The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BANK OF N E W YORK rCircular No. 7 7 1 3 USeptember 18, 1975 J REGULATION Z — Amendment Regarding Disclosures on Cash Advance Checks — Proposed Amendment on Disclosure of Real Estate Closing Costs To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Cash advance checks Following is the text of a statement issued September 15 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today issued an am endm ent to its Truth in Lending Regulation Z th a t requires creditors to disclose in a clear and conspicuous m anner the credit terms involved in the use of cash advance checks. T he am endm ent is effective January 1, 1976. The Board proposed such an am endm ent last D ecem ber 18 and clarifying changes w ere m ade in the light of com m ent received from the public. A num ber of banks operating credit card plans have been sending blank checks to credit card holders th at can be used to obtain cash advances on a credit card account. U nder the am endm ent, disclosures specifically related to the charges im posed when these checks are used will be required the first tim e the cash advance check or other similar credit device is sent to a customer. In submitting the amendment for publication in the Federal Register, the Board of Governors made the following additional statement: On D ecem ber 27, 1974, the Board of Governors published for comment in the Federal Register (39 F. R. 44779) a proposed am endm ent to the open-end credit disclosure requirem ents of Regula tion Z (§ 2 2 6 .7 (f)). T he proposal required open-end creditors sending to their credit cardholders blank checks or other credit devices w hich are intended to be used in connection w ith such open-end credit accounts to include a clear disclosure statem ent of the charges and other pertinent credit inform ation specifically related to the use of blank checks or other credit devices delivered. The proposed am endm ent required such disclosure only the first tim e the blank checks or other credit devices w ere sent to the customer, b u t not w hen later renew ed or resupplied. Following consideration of 44 com m ent letters received on this proposal, the Board revised the proposed language and hereby prom ulgates it in final form. Two significant clarifications have been m ade to the regulatory requirem ent as proposed: The language of the regulation has been clarified to indicate that the term “credit devices” does not apply to credit cards and to indicate th at the disclosure requirem ent is not applicable to checks used in conjunction w ith a dem and deposit account, even though such checks m ay also activate a cash advance under an open-end credit account. In response to concerns over the need for such disclosures w here these blank checks have been provided to a custom er shortly after the opening of an account, the regulation has been revised to indicate th at the disclosures need not be m ade unless the blank checks are m ailed or delivered to the custom er subsequent to 30 days after the delivery of the initial open-end credit disclosures. In response to questions concerning the location of the disclosures accom panying the blank checks, the revised regulation stipulates th at the disclosure consist of a single w ritten statem ent w hich shall not appear on any prom otional m aterial m ailed or delivered a t th e sam e time. T he disclosure statem ent may be printed on a separate sheet or printed on a booklet containing the checks; th e statem ent need not be repeated on each blank check. Questions also w ere raised concerning w hich disclosures of § 226.7(a ) should be m ade in connection w ith these blank checks. T he pertin en t disclosure provisions are those contained in §§ 226.7(a) (1 ), (2 ), (3 ), and (4 ). The revised regulation provides th a t the disclosure statem ent accom panying the blank checks m ay be lim ited to the provisions of §§ 226.7(a) ( 1 ), ( 2 ), (3 ), and (4 ). Alternatively, the revised regulation provides th at a full statem ent of the requirem ents of § 226.7(a) be provided w ith the provisions of subsections (1 ), (2 ), (3 ), and (4 ) clearly and conspicuously referenced on or accom panying th at statem ent. For example, if the full statem ent of the provisions of § 226.7(a) is subdivided into term s covering credit sale and cash advance transactions, reference m ay be m ade in the accom panying m aterial to the term s covering cash advance transactions. Likewise, if the term s covering cash advance transactions are num bered, the accom panying m aterial m ay refer to the appropriate num bered terms. Enclosed is a copy of the amendment, which becomes effective January 1, 1976. Additional copies will be furnished upon request. Closing costs Following is the text of a statement issued September 16 by the Board of Governors of the Federal Reserve System: T he B oard of Governors of the F ederal Reserve System today proposed to am end its R egulation Z — T ru th in L ending — to require disclosure of the closing costs in certain real property transactions not covered by th e Real E state Settlem ent Procedures Act (R ESPA ). Com m ent will be received by the Board through October 15, 1975. T he am endm ent w ould apply to credit transactions w here the lender retains or acquires an interest in the real property involved as collateral, except for mortgages covered by RESPA. An example of the type of credit extension covered is a loan for home improvem ents, w hen the home is used as security for the loan. T he proposed am endm ent to Regulation Z w ould im plem ent a section of the recently passed Public L aw 93-495 th at calls for a statem ent of closing costs to be m ade in accordance w ith the requirem ents of th e T ru th in L ending Act. Closing costs are defined in the draft am endm ent as any fee or charge, other th an a dow n paym ent, paid in cash by th e custom er at the time of, or before, settlem ent of a real property transaction, w hether or not th e fee constitutes a finance charge under the regulation. The disclosure requirem ent is intended to provide the custom er w ith knowledge of the total of the custom ers closing costs. In credit sales transactions, the proposed am endm ent would require the disclosure to be m ade before the custom er makes any down paym ent. In other transactions, disclosure would be required at the time a lender makes a commitment. Printed on the following pages is the text of the proposed amendment. Comments thereon should be submitted by October 15 and may be sent to our Bank Regulations Department. P a u l A. V o lc k e r, President. 2 [Reg. Z] [12 CFR PART 226] TRUTH IN LENDING Notice of Proposed Rulemaking Relating to Disclosure of Closing Costs W here disclosures are required to b e m ade b u t exact inform ation is not known, estim ates m ay b e used under the provisions of § 226.6(f). On October 28, 1974, Congress enacted Public Law 93-495 containing several am endm ents to the T ruth in Lending Act. Section 409 of Public Law 93-495 provides for the disclosure of “closing costs” to be in curred by the custom er in consum er credit transac tions. The Board of Governors is today publishing for public comment certain am endm ents to Begulation Z designed to im plem ent Section 409. T he proposed regulations include five new defini tions to be included in § 226.2. Since the Board is currently adding several other definitions in this sec tion, the paragraph letters have been left blank at this time. Section 226.8(r), the section proposed to require disclosure of closing costs, applies only to real property transactions, i.e., transactions in w hich a security inter est in real property is or will be retained or acquired by the creditor. T he Board believes th a t this lim ita tion is appropriate at this tim e because in other types of transactions closing costs are generally either not present at all or are m inim al in am ount and not subject to change among creditors. T he Board, however, spe cifically invites comments on the restriction of the section to real property transactions. Should the Board adopt the proposed am endm ent after considering the comments received on it, an effective date would be set far enough in advance to allow for the orderly change of forms w here necessary. Pursuant to the authority granted in 15 U.S.C. § 1604 (1970), the Board proposes to am end R egula tion Z, 12 C.F.R. P art 226, as follows: 1. T he term “closing cost” is defined to include any charge or fee, other than downpaym ent, w hich is paid in cash by th e custom er a t or prior to closing. “Clos ing” is defined as the date “bargained for considera tion” is exchanged betw een the parties to the trans action. SECTIO N 226.2 — D E F IN IT IO N S AND RULES O F CONSTRUCTION * * ( - ) “Closing” means the date on w hich the b ar gained for consideration is exchanged betw een the parties to any transaction, irrespective of w hen the transaction is consummated. Section 226.8(r) also excludes any transaction sub ject to the Real E state Settlem ent Procedures Act and the regulations adopted thereunder by the D epart m ent of Housing and U rban Development, since dis closure of closing costs is already required in such transactions. ( - ) “Closing cost” m eans any fee, charge or other expense, other than a downpaym ent, paid in cash by the customer, or on the custom ers behalf, at, or prior to, a closing, as a condition to the transaction, w heth er or not such fee, charge or expense constitutes a finance charge. The disclosure of closing costs is required to be m ade, in connection w ith real property credit sales, prior to the m aking of any downpayment. W ith re spect to other transactions, disclosure is required at the tim e a lender com m itm ent is given. Commitment is defined to m ean an oral or w ritten creditor agree m ent to enter into a specific transaction, w hether or not such agreem ent is conditioned or binding on the customer. ( - ) “Com m itm ent” means an agreem ent, w hether or not in writing, by a creditor to enter into a speci fied consum er credit transaction w ith a customer, w hether or not such agreem ent is subject to any conditions and w hether or not such agreem ent is binding upon the customer. W ith respect to the way in w hich disclosures are made, th e Board proposes to adhere to its general policy of not specifying forms b u t allowing creditors to design their own forms subject only to Regulation Z’s requirem ents as to clarity and sequence. Disclo sure would be perm itted on a separate form, or could be given w ith th e other T ruth in Lending disclosures if they are given at the time disclosure of closing costs would otherwise be required. § 226.2 would be am ended as follows: ( - ) “D ow npaym ent” means a paym ent m ade at or prior to consum m ation of a transaction w hich is or will be applied wholly to the cash price of property or services purchased. ( - ) “RESPA” means the Real E state Settlem ent Procedures Act of 1974 together w ith the regulations prom ulgated thereunder by the Secretary of Housing and U rban D evelopm ent. 3 2. § 226.8 would be amended as follows: SECTION 226.8- CREDIT OTHER THAN OPEN END- SPECIFIC DISCLOSURES ( ii) together with the other disclosures required by this section, in which case the disclosures required by this paragraph shall, if required to be itemized, either be listed separately, or to the extent that they are itemized elsewhere on such disclosure statement, referenced as being a closing cost by use of an asterisk or other appropriate means. ( 2) In the case of any credit sale, the disclosures required by this paragraph shall be made prior to the making of any downpayment. ( 3) In the case of any extension of credit other than a credit sale, the disclosures required by this paragraph shall be made at the time the creditor makes a commitment in connection with that transaction. ( 4) Notwithstanding the provisions of § 226.8 (r) ( 2) and ( 3), the disclosures required by this paragraph shall be made before the transaction is consummated. (a) General rule. Any cre~itor wh~n extending credit other than open end credit shall, m accordance with § 226.6 and to the ~xtent. appl~cable, make the disclosures required by this section with respect to any transaction consummated on or after July 1, 1969. Except as otherwise provided in this section, such disclosures shall be made before the transaction is consummated. At the time disclosures are made, the creditor shall furnish the customer with a duplicate of the instrument or a statement by which the required disclosures are made and on which the creditor is identified. Except as provided in paragraph (r) of this section, all of the disclosures shall be made together on either: ( 1) The note or other instrument evidencing the obligation on the same side of the page and above the place for the customer's signature; or ( 5) This paragraph does not apply to any transaction to which the disclosure requirements of RESPA are applicable. (2) One side of a separate statement which identifies the transaction. .. .. .. 3. This notice is published pursuant to § 553 (b) of Title 5, United States Code, and § 262.2( a) of the Rules of Procedure of the Board of Governors of the Federal Reserve System ( 12 C.F.R. 262.2( a)). Interested persons are invited to submit relevant data, views, or arguments concerning this proposal. Any such material should be submitted in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551, to be received not later than October 15, 1975. Such material will be made available for inspection and copying upon request, except as provided in § 261.6 (a) of the Board's Rules Regarding Availability of Information. ( r) Disclosure of closing costs. The creditor in any real property transaction subject to this section shall disclose to the customer all closing costs to be paid by the customer. in connectio~ with sl!-c.h transaction in accordance With the followmg prov1Slons: ( 1) The disclosure required by this paragraph shall include the total amount of closing costs using the term "closing costs" and, where there is more than one component cost, a description of each. Such disclosures shall be made: ( i) on one side of a separate statement, or 4 Board of Governors of the Federal Reserve System TRUTH IN LENDING AMENDMENT TO REGULATION Z Effective January 1, 1976, § 226.7(f) added as set forth below: is SECTION 226.7—O PEN -EN D C R E D IT ACCOUNTS— SPEC IFIC DISCLOSURES » * # (f) Supplemental credit devices for use in open-end credit accounts. If, subsequent to 30 days after delivering the disclosures re quired under paragraph (a ) of this section, a creditor of an open-end credit account mails or delivers, other than as a renew al or resup ply, a blank check, payee designated check, blank draft or order or other similar credit device other than a credit card, to an existing custom er or cardholder for use in connection w ith such account, such device shall be ac com panied by a single w ritten statem ent set ting forth clearly and conspicuously those disclosures of paragraph (a ) of this section which specifically relate to die use of such device. Such disclosure statem ent shall either be lim ited to the disclosures of paragraphs ( a ) ( 1 ), (2 ), (3 ), and (4 ) of this section or contain all disclosures required of such para graph w ith the pertinent disclosures clearly and conspicuously referenced on or accom panying th at disclosure statem ent. Such dis closure statem ent shall not appear on any prom otional m aterial m ailed or delivered at the same time. The requirem ents of this para graph shall not be applicable to checks to be used in conjunction with a checking account even though such checks may also activate a cash advance under an open-end credit account. [Enc. Cir. No. 7713] P R IN T E D IN N E W YORK
@FedFRASER