Full text of Federal Reserve Bank of New York Circulars : 7917. Amendment to Regulation Z

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FED ER A L RESERVE BANK
O F N EW YORK
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Circular No.

L

79171

July 14, 1976

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AMENDMENT TO REGULATION Z
Description of Finance Charges

T o A l l M e m b e r B a n k s , a n d O th e r s C o n c ern ed ,
in th e S e c o n d F e d e r a l R e s e r v e D is tr ic t:

Following is the text of a statement issued July 6 by the Board of Governors of the Federal
Reserve System:
The Board of Governors of the Federal Reserve System today amended its Truth in Lending Regula­
tion Z spelling out the way in which finance charges must be described.
The action becomes effective August 6, 1976.
In some instances of extensions of credit more than one type of finance charge may be involved, such as
charges for interest, a loan fee or an investigation fee. In such cases under the Regulation, each type of finance
charge must be described. However, the amended Regulation indicates that where only one type of finance
charge is involved, the nature of that charge need not be described.
The amendment of the Regulation takes the place of a similar existing Interpretation of Regulation Z. The
Board amended the Regulation subsequent to a procedural challenge to its Interpretation. The amendment of
Regulation Z announced today was proposed for public comment on March 2.

In submitting the amendment for publication in the Federal Register, the Board of Governors
made the following additional statement:
On March 9, 1976, the Board published for comment in the Federal Register proposed amendments to
§§226.8(c) (8) (i) and 226.8(d)(3) of Regulation Z (41 FR 10077). The amendments reflect the position
stated in the Board’s previously issued Interpretation §226.820, stating that a finance charge must be itemized
only where the total finance charge is composed of more than one type of charge. The Board now adopts those
amendments as proposed.
The interpretation was issued on November 21, 1975, and affirmed the Board’s position that finance charges
consisting solely of one type of charge need not be further described as to the nature of that charge. The pub­
lication of this position as an interpretation rather than a formal rulemaking procedure was challenged in the
recent case of flatten v. Board of Governors (D.C. Conn. Civ. No. N76-14, filed January 7, 1976), in which
plaintiffs argued that the issue should have been the subject of a substantive rulemaking procedure. While con­
tinuing to uphold the validity of the interpretation and the procedures used in adopting it, the Board on March
9, 1976, published its position as proposed amendments to the Regulation, in order to provide for a fuller
opportunity for public comment.
The notice of proposed rulemaking solicited comment on three alternative courses of action: (1) to clarify
the Board’s position that the requirement for itemization is confined to finance charges consisting of more
than one type of charge; (2) to amend the Regulation to require itemization of finance charges regardless of
the number of components in the finance charge; and (3) to eliminate entirely the requirement for itemization
of the finance charge in all cases.
The Board received a total of 59 comments in response to the notice. Thirty-one of those responding,
including seven out of eight Federal Reserve banks, a government agency, eleven banks, and four nonbank
financial institutions, supported the proposed amendments to require itemization only in cases where the fi­
nance charges consists of more than one component. The remainder of the comments were almost evenly divided
between the other alternatives, with 15 favoring itemization in all cases and 13 urging elimination of all item­
ization requirements. All consumer organizations and consumer representatives responding were in the former
category, while the latter group consisted primarily of banks and a variety of nonbank creditor representatives.




( ov er)

such disclosure serves an important enforcement purpose by discouraging the creditor from concealing a va
ri*»tv nt rharees within a so-called single-component finance charge.

sure statements, couia luruiei uuu iu . nwm
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finance charge On balance, the arguable benefits of this additional disclosure do not, in the Board s view,
outweigh the need for simplified and concise Truth in Lending disclosures.
With regard to the possible enforcement benefits to be derived from itemization of a finance charge con­
sisting of only one type of charge, the Board notes that the government agency and seven of the eight hederal Reserve banks commenting on the proposal did not support this alternative to require itemization in all
cases Since these agencies bear a primary enforcement responsibility for Truth in Lending, their comments
provide evidence that required itemization of single-component finance charges would not significantly en­
hance their enforcement efforts.
Of the 13 commenters supporting the alternative of eliminating all requirements for itemization of finance
charges many took the position that further description of the components of a finance charge is unnecessary
and potentially confusing. In the Board’s view, however, the requirement for itemization of multiple-com­
ponent finance charges was originally intended to serve primarily as an enforcement tool rather than an infor­
mational device In view of the fact that no enforcement agency supported the alternative to eliminate this
requirement, the Board believes that itemization of finance charges consisting of more than one type of charge
may continue to serve a useful enforcement purpose.
Thirty-one commenters supported the proposed amendments to require itemization of multiple-component
finance charges as an appropriate method of fulfilling the goals of the Act. In general, these commenters viewe
the alternative of requiring itemization of single-component finance charges as unnecessary, but stated that the
information derived from itemizing multiple-component finance charges might be useful to consumers.
After consideration of these comments, the Board has determined that, at the present time, the proposed
amendments to require itemization where the finance charge consists of more than one type of charge would
best serve the purposes of the Truth in Lending Act. In making this determination, the Board was particu­
larly mindful of two factors. First, itemization is not required by the Truth in Lending Act itself but was added
to Regulation Z primarily to help assure that all charges are properly taken into account in computing the
total finance charge. The government agency and seven of the eight Federal Reserve banks responding, all of
which have enforcement responsibility for the Act, supported the proposed amendments as opposed to either of
the two alternatives. The Board views this as evidence that itemization of multiple-component finance charges
may assist in enforcement of the Act. However, the Board does not view itemization of a single-component
finance charge as necessary to fulfill this purpose. Second, the Board shares the concerns expressed in Con­
gress and elsewhere that lengthy and complex Truth in Lending disclosures do not serve consumers’ needs for
clear and meaningful information and may be counterproductive to the goals of Truth in Lending.
Effective date. These amendments become effective August 6, 1976. Accordingly, Interpretation §226_820.
previously issued by the Board, is rescinded effective August 6. 1976. inasmuch as the amendments to the Reg­
ulation make this interpretation unnecessary.

Enclosed is a copy of the amendment, which, effective August 6, 1976, supersedes the interpre­
tation of Regulation Z entitled “Disclosure of Single-Component Finance Charges” (§226.820).
Questions on this matter may be directed to our Bank Regulations Department.
Additional copies of the amendment will be furnished upon request.




P

aul

A.

V

olcker,

President.




Board of Governors of the Federal Reserve System
TRUTH IN LENDING
AM ENDM ENT TO REGULATION Z

1. Effective August 6, 1976, subparagraphs
(c )(8 )(i) and (d )(3 ) of §226.8 are amended
to read as follows :
SECTION 226.8—CREDIT OTHER THAN
OPEN END—SPECIFIC DISCLOSURES
*
*
*
(c) Credit sales.
*
*
*
(g) * * *
(i)
The total amount of the finance charge,
using the term “finance charge,” and where the
total charge consists of two or more types of
charges, a description of the amount of each
type, and
*
+ *
(d) Loans andother nonsale credit.
*
*
*
(3)
* * * the total amount of the finance
charge,11 using the term “finance charge,” and
where the total charge consists of two or more
types of charges, a description of the amount
of each type.
For this Regulation to be complete, retain:
1) Regulation Z pamphlet, effective October 28, 1975.
2) Amendment effective July 30, 1976.
3) This slip sheet.

PRINTED IN NEW YORK

[Enc. Cir. No. 7917]