Full text of Federal Reserve Bank of New York Circulars : 7761. Truth in Lending

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FED ER A L RESERVE BANK
O F NEW YORK

r Circular No. 7 7 6 1 "j

L

December 2, 1975

TRUTH IN LENDING
Interpretation of Regulation Z Regarding
Disclosure of Single-Component Finance Charges

Reprint of Regulation Z
To A ll State Member Banks, and Others Concerned,
in the Second Federal Reserve District:

On November 21, 1975, the Board of Governors of the Federal
Reserve System issued an interpretation of its Regulation Z, providing
that, in the case of finance charges that contain only one component,
the creditor need not identify the component beyond describing it as a
“finance charge.” A copy of the interpretation is enclosed. Any ques­
tions regarding the interpretation may be directed to our Bank R egu­
lations Department.
In addition, the Board of Governors has reprinted its Regulation
Z, incorporating amendments to, and interpretations of, that Regulation
through October 28, 1975, including those amendments to the Regula­
tion implementing the F a ir Credit Billing Act. Enclosed is a copy of
the new pamphlet.




Additional copies of the enclosures will be furnished upon request.
P a u l

A.

V o lc k e r,

President.

J

Board of Governors of the Federal Reserve System
TRUTH IN LENDING

IN T E R P R E T A T IO N O F R E G U L A T IO N Z
Disclosure of Single-Component Finance Charges

This interpretation relates to the application
of Regulation Z to credit transactions other
than open end when the finance charge is com­
posed of a single element. The interpretation
provides that in such instances the creditor may
disclose that single element under the term “fi­
nance charge” and there is no need to further
identify or describe the element. However,
where there is more than" one element compris­
ing the finance charge, creditors are required
under Regulation Z to describe each amount in­
cluded in the finance charge.
§ 226.820—Disclosure of single-component
finance charges.
Sections 226.8(c) ( 8 ) (i) and 22 6 .8 (d )(3 )
require the disclosure of the total amount of
the finance charge “with description of each
amount included,” except in the case of certain
real property transactions. The question arises
whether the nature of the finance charge must
be described where only one type of charge,
such as an interest charge, comprises the total
finance charge.




The primary purpose of this disclosure re­
quirement is to assure that all sums which con­
stitute finance charges under § 226.4(a) are
properly taken into account in determining the
total finance charge. In addition, this informa­
tion permits the customer to make a more mean­
ingful comparison of the finance charges and
annual percentage rates available from various
sources of consumer credit and to make an in­
formed selection on this basis. A description of
the amounts included in the finance charge is
necessary to carry out the purposes of the Act
only when the total charge includes more than
one element. Therefore, where only a single type
of charge comprises the finance charge, dis­
closure of the total dollar amount of such charge,
using the term “finance charge,” complies with
the requirements of §§ 226.8(c) ( 8 ) (i) and
22 6 .8 (d )(3 ), and there is no further require­
ment under those sections that the single type of
charge be otherwise identified or described.
(Interprets and applies 12 C.F.R. 226.8)

By order of the Board of Governors, Novem­
ber 21, 1975.

PRIN TED IN N E W YORK