: $ 226.8— CREDIT OTH ER T H A N OPEN END — SP E C IFIC DISCLOSURES • * • Agricultural credit—information not determinable. (1) In any transaction subject to (p) this section, if the amount or date of any advance or payment in connection with an extension of credit for agricultural purposes under a written agreement is to be determined by production, sea sonal needs, or similar operational factors, and is not determinable at the time of execution of the agreement, disclosures may be made at the creditor’s option in accordance with this paragraph, provided the use of this paragraph is not for the purpose of circumvention or evasion of this Part. (iv) The disclosures, as applicable, required under $ 226.8(o) (1 ), (2 ), (3 ), (4 ), (5 ), (8 ), and (9 ). (3) Disclosures made pursuant to subparagraph (2 ) ( i ) , (ii), and (iii) of this paragraph need be made only on the agreement or on a separate state ment as specified in § 226.8(a). (4) I f a creditor making disclosures pursuant to this paragraph transmits a periodic billing state ment of the type described in paragraph (n) of § 226.8, such statement shall be in a form which the customer may retain and shall set forth the date by which, or the period, if any, within which, pay ment must be made in order to avoid late payment or delinquency charges. § 226.9— R IG H T TO R E SCIN D C ER TA IN TR AN SA C TIO N S * » * (2) I f a creditor elects to make disclosures under this paragraph he shall disclose the following items (g) Exceptions to general rule. This section in accordance with § 226.8(a), which shall consti does not apply to: tute compliance with the requirements of § 226.8, and under § 226.9(a) shall constitute “ all other * * * material disclosures required under this Part” : (4) Any advance for agricultural purposes made (i) The method of computing the amount of pursuant to either: (i) paragraph (j) of § 226.8 the finance charge including an identification of under an open end real estate mortgage or similar each component thereof in accordance with lien, provided the disclosure required under para $ 226.4. graph (b) of this section was made at the time (ii) Any item required to be disclosed under the security interest was acquired by the creditor § 2 2 6.8(b )(3) which is determinable at the time or at any time prior to the first advance made on the disclosures are required to be made under or following the effective date of this Part, or (ii) this paragraph. paragraph (p) of § 226.8 under a written agree ment, provided the disclosure required under para (iii) The disclosures, as applicable, required graph (b) of this section was made at the time the under § 226.8(b) (4 ), (5 ), (6 ), and (7) and the written agreement was executed by the customer. items described in § 2 2 6 .8(e)(1 ) and (2 ). 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