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FED ER AL R E SE R V E BANK O F N E W YORK [* Circular No. 7 8 7 8 * 1 L May 19, 1976 J T R U T H IN LENDING Proposed Am endm ents to Regulation Z w ^ Dt-yfWcf.* The Board of Governors of the Federal Reserve System has announced several proposed amend ments to its Regulation Z—Truth in Lending—that modify certain rules for identifying transaction charges on open-end billing statements and make several other technical changes in the regulation. Following is the text of the statement issued by the Board of Governors on May 12. The Board of Governors of the Federal Reserve System today proposed several modifications to its Truth in Lending rules for identifying transactions charged to consumers using open-end charge accounts (such as charges on a credit card billing statement). The principal proposal would amend that portion of the Board's Regulation Z implementing a law ( Public Law 93-495) providing for minimum disclosure requirements on such billing statements. Comment will be received through June 18. The "identification of transaction" amendments to Regulation Z became effective last October 28 (together with other amendments to Regulation Z implementing the related but separate Fair Credit Billing A ct). Regulation Z implements the Truth in Lending Act, to which the identification of transaction law is an addition (as is the Fair Credit Billing A ct). As originally adopted, the rules for identification of transactions permitted creditors to continue to iden tify charges on open-end billing statements as they have been doing, until July 1, 1976. One requirement to be met beginning July 1 was that when other information is not available to identify a transaction, a number, or symbol (such as a voucher number) must appear on the billing statement. Creditors— stating that they expect to be able in most cases to satisfy the basic identification disclosure requirements—have objected that the voucher number requirement would result in costly collection of data that they would use in only a few cases. The Board therefore proposed an alternative procedure. Under the proposal, creditors unable to satisfy the basic identification of transaction requirements would be permitted to disclose such information as they have available. But they would be required to treat any resulting inquiry from the consumer as triggering the billing error procedures of Regulation Z. This would involve remission of any finance charges when the required information is not disclosed. Creditors would also be required, if they used this alternative, to furnish documentary evidence of the transactions without charge. The proposals would also : — Provide that, when a transaction did not take place at a seller's fixed business location, an appropriate identifying designation may be used for transactions that take place by mail, by phone, at a customer's home or on a public conveyance, such as a plane or train. — In the case of purchases in a foreign country, allow the creditor to identify the transaction by date of debit, instead of date of purchase, and require the creditor to treat any resulting inquiry by the customer as triggering the billing error procedures of Regulation Z. — Require a more meaningful designation of a seller's name if it is abbreviated on a sales voucher in a way that makes identification difficult, or is encoded (as by a store number). Since final action may not be taken on these proposals before July 1, the Board suspended the require ments that would have gone into effect on that date until further notice, but not later than September 1. In requesting public response, the Board said that it would like in particular to receive comments or information concerning the following: 1. The impact of the proposed changes in the regulation on problems some consumers and creditors may have regarding transactions which occur in foreign countries. 2. Identification of any special or unusual types of transactions which may present problems of disclosure under the regulation as proposed, and which should be addressed at this time. 3. Problems involved in identifying purchases that are difficult to describe by departmental category (such as merchandise that might be bought at a variety or speciality shop). 4. Problems or suggestions consumers may have regarding identifying transactions on their open-end credit account statements in general. The Board's proposed amendments to Regulation Z include a number of other proposed changes, of a technical nature, not related to identification of transactions. Printed below is the text of the proposed amendments to Regulation Z. Comments thereon should be submitted by June 18, and may be sent to our Bank Regulations Department. P A U L A . VOLCKER, [R eg .Z ] PA R T 226— TR U T H IN LENDING (Docket No. R-0036) Description of Transactions; M iscellaneous Amendm ents On September 19, 1975, the Board published in the amendments to Regulation Z setting forth disclosure requirements for identifying transac tions reflected on open end credit account periodic state ments and for other purposes (40 FR 43200). Since those amendments were adopted, questions have been raised which may require further amendment of the Regulation. Accordingly, the Board is publishing for comment these proposed amendments to Regulation Z which are intended to clarify certain requirements of the Regulation, add flexibility to the requirements as neces sary, and insure that consumers are able to procure com plete information regarding their open end credit ac counts quickly and without undue expense. Although the proposed amendments would have some impact on so-called "country club" billing systems, their main effect would be on creditors who use the so-called "descriptive" billing systems. 2. Presently, § 226.7(b) ( l ) ( i i ) ( D ) requires that, after October 28, 1977, the creditor must provide a reference number or identifying symbol (such as a sales voucher number) which appears on the document evi dencing the transaction in those cases in which the primarily required information is not available. Ques tions have been raised regarding the usefulness in many cases of such a number or symbol to the consumer and regarding the cost to creditors of instituting a capability to capture the number or symbol for potential trans mission in all transactions when it may, in fact, be needed for only a few. The proposed amendment would permit a creditor, as at present, to provide an identifying number or symbol when any of the primarily required information is not available. Alternatively, it would per mit the creditor to disclose only that information which is available and treat any inquiry regarding the descrip tion or identification of the transaction as a billing error and an erroneous billing subject to the provisions of § 226.14. Further, the creditor would be required to provide documentary evidence of the transaction without charge. This addition to the Regulation is designed to provide an alternative to the requirement that an identifying number or symbol be provided when the primarily re quired information is not available. It is designed to insure a better and more complete description to the consumer without financial disadvantage, to provide creditors with an alternative to the costly requirement /dcM pfkaPoM of TfaM jachoM i Under the proposal the requirements for identifying transactions on open end credit periodic statements as required by § 226.7 (b )(1 ) (ii) would be changed in the following w ays: 1. To enhance the clarity of the text, a new § 226.7(k) would be added to the Regulation. This new section would contain the requirements for identifying trans actions. Section 226.7(b) ( l ) ( i i ) would merely refer ence § 226.7(k) and require that the disclosures set forth therein be made. * 2 of developing the capability to provide a voucher num ber for all transactions and to supply an incentive for the creditor to provide a complete description in the Arst instance. The creditor remains obligated under the proposed language to maintain procedures reasonably adapted to procure the primarily required information. 3. The proposed amendment would provide an al ternative similar to that discussed in paragraph 2 for the provided to creditors to adjust forms, procedures, and computer programs which lasts until October 28, 1977. The regulation as published on September 19, 1975, would have required the creditor to provide an identifying number or symbol when the information regarding the seller's name and address or description of merchandise or services purchased was not available. Further, it would have required the credi tor to disclose the date of debiting the credit transaction to the customer's account when the primarily required date is unavailable. This proposal would allow the creditor the alternative of providing that information which is available to him while requiring the creditor to treat any inquiry regarding the identification of the transaction as a billing error and an erroneous billing when the primarily required information is not available. The prosposal would retain the alternative of supplying the identifying number or symbol when primarily re quired information is not available during the transition period. could, in itself, be misleading, or (b) supply an address or appropriate designation, such as "mail order," which, in the creditor's opinion, is helpful in identifying the transaction or in relating the transaction to a document previously furnished. Use of the disclosure provisions of this paragraph should not be for the purpose of evading or circumventing the Act or Regulation Z, however. 6. Guidance for disclosing the seller's name in certain cases is also provided by the amendment. It would per mit the creditor to provide a more complete spelling of a seller's name which has been alphabetically abbreviated on the document evidencing the transaction. Additionally, when a seller's name has been encoded in a way which is not meaningful to consumers (for example, where only a store number is supplied on a sales voucher), the creditor must provide the code sym bol and a more complete spelling of the seller's name. This is intended to provide a basis for identifying the transaction if copies of sales vouchers are not retained or allowing the customer to relate the description to a sales voucher which he may have retained. 7. Proposed footnote 9d (footnote 7c as currently written) has been positioned within the regulation to indicate that all references to "the same person or re lated persons" in proposed § 226.7(k) are governed by the guidelines set forth in that footnote. 4. The language regarding the transition period for compliance, which ends October 28, 1977, has been changed in two other respects. First, the language has been changed to further clarify the fact that the alterna tives provided in this section are generally available and that creditors do not need to institute procedures rea sonably adapted to procure the information which will be required to be disclosed after October 28, 1977, in the first instance during this transition phase. Second, by a separately adopted amendment of even date, the Board suspends the July 1, 1976, beginning date for the changeover to the transition period which is due to expire October 28, 1977. This is done, because the amendatory process may not be completed in time, without rescinding or repealing the entire § 226.7(b) ( l ) ( i i ) . Consequently, the requirements currently im posed by § 226.7(b) ( l ) ( i i ) ( E )( 3 ) will remain in effect until dates for the transition period can be estab lished in accordance with the outcome of the amendatory processes. The Board will supply a new date to be not later than September 1, 1976, for the beginning of this transition period when this amendatory process is com pleted. This new date will take into account the added flexibility which may be added by these amendments when determining the lead time necessary for com pliance. 5. The proposed amendments would also provide guidance regarding the disclosure of an address in cer tain types of transactions which are not encompassed within the usual scenario of a purchase made at a Axed seller location, recognizing that it is often problematic to assign one address or designation which is helpful to customers in all situations. Where the transaction oc curs, for example, by telephone or mail order, in the customer's home or at a non-Axed location, such as aboard a public conveyance, the proposed amendments would provide some Aexibility. They would permit the creditor to (a) omit the address, which would be especially helpful in cases where supplying an address 8. The language regarding the disclosure of an iden tifying number or symbol which appears on the docu ment evidencing the transaction has been changed to indicate that such a number or symbol need be sup plied only once even though more than one of the pri marily required pieces of information may be unavail able. 9. Recognizing the difAculties of procuring the pri marily required information for transactions in foreign countries, the amendment would (a) allow the creditor to disclose the date the amount of the transaction is debited to the customer's account and (b) use the error resolution procedure as discussed in paragraph (2) in all cases without the obligation to maintain procedures adapted to procure the information in every instance. This provision is meant to be permissive and a creditor may, of course, disregard it and fully comply with the requirements otherwise imposed by § 226.7(k). 1. The proposal would amend § 226.7(b) ( l) ( iii) to provide that the date of crediting a payment or credit to the customer's account need not be disclosed in those situations where the failure to credit on any particular day will not result in the imposition of any Anance charges or other charges upon the customer. This amendment is proposed in the belief that such a dis closure is of little or no value or economic concern to the consumer but does impose a substantial cost upon creditors to make the necessary changeover for their billing systems if they have not provided such a date heretofore. The requirement that payments to a cus tomer's account be credited promptly, however, would not be changed or suspended thereby. 2. The proposal would amend § 226.7(c)(1) to clarify the Board's intent in its publication of September 19, 1975. The proposed language for § 226.7(c)(1) permits certain information to be disclosed other than on the face of a periodic statement provided that the 3 periodic statement on which the transaction is first re flected shall be identified by disclosing on the periodic statement, or on accompanying statement(s) or docu ment (s), the amount of the transaction and either the date of the transaction or the date the transaction is debited to the customer's account. totals of the respective debits and credits under each of the paragraphs referenced therein are disclosed on the face of the periodic statement. Concern had been expressed that the section, as amended by the September 19 publication, requires disclosure of a total of all pur chases or other loan transactions and finance charges on the face of the periodic statement. This was not the Board's intent. 3. The proposal amends § 226.13(i) by adding a footnote to paragraph 4 specifically permitting a creditor to report disputed amounts under § 226.13(i) as "in dispute" but not as "delinquent." This is consistent with the treatment of credit reports under § 226.14 and avoids the implication that a creditor must have a dual credit reporting system which would have to reflect the different kinds of disputes that may be raised. The Board invites written comment on the proposed amendments. In particular, the Board would like to re ceive comments or information concerning the following: 1. The impact of the proposed changes to the regu lation on problems that some consumers and creditors may have regarding transactions which occur in for eign countries. (i) The date on which the transaction took place,9b and the amount of the transaction; and (ii) A brief identification^ of any property or serv ices purchased for transactions in which the creditor and the seller are the same person or related persons,^ or the seller's name (as disclosed on the document evi dencing the transaction provided to the customer) and the address (city and State or foreign country, using understandable and generally accepted abbreviations if the creditor so desires) where the transaction took place for transactions in which the creditor and the seller are not the same person or related persons. (3) Notwithstanding the provisions of §§ 226.7(k) (1) and 226.7(k) (2), transactions involving nonsale credit, such as a cash advance or an overdraft or other check ing plan transactions, shall be identified on or with the periodic statement upon which the transaction is first reflected by providing at least: 2. Identification of any special or unusual types of transactions which may present problems of disclosure under the proposed regulations and which should be addressed at this time. 3. The problems of creditors in describing on periodic statements property or services obtained from sellers providing a homogeneous merchandise line or property or services which are difficult to describe by depart mental category, because purchases are made at a central cash register location or for other reasons. Any proposed solutions to those problems should be included. (i) An actual copy of the document evidencing the transaction which shows the amount of the transaction and either the date of the transaction, the date the trans action was debited to the customer's account, or the date placed on the document or instrument by the customer (if the customer signed the document or instrument) ; or 4. The problems or suggestions consumers may have regarding identifying transactions on their open end credit account statements in general. (ii) A description of the transaction, which charac terizes it as a cash advance, loan, overdraft loan, or other designation as appropriate, and which includes the amount of the transaction and the date of the transac t i o n or the date which appears on the document or The deadline for receipt of written comments on the proposed amendments is June 18, 1976. Comments should be addressed to the Secretary, Board of Gov ernors of the Federal Reserve System, Washington, D.C. 20551. Comments should include a reference to Docket No. R-0036. 9b With respect to transactions which are not billed in full on any single statement but for which precomputed instalments are billed periodically, the date the transaction takes place for pur poses of this paragraph shall be deemed to be the date on which the amount is debited to the customer's account. Pursuant to the authority granted in 15 U.S.C. § 1604 (1970) the Board proposes to amend Regulation Z, 12 C.F.R. Part 226, as follows: 9c For purposes of this paragraph, designations such as "mer chandise" or "miscellaneous" shall not be considered sufficient identification of property or services, but a reference to a depart ment in a sales establishment which accurately conveys the identification of the type(s) of property or services which are available in such department shall be sufficient under this para graph. Identification may be made on an accompanying slip or by symbol relating to an identification list printed on the statement. 1. To fully implement § 411, Title IV, Pub. L. 93-495, § 226.7(b) (1) (ii) would provide, and a new § 226.7(k) would be added, as follows: SECTION 226.7—O PEN END CREDIT ACCOUNTS—SPE C IFIC DISCLOSURES * * * (b) Periodic statements required. (1)*** * * * 9d For purposes of paragraph 226.7(k) a person is not related to the creditor simply because the person and the creditor have an agreement or contract pursuant to which the person is author ized to honor the creditor's credit card under the terms specified in the agreement or contract. Franchised or licensed sellers of a creditor's product shall be considered to be related to the creditor for purposes of paragraph 226.7 (k). Sellers who assign or sell open end customer sales accounts to a creditor or arrange for such credit under an open end credit plan which allows the cus tomer to use the credit only in transactions with that seller shall be considered related to the creditor for purposes of § 226.7 (k). (ii) The information required by § 226.7(k). * * * (k) Identification of transactions. (1) Each exten sion of credit for which an actual copy of the document evidencing the credit transaction (which does not in clude a so-called "facsimile draft") accompanies the (2) Each extension of credit for which an actual copy of the document evidencing the credit transaction does not accompany the periodic statement shall be identified by disclosing on or with the periodic statement on which that credit transaction is first reflected at least: 9^ In cases in which an amount is debited to a customer's open end credit account under an overdraft checking plan, the date of debiting the open end credit account shall be considered the date of the transaction for purposes of this paragraph. 4 instrument evidencing the transaction (if the customer signed the document or instrument). Acient) or because the transaction was the result of a mail or telephone order (in which case "telephone order," "mail order," or similar description is suffi cient) ; provided that any such disclosure made or omitted shall not be for the purpose of circumvention or evasion of this Part. (4) (i) For any transaction for which any of the infor mation required to be disclosed under §§ 226.7( k ) ( l ) , (2 ), or (3 ), as applicable, is not available the creditor shall disclose that information which is available and shall: (iii)(A ) If the seller's name as required by § 226.7 (k )( 2 )( ii) is alphabetically abbreviated or otherwise incomplete on the document evidencing the transaction, the creditor may provide a more complete spelling of the seller's name. (A ) Without affecting the customer's ability to make inquiry under § 226.14, disclose an identifying number or symbol which appears on the document evidencing the transaction given to or used by the customer at the time of or in connection with the transaction, which identifying number or symbol need only be disclosed once for any transaction; or (B ) If the seller's name as required by § 226.7(k) (2) (ii) is encoded other than by alphabetic abbreviation (for example, by number or symbol not meaningful to the customer) on the document evidencing the trans action, the creditor must disclose the encoded symbol as well as a more complete designation of the seller's name in terms understandable by customers. (B) Treat the absence of the information required by §§ 226.7(k) (1), (2 ), or (3), as applicable, as a billing error, as provided in §§ 226.2(j) and 226.14. If a cus tomer submits a proper written notification of a billing error relating to the absence of such information and the information was, in fact, not disclosed as required by §§ 2 2 6 .7 (k )(l), (2 ), or (3 ), as applicable, the transaction shall be treated as an erroneous billing under § 226.14(b) and documentary evidence of the transac tion must be furnished whether or not the customer requests it (despite the provisions of §§ 226.2(j) and 226.14(a) ( 2 )) , within the time period allowed in § 226.14 for resolution of a billing error, without charge to the customer. ( 7 )(i) As an alternative to the provisions of §§ 226.7 ( k ) ( l ) through 226.7(k)(5), from [date to be sup plied upon completion of amendatory process] until October 28, 1977: (A ) the creditor may disclose the date of debiting the amount of the transaction to the customer's account for the date of the transaction or the date placed on the document evidencing a credit trans action if,-due to operational limitations, either such date is unavailable to the creditor for purposes of billing; and the creditor may disclose an identifying number or symbol which appears on the document evidencing the credit transaction given to or used by the customer at the time of or in connection with the credit transaction in place of the seller's name and address or description of the property or services purchased if, due to opera tional limitations, such information is unavailable to the creditor for purposes of billing; or (B ) the creditor may identify the transaction by disclosing such informa tion as is reasonably available and treating the absence of the information required by §§ 2 2 6 .7 (k )(l), (2), or (3), as applicable, as a billing error, as provided in §§ 226.2(j) and 226.14. If a customer submits a proper written notification of a billing error relating to the absence of such information and the information was, in fact, not disclosed as required by §§ 2 2 6 .7 (k )(l), (2 ), or (3 ), as applicable, the transaction shall be treated as an erroneous billing under § 226.14(b) and documentary evidence of the transaction must be fur nished whether or not the customer requests it (despite the provisions of §§ 226.2(j) and 226.14(a) (2 ), within the time period allowed in § 226.14 for resolution of a billing error, without charge to the customer. (ii) The provisions of § 2 2 6 .7 (k )(4 )(i) shall not relieve the creditor of responsibility for maintaining procedures reasonably adapted to enable the creditor to obtain the primarily required information at the time the amount of the transaction is transmitted to the creditor for debiting to the customer's account. (5) In any case in which a transaction occurs other than in a State: (i) The creditor may disclose the date of debiting the amount of the transaction to the open end credit account in place of any other date required elsewhere in § 226.7 (k) ; and (ii) The provisions of § 2 2 6 .7 (k )(4 )(i)(B ) shall apply and the creditor need not maintain procedures reasonably adapted to procure the information otherwise required by § 226.7(k). (6) In complying with the disclosure requirements of paragraphs 2 2 6 .7 (k )(l), (2 ), (3 ), or (4 ): (i) The creditor may rely upon and disclose the in formation supplied by the seller with respect to the date and amount of transactions for which the creditor and the seller are not the same person or related persons. (ii) The effective date of §§ 2 2 6 .7 (k )(l) through 226.7(k) (6) (i), inclusive, is [date to be supplied upon completion of amendatory process]. Until [date to be supplied upon completion of amendatory process], the creditor shall disclose the date of each extension of credit or the date such extension of credit is debited to the account during the billing cycle, the amount of such extension of credit and, unless previously furnished, a brief identification^* of any goods or services purchased or the extension of credit. (ii) With regard to disclosing the seller's address where the transaction took place for purposes of § 226.7 ( k ) ( 2 ) ( ii) , the creditor may omit the address or pro vide an address or other suitable designation which, in the creditor's opinion, will assist the customer in iden tifying the transaction or in relating the transaction, as reflected, to a document(s) evidencing the transaction previously furnished when no meaningful address is readily available because the transaction took place at a location which is not Axed (for example, aboard a public conveyance), or in the customer's home (in which case "customer's home" or a similar description is suf 9f Identification may be made on an accompanying slip or by symbol relating to an identification list printed on the statement. 5 2. Section 226.7(b) ( l ) ( i i i ) would be amended by the deletion of the period at the end thereof and the addition of the following: ", except that the date of crediting to the customer's account need not be provided if a delay in crediting does not result in the imposition of any finance charges, late payment charges, or other charges for that billing cycle or a later billing cycle." 3. Section 226.7(c)(1) would be amended to read: (c) Location of disclosures.*** (1) The information required to be disclosed under paragraph ( b ) ( l ) ( i i ) of this section and itemization of the amounts and dates required to be disclosed under paragraph (b) (1) (iii) of this section and of the amount of any finance charge required to be disclosed under paragraph ( b ) ( l ) ( i v ) of this section may be made on the reverse side of the periodic statement or on a sepa rate accompanying statement(s), provided that the totals of the respective debits and credits under each of those paragraphs are disclosed on the face of the periodic statement. 4. Section 226.13(i) (4) would be amended to add a footnote as follows: SECTION 226.13—CREDIT CARD TR A N SA CTIO N S— SPECIA L REQ U IR EM EN TS * * * (i) Right of cardholder to assert claims or defenses against card issuer.*** * * * (4) If the cardholder refuses to pay the amount of credit outstanding with respect to the property or serv ices which gave rise to the claim(s) or defense(s) under this section, the creditor may not report to any person that particular amount as delinquent until the dispute is settled or judgment is rendered.*^ 15a Nothing in this paragraph prohibits a creditor from report ing the disputed amount or account as being in dispute. By separate order of even date the Board has pro posed amendments to § 226.7(b) ( l ) ( i i ) of Regulation Z for comment. These proposed amendments, should they be Anally adopted, would change and clarify the requirements for identifying transactions reAected on open end credit periodic statements. Because of the uncertainty which may be engendered by the pendency of that amendatory process and to pro vide enough time to receive and evaluate public com ment on that proposal, the July 1, 1976, beginning date for the transition period provided in § 226.7(b) (1) (ii) ( E) (<?) and the ending date for the transition period provided in § 226.7 ( b) ( 1) ( i i ) ( E ) ( ^ ) must be sus pended. This is done herein without repealing or re scinding the entire § 226.7(b) ( l ) ( i i ) . Consequently, the requirements currently imposed by § 226.7(b)(1) ( i i ) ( E ) ( ^ ) will remain in effect until dates for the transition periods can be established in accordance with the outcome of the amendatory processes regarding the proposed changes to § 226.7(b) ( l ) ( i i ) . The new be ginning date for the transition period shall be not later than September 1, 1976, and may be embodied in a corresponding section of any Anal regulation adopted pursuant to the proposals to amend this section. In determining the new changeover date from one transition period to the other, the Board will take into account the increased Aexibility which may be added by the proposed amendments when determining the lead time necessary for compliance. In consideration of the foregoing and pursuant to the authority granted in 15 U.S.C. § 1604 (1970) the Board amends Regulation Z, 12 C.F.R. Part 226 as follows: Section 226.7(b) ( l ) ( i i ) as presently written is hereby amended by the suspension of the July 1, 1976, date for the transition periods provided in paragraphs (E)(<?) and ( E ) ( ^ ) thereof; provided that such sus pension shall end not later than September 1, 1976.
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