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FED ER AL RESERVE BANK O F NEW YORK r L Circular No. 8 0 9 5 *1 April 21, 1977 J INTERPRETATIONS OF REGULATIONS C AND Z — Disclosures Under the Home Mortgage Disclosure Act — Dealer Participation in Consumer Credit Contracts Withdrawal of Proposed Amendment to Regulation Z T o A l l M e m b e r B a n k s, an d O th e r s C on cern ed, in the S e c o n d F e d e r a l R e s e r v e D i s t r i c t : The Board of Governors of the Federal Reserve System has issued two interpretations of its Regulation C—Home Mortgage Disclosure—and an interpretation of its Regulation Z—Truth in Lending—to clarify certain aspects of these regulations. The Board of Governors has also with drawn a proposed amendment to Regulation Z. Following is the text of a statement issued by the Board on March 31, 1977: The Board of Governors of the Federal Reserve System today adopted three interpretations intended to clarify certain aspects of its consumer credit protection regulations. The Board adopted an interpretation of its Truth in Lending Regulation Z stating that the amount of a dealer’s participation in the finance charge on the credit purchase of an automobile or other durable goods need not be disclosed as a separate part of the finance charge. At the same time, the Board withdrew a proposal that would have required disclosure of the fact but not the amount of a dealer’s participation. The Board took these actions because it did not feel that disclosure of a dealer participation in a finance charge would significantly benefit consumers in shopping for credit. At the same time, the Board adopted two technical interpretations of its Home Mortgage Disclosure Reg ulation C. The Home Mortgage Disclosure Act and Regulation C require depository institutions with offices in metropolitan areas to disclose publicly the geographic area where they are making their residential mortgage loans. The first interpretation permits a depository institution subject to the Act that is majority-owned by an other depository to disclose its mortgage loan data separately from that of the parent. The second interpretation of Regulation C clarifies what disclosures must be made by depositories that were exempt from the provisions of the Act, but lose their exemption. A depository is exempt if (a) it does not have an office in a Standard Metropolitan Statistical area (SMSA), (b) does not have assets on the last day of its fiscal year of $10 million or more or (c) is a State chartered institution subject to a State dis closure law that the Board has determined imposes disclosure requirements substantially similar to those of the Home Mortgage Disclosure Act. The Board’s interpretation makes it clear that previously exempt institutions which become subject to the Act (by extension of an SMSA to cover one or more of its offices or by growth of its assets) may report on their mortgage lending during their last full fiscal year by Postal ZIP code areas and thereafter by Census Bureau census tracts. This is the same treatment accorded depositories in the first year after Regulation C be came effective (June 28, 1976). Enclosed are copies of the interpretations, which have been reprinted from the Federal Register of April 12, 1977. Questions thereon may be directed to our Consumer Affairs Division (Tel. No. 212-791-5919). Additional copies of the enclosures will be furnished upon request. P aul A. V olcker, President. Board of Governors of the Federal Reserve System HOME MORTGAGE DISCLOSURE IN TER PRETA TIO N OF REGULATION C [R eg. C; D o ck et No. R -0 0 9 2 ] PART 203— HOME MORTGAGE DISCLOSURE Interpretations ture of a parent’s lending patterns by in cluding information regarding the lend ing activities of any non-depository, ma jority-owned subsidiary. A few depository institutions, however, have majority-owned subsidiaries that are themselves depository institutions. This raises the issue of how a depository institution as defined in the first part of § 203.2(c), which is also a majorityowned subsidiary of a depository insti tution, should be treated for Regulation C disclosure purposes. If, absent the sec ond part of 5 203.2(c), the depository subsidiary otherwise would make sepa rate disclosures under Regulation C, then combining the subsidiary’s loan data with the parent’s into a single state ment would reduce public disclosure, contrary to the intent of § 203.2(c) and the purpose of the Home Mortgage Dis closure Act. Therefore, to further the intent of the act and the regulation, a parent deposi tory institution may draw a distinction for disclosure purposes between deposi tory and non-depository, majorityowmed subsidiaries. A majority-owned, non-depository subsidiary of a depository institution should be treated as an integral part of its parent, with no distinction made between them for reporting purposes, in accordance with the second sentence of § 203.2(c). On the other hand, at the parent’s option, a majority-owned, depository subsidiary of a depository institution may be treated as a distinct, unaffiliated entity since it is a depository institution as defined in the first sentence of § 203.2(c). 203.002: D is c l o su r e A ft e r Loss of AGENCY: Board of Governors of the Federal Reserve System. ACTION: Interpretations. SUMMARY: In response to requests from Federal agencies and Institutions affected by the Home Mortgage Disclo sure Act, the Board has issued two inter pretations of Regulation C, which im plements the act. The first interpretation permits a parent depository institution, such as a bank, savings and loan associa tion, or credit union, to treat any bank or savings and loan association in which it owns a majority interest as a separate, unaffiliated institution for disclosure purposes. Public disclosure will be en hanced if that potion is chosen. The sec ond interpretation clarifies the disclo sure requirements applicable to a depos itory institution that ceases to be exempt under the act. EFFECTIVE DATE: April 1, 1977. FOR FURTHER INFORMATION CON TACT: Anne J. Geary, Acting Chief, Equal Credit Opportunity Section, Division of Consumer Affairs, Board of Gov ernors of the Federal Reserve System, Washington, D.C. 20551. (202-4523946). SUPPLEMENTARY INFORMATION: The Board has issued the following two interpretations of Regulation C pursuant to its authority under section 305(a) of E x e m p t io n the Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2801-2809). The Board has been requested to 203.001: T r ea tm en t o f M a jo r it y - O w n e d , clarify the Regulation C disclosure re D e p o s it o r y S u b s id ia r ie s o f D e p o s i quirements that apply to a depository institution that ceases to be exempt from to r y I n s t it u t io n s the Home Mortgage Disclosure Act. The Board has been asked whether Section 203.3(a) of Regulation C a majority-owned, depository subsidiary describes the three classes of depository of a depository institution should be institutions that are exempt from the treated in the same way as a non regulation’s disclosure requirements. depository subsidiary. The first sen They are: (1) Institutions that have tence of § 203.2(c) defines a deposi assets of $10,000,000 or less as of the last tory institution as “any commercial day of their fiscal year; (2) institutions bank, savings bank, savings and loan as that do not have an office in a standard sociation, building and loan association, metropolitan statistical area; and (3) homestead association (including co State-chartered institutions that are operative banks), or credit union, which subject to a State disclosure law that the makes federally related mortgage loans.” Board has determined imposes sub The second sentence deals with subsidi stantially similar requirements to those aries: "Any majority-owned subsidiary mandated by the Home Mortgage Dis of a depository institution shall be closure Act. Section 203.3(b) sets forth the initial deemed to be part of its parent deposi tory institution for the purposes of this disclosure requirements applicable to an part.” The purpose of the subsidiary pro exempt institution that subsequently vision is to provide a more complete pic loses its exemption. It states: A depository In stitu tion th a t was exem pt on or after the effective date of this Part on the basis of paragraph (a) of th is section and th a t subsequently- becomes no longer exem pt shall com pile the data described in § 203.4 of th is Part for each fiscal year be ginning w ith its last fu ll fiscal year ending prior to the date it was no longer exempt, and th a t last fu ll fiscal year shall be deemed to be a “fu ll fiscal year ending prior to July 1, 1976” for the purposes of S 203.4 of this Part. The first point on which clarification has been sought is the meaning of the language “last full fiscal year ending prior to the date it was no longer exempt * * • .” For any depository institution that loses its exemption under § 203.3(a) (2) because of the re-definition of a standard metropolitan statistical area or loses its exemption under § 203.3(a) (3) because applicable State disclosure law is found not to be substantially similar to the Federal act, “its last full fiscal year ending prior to the date it was no longer exempt” is its fiscal year im mediately preceding the fiscal year dur ing which the exemption was lost. For example, a depository institution having a calendar fiscal year that ceases to be exempt during 1977 would have to dis close relevant 1976 data. For any depository institution that loses its exemption under § 203.3(a)(1) because its assets exceeded $10,000,000 on the final day of its last fiscal year, the period to be covered by its initial dis closure statement is that last fiscal year. For example, a calendar fiscal year in stitution that has assets of more than $10,000,000 on December 31, 1977 would have to disclose relevant 1977 loan in formation. The Board also has been asked to ex plain the significance of the phrase “ ‘full fiscal year ending prior to July 1, 1976 * * ” The purpose in 5 203.3(b) of equating an institution’s “last full fiscal year ending prior to the date it w?as no longer exempt” with a “ ‘full fiscal year ending prior to July 1, 1976’ ” is to make available to an institution that loses its exemption the same disclosure options that were available to institutions when Regulation C became effective. Thus, for the purposes of 5 203.4, a depository in stitution that ceases to be exempt may compile the necessary mortgage and home improvement loan data by United States Postal Service ZIP codes, in lieu of Census Bureau census tracts, for its last full fiscal year and any portion of its current fiscal year ending prior to the loss of exemption. In addition, such an institution may exercise the options and rely on the presumption contained in paragraphs (a) (4) (ii) and (c) of 5 203.4 FEDERAL REGISTER, V O L 42, NO. 70— TUESDAY, APRIL 12, 1977 [Enc. Cir. No. 8095] ( over ) as if it had lost its exemption and become subject to the regulation on July 1, 1976. The following examples illustrate the points made in this interpretation. As sume that a depository institution hav ing a calendar fiscal year ceases to be exempt under § 203.3(a) (2) on April 1, 1977, because of the enlargement of a standard metropolitan statistical area to include a county in which the institu tion has an office. Pursuant to § 203.5(a) (1) (iii), that institution would be re quired to prepare and make available publicly a disclosure statement by June 29, 1977, ninety days after its loss of exemption. Under § 203.3(b), the disclosure state ment would have to cover the institu tion’s “last full fiscal year ending prior to the date it was no longer exempt,” which, as indicated previously, would be 1976. Pursuant to § 203.4(a) (2) (i), read in view of § 203.3(b), the institution could compile the necessary loan infor mation for 1976 by ZIP code if it chose. Also, under § 203.4(a) (2) (ii), it could elect to issue a separate disclosure state ment, compiled on a ZIP-code basis, for the first three months of its current fiscal year—January, February, March 1977, if it also made that statement available on June 29, 1977. If it chose that option, then it would report on its relevant lend ing activities for the remainder of 1977 by census tract on March 31, 1978. The alternative to this latter option would be for the institution to report on all of its relevant lending activities during 1977 by census tract on March 31, 1978. Finally, the institution may exercise the report ing options and rely on the residence presumption set forth in §§ 203.4(a) (4) (ii) and 203.4(c) for its 1976 disclosure statement and the January through March 1977 statement if that option is chosen. The second example assumes that a depository institution having a calendar fiscal year ceases to be exempt under § 203.3(a)(1) because its assets exceed $10,000,000 as of December 31, 1977. Pur suant to the applicable provisions of the regulation as outlined in the preceding example, the institution would have to prepare a disclosure statement by March 31, 1978, covering its relevant lending ac tivities during 1977 on a ZIP-code basis. Since the loss of exemption would not have occurred during the course of its fiscal year, no partial fiscal year report would be possible. The options and pre sumption contained in §§ 203.4(a) (4) (ii) and 203.4(c) respectively could be used, however, in preparing the 1977 disclo sure statement. By order of the Board of Governors, March 28, 1977. T h e o d o r e E . A l l is o n , S e c r e ta r y o f th e B o a rd . [P R D oc.77-10618 F ile d 4 - ll - 7 7 ;8 :4 5 a m ] Board of Governors of the Federal Reserve System TRUTH IN LENDING IN TER PRETA TIO N OF REGULATION Z [Reg. Z; Docket No. R-0053] PART 226— TR U TH IN L E N D IN G In te rp re ta tio n o n D is c lo s u re o f A m o u n t of D e a le r P a rtic ip a tio n A G E N C Y : B o a r d o f G o v ern o rs o f t h e F e d e r a l R e se r v e S y ste m . A C T IO N : F in a l ru le. S U M M A R Y : T h e B o a r d h e r e b y a d o p ts a n in te r p r e ta tio n o f R e g u la tio n Z s t a t in g t h a t a d e a le r p a r tic ip a tio n n e e d n o t b e id e n tifie d o r d isc lo se d in T r u th in L e n d in g d isc lo s u r e s a s a s e p a r a te c o m p o n e n t o f t h e fin a n c e ch a r g e . S im u lt a n e o u s w ith t h e a d o p tio n o f t h e in te r p r e ta tio n , t h e B o a r d w ith d r a w s a p rop osed a m e n d m e n t to r e g u la tio n Z w h ic h w ou ld h a v e req u ired s e p a r a te d isc lo s u r e o f t h e e x is te n c e , b u t n o t th e a m o u n t, o f a d e a le r p a r tic ip a tio n . T h e B o a r d ta k e s th is a c tio n b a sed o n its c o n c lu s io n s (1 ) t h a t a d e a le r p a r tic ip a tio n is n o t a “f in d e r ’s f e e or s im ila r c h a r g e ” w it h in t h e m e a n in g o f R e g u la tio n Z a n d s o n e e d n o t b e s e p a r a te ly d isc lo s e d u n d e r t h e p r e s e n t r e g u la tio n , a n d (2 ) t h a t a m e n d in g t h e r e g u la t io n to req u ire se p a r a te d isc lo s u r e o f t h e e x is te n c e o f a d e a le r p a r tic ip a tio n w o u ld n o t s ig n ific a n tly a id c o n su m e r s in sh o p p in g fo r c r e d it b u t w o u ld r e s u lt in m o re c o m p le x T r u th in L e n d in g d is c lo su r e s t a t e m e n t s a n d p o ssib le c o n fu s io n o r m isu n d e r sta n d in g . E F F E C T IV E D A T E : M a r c h 28, 1977. F O R F U R T H E R IN F O R M A T IO N C O N TACT: D . E d w in S c h m e lz e r , C h ief, F a ir C red it P r a c tic e s S e c tio n , D iv isio n o f C o n su m er A ffa irs, B o a r d o f G o v ern o rs o f t h e F e d e r a l R e se r v e S y ste m , W a sh in g to n , D .C . 20551, 2 0 2 -4 5 2 -2 4 1 2 . SUPPLEM ENTARY IN F O R M A T IO N : O n A u g u st 23, 1976, t h e B o a r d o f G o v e r n o rs p u b lish e d fo r c o m m e n t a p ro p o sed I n te r p r e ta tio n § 226.821 o f R e g u la tio n Z r e la tin g to t h e s e p a r a te d isc lo s u r e o f a d e a le r p a r tic ip a tio n in a c o n s u m e r c r e d it tr a n s a c tio n (41 F R 3 5 5 3 6 ). A d e a le r p a r tic ip a tio n is ty p ic a lly a p o r tio n o f t h e in te r e s t c o m p o n e n t o f a fin a n c e c h a r g e w h ic h is a llo c a te d to a se lle r o f co n su m e r g o o d s e ith e r by a c r e d ito r w h ic h p ro v id es dix-ect c o n su m e r f in a n c in g a rr a n g e d th r o u g h th e se lle r o r b y a n a s s ig n e e w h ic h p u r c h a se s a r e ta il in s t a lm e n t c o n tr a c t fr o m t h e se lle r. T h e B o a r d w a s a sk ed to d e te r m in e w h e th e r a d e a le r p a r tic ip a tio n c o n s titu te s a “fin d e r ’s f e e or s im ila r c h a r g e ” w ith in t h e m e a n in g o f § 2 2 6 .4 (a ) (3 ) o f th e r e g u la tio n a n d s o m u s t b e ite m iz e d a n d d isc lo se d a s a s e p a r a te c o m p o n e n t o f t h e fin a n c e c h a r g e p u r su a n t to § 2 2 6 .8 (c) (8 ) ( i ) . T h e p r o p o sed in te i-p r e ta tio n sta te d , in e sse n c e , t h a t in a sm u c h a s a d e a le r p a r tic ip a tio n is sim p ly a p a r t o f th e s in g le c o m p o n e n t o f t h e fin a n c e c h a r g e c o m p u te d by th e a p p lic a tio n o f a p e r c e n ta g e r a te or ra tes to th e a m o u n t fin a n c e d , it is n o t c o n s id ered a fin d e r ’s fe e or s im ila r c h a r g e a n d n e e d n o t be s e p a r a te ly id e n tifie d or d is clo sed . T h e B o a r d r ece iv e d m o r e t h a n 250 c o m m e n ts o n t h e p ro p o sed in te r p r e ta tio n , t h e v a s t m a jo r ity fa v o r in g t h e in te r p r e ta tio n . H o w ev er, c o m m e n ts fr o m F e d e r a l a g e n c ie s a n d c o n su m e r r e p r e s e n ta tiv e s in d ic a te d to t h e B o a r d t h a t c o n su m e r b e n e fits m ig h t b e d eriv ed fr o m d is c lo su r e o f th e e x is te n c e o f a d e a le r p a r t ic i p a tio n . T h e r e fo r e , o n J a n u a r y 6 ,1 9 7 7 , t h e B o a r d p u b lish ed fo r c o m m e n t (42 F R 1268) a p ro p o sed a m e n d m e n t to R e g u la tio n Z w h ic h , if a d o p te d , w o u ld h a v e b eco m e § 2 2 6 .8 (c) (9 ) a n d w h ic h w o u ld h a v e req u ired t h a t in c r e d it s a le s th e d isc lo su r e s t a t e m e n t fu r n is h e d to t h e c o n su m e r c o n ta in , w h e r e a p p lic a b le , a d isc lo su r e o f t h e e x is te n c e b u t n o t t h e a m o u n t o f a d e a le r p a r tic ip a tio n . F o r c o n v e n ie n t r e fe r e n c e , th e p ro p o sed a m e n d m e n t is r e p u b lish e d b e lo w : S e c tio n 226.8— C r e d it e n d — s p e c if ic d i s c lo s u r e s . * * (c) C r e d it s a l e s . * o th e r * th an open * * * * (9) A s t a t e m e n t t h a t th e s e lle r o r o th e r p a r ty to t h e t r a n s a c tio n a r r a n g in g c r e d it m a y re c eiv e fr o m a n o th e r c r e d ito r In t h e t r a n s a c tio n a p o r tio n o f th e fin a n c e c h a r g e im p o s e d o n t h a t tr a n s a c tio n . T h e B o a r d in d ic a te d in p u b lis h in g th e p ro p o sed a m e n d m e n t t h a t it w o u ld ta k e f in a l a c tio n o n th e p ro p o sed I n te r p r e t a tio n § 226.821 in c o n n e c tio n w ith its fin a l d e te r m in a tio n o n t h e p ro p o sed a m e n d m e n t. T h e B o a r d re c e iv e d a p p r o x im a te ly 400 c o m m e n ts o n t h e p ro p o sed a m e n d m e n t to R e g u la tio n Z. T h e c o m m e n ts ca m e fr o m fin a n c ia l in s titu tio n s , a u to m o b ile d e a le r s a n d o t h e r m e r c h a n ts , tr a d e a s so c ia tio n s , a F e d e r a l a g e n c y , S ta t e c o n su m e r a g e n c ie s , c o n su m e r g ro u p s, a u n i v e r s ity c o n su m e r a ffa ir s office, p r iv a te a n d le g a l se r v ic e s a tto r n e y s , a n d p r iv a te in d iv id u a ls. T h e c o m m e n ts c a n re a d ily b e b ro k en d o w n in to th r e e b ro a d c a t e g o r ie s: (1 ) m o re t h a n 81 p e r c e n t o f th e c o m m e n te r s ex p r e sse d o p p o sitio n to th e am endm ent r e q u ir in g d isc lo su r e of d e a le r p a r tic ip a tio n s, (2) o ver 12 p e r c e n t fa v o r e d t h e a m e n d m e n t, a n d (3) m o re t h a n 6 p e r c e n t e x p r e sse d th e b e lie f t h a t th e a m e n d m e n t w a s n o t s t r in g e n t e n o u g h or d id n o t req u ire e n o u g h d is c lo su r e a n d , th e r e fo r e , sh o u ld n o t be a d o p ted . A d d itio n a lly , a s ig n ific a n t n u m ber o f c o m m e n te r s , a lm o s t h a lf o f th o se in c a te g o r y 2 a n d a lm o st a ll o f th o s e in c a te g o r y 3, f e lt t h a t th e a m o u n t a s w ell a s t h e f a c t o f a d e a le r p a r tic ip a tio n sh o u ld b e d isclo sed . A s a r e s u lt o f th e c o m m e n ts rece iv e d , b o th in resp o n se to th e p ro p o sed I n t e r p r e ta tio n § 226.821 a n d t h e p rop osed a m e n d m e n t § 2 2 6 .8 (c) ( 9 ) , th e B o a r d h a s r e a c h e d c e r ta in c o n c lu sio n s w h ic h are s e t fo r th b elow . D e a le r p a r tic ip a tio n is la r g e ly a p h e n o m e n o n o f t h e fin a n c in g o f a u to m o b ile p u r c h a se s, w h e r e in th e a u to m o b ile d ea ler se cu res fin a n c in g fo r a p u r c h a se r fr o m a le n d in g in s titu tio n in c o n n e c tio n w ith t h e s a le o f a car a n d r e ce iv e s so m e p o r tio n o f t h e fin a n c e c h a r g e im p o sed b y t h e le n d in g in s titu tio n . I n a n a lte r n a tiv e m o d e o f p ro ceed in g , t h e d e a le r m a y f i n a n c e th e p u r c h a se o f a c a r fo r it c u s to m e r a n d th e r e a fte r a s s ig n t h e c r e d it a g r e e m e n t to a f in a n c ia l in s t itu t io n a n d rec e iv e a p o r tio n o f t h e fin a n c e c h a r g e im p o sed fr o m t h a t f in a n c ia l in s titu tio n . T y p ic a lly , in c o n n e c tio n w ith th e e x t e n sio n o f c r e d it t o th e c u sto m er, t h e d e a ler in te r v ie w s t h e c u sto m e r a n d ta k e s a c r e d it a p p lic a tio n , p rep a res t h e lo a n d o c u m e n ts, a n d rev iew s t h e te r m s o f th e lo a n a n d r e le v a n t d isc lo su r e s w ith t h e cu sto m e r . T h e cu sto m e r is g e n e r a lly a b le to c o m p le te a ll a sp e c ts o f fin a n c in g h is or h e r p u r c h a se w ith o u t le a v in g t h e d e a le r ’s p la c e o f b u sin e ss. O fte n th e a r r a n g e m e n t b e tw e e n t h e d e a le r a n d th e le n d in g in s t itu t io n p ro v id es fo r “r e c o u r s e ” b y t h e le n d e r a g a in s t t h e d ea ler f o r a n y lo ss su ffe r e d by t h e le n d e r if th e c o n su m e r d e fa u lts o n th e lo a n . B e c a u se o f t h e s e r e so u rse a r r a n g e m e n ts, c o n su m e r s w ith o n ly m a r g in a l c r e d it m a y b e a b le t o o b ta in fin a n c in g fo r m a jo r p u r c h a s e s . T h e d e a le r ’s p a r tic ip a tio n in th e fin a n c e c h a r g e m a y se r v e a s c o m p e n s a t io n fo r t h e w ork d o n e in a r r a n g in g t h e fin a n c in g a n d fo r th e risk o f lo ss w h ic h is sh a r e d w ith t h e le n d in g in s t itu t io n . T h e r e fo r e , t h e B o a r d b e lie v e s t h a t , in m a n y in s ta n c e s , t h e p o r tio n o f t h e f i n a n c e c h a r g e w h ic h rep r e se n ts th e d e a l e r ’s p a r tic ip a tio n is n o t a n a m o u n t w h ic h t h e co n su m e r co u ld sa v e b y o b t a in in g a d ir e c t lo a n from a le n d in g i n s titu tio n . F u r th e r , a lth o u g h r a te s a v a ila b le on d ir e c t lo a n s a re o f te n so m e w h a t lo w er t h a n in d e a le r -a r r a n g e d lo a n s, th e B o a rd b e lie v e s t h a t c o n su m e r s a r e g e n e r a lly a w a re o f th is fa c t. T h e B o a r d fe e ls t h a t d isc lo su r e o f t h e t o t a l fin a n c e ch a r g e , t h e a n n u a l p e r c e n ta g e r a te a n d t h e p e r i o d ic p a y m e n t, a ll req u ired by t h e T r u th in L e n d in g A c t a n d R e g u la tio n Z, t o g e th e r w ith t h e w id esp re a d a d v e r tis e m e n t o f c r e d it term s, h a v e a ffo rd ed a n d c o n tin u e t o a fford c o n su m e r s t h e m o st im p o r ta n t in fo r m a tio n w ith w h ic h t o c o m p a r iso n sh o p f o r c r ed it. T h e B o a r d d o es n o t b e lie v e t h a t t h e p rop osed FEDERAL REGISTER, VOL. 42, NO. 70— TUESDAY, APRIL 12, 1977 [Enc. Cir. No. 8095] ( over ) § 2 2 6 .8 (c ) (9 ) w o u ld s ig n if ic a n tly e n h a n c e t h e c o n su m e r ’s a b ility to sh o p fo r c r e d it. C o n v ersely , t h e a d d itio n o f a n o th e r d isc lo su r e req u ir e m e n t t o R e g u la tio n Z w o u ld r e s u lt in m o re co m p le x d is c lo su r e s t a t e m e n t s a n d c o u ld le a d to c o n fu s io n or m isu n d e r sta n d in g b y c o n su m ers. T h e a d o p tio n o f a n a d d itio n a l d isc lo su r e r e q u ir e m e n t o f d o u b tfu l v a lu e t o c o n su m e r s is a lso c o n tr a r y to th e p e r c e iv ed n e e d fo r s im p lific a tio n o f R e g u la t io n Z. F o r t h e rea so n s s e t fo r th ab ove, th e B o a r d h a s d e te r m in e d to w ith d r a w t h e p ro p o sed § 2 2 6 .8 (c) (9) a n d n o t to r e q u ire t h e d isclo su re o f t h e e x is te n c e o f a d e a le r p a r tic ip a tio n . F u r th erm o re, in t h e B o a r d ’s v iew , In te r p r e ta tio n § 226.821 r e p r e s e n ts a p ro p er a p p lic a tio n o f t h e req u ir e m e n ts o f R e g u la tio n Z to t h e issu e o f d e a le r p a r tic ip a tio n . A d e a ler p a r tic i p a tio n o f t h e ty p e d esc rib ed in t h e in te r p r e ta tio n d iffers fr o m t h e fin d e r ’s fe e or s im ila r c h a r g e w h ic h m u s t b e d is clo se d p u r su a n t t o § 2 2 6 .4 (a ) (3 ) a n d n e e d n o t b e se p a r a te ly ite m iz e d w h e n it c o n s is ts o f a p a r t o f a fin a n c e c h a r g e a t tr ib u ta b le to t h e a p p lic a tio n o f a p e r c e n ta g e r a te or r a te s t o t h e a m o u n t f i n a n c e d . T h e B o a r d a lso n o te s t h a t its p o s itio n is in a cco rd w ith a r e c e n t a p p e l la t e c o u r t d e c is io n o n t h is issu e, M e y e r s v. C l e a r v i e w D o d g e S a l e s , I n c . , 539 F .2d 511 (5 th Cir. 1 9 7 6 ). T h e t e x t o f In te r p r e ta tio n § 226.821, e ffe c tiv e im m e d ia te ly , is a s fo llo w s: § 226.821 D isclosure o f dealer p a rtic i patio n . (a ) S e c tio n 2 2 6 .8 (c ) (8 ) (i) req u ires t h e ite m iz a tio n o f e a c h c o m p o n e n t o f a fin a n c e c h a r g e c o n s is tin g o f m o re t h a n o n e ty p e o f ch a r g e . S e c tio n 2 2 6 .4 (a ) (3) lis ts a m o n g t h e ty p e s o f c h a r g e s t o b e in c lu d e d in t h e fin a n c e c h a r g e a “fin d e r ’s f e e or s im ila r c h a r g e .” I n c e r ta in c r e d it tr a n s a c tio n s , su c h a s t h e s a le o f a u to m o b ile s a n d o th e r c o n su m e r g ood s, w h ere t h e fin a n c e c h a r g e is d e te r m in e d by a p p lic a tio n o f a p e r c e n ta g e r a te or r a te s to t h e a m o u n t fin a n c e d , a p o r tio n o f t h a t c h a r g e m a y b e a llo c a te d to t h e d e a le r b y t h e fin a n c ia l in s t itu t io n a s a d e a le r p a r tic ip a tio n . T h e q u e stio n a rises w h e th e r su c h a llo c a tio n s m u s t b e ite m iz e d a s a se p a r a te c o m p o n e n t o f th e to ta l fin a n c e c h a r g e in t h e n a tu r e of a fin d e r ’s fe e . (b ) T h e r e q u ir e m e n t fo r ite m iz a tio n of a f in a n c e c h a r g e w h ic h in c lu d e s a fin d e r ’s f e e or o th e r e le m e n ts in a d d i tio n to a n in te r e s t c o m p o n e n t is in te n d e d to a ssu r e t h a t t h e to ta l fin a n c e c h a r g e d isc lo s e d to t h e c u sto m e r p ro p erly r e fle c ts a ll c o m p o n e n ts w h ic h m u s t b e i n c lu d ed in t h a t a m o u n t. A n y c o m p o n e n t o f t h e fin a n c e c h a r g e w h ic h is c o m p u ted b y t h e a p p lic a tio n o f a p e r c e n ta g e r a te or r a te s to t h e a m o u n t fin a n c e d c o n s t i tu te s a s in g le c h a r g e o f t h e ty p e d e s crib ed in § 2 2 6 .4 (a ) ( 1 ) . A s su c h , it m u s t b e in c lu d e d in t h e fin a n c e c h a r g e c a lc u la t io n a n d d isclo su re. A p o r tio n o f su c h s in g le c o m p o n e n t o f t h e fin a n c e c h a r g e w h ic h is d istr ib u te d to a d e a le r is n o t c o n sid e r e d a “fin d e r ’s f e e o r sim ila r c h a r g e ” a n d n e e d n o t b e s e p a r a te ly id e n tifie d or d isc lo se d . T h e c o n c e p t o f a “fin d e r ’s f e e ,” a s t h a t te r m is u sed in § 2 2 6 .4 (a ) ( 3 ) , is in te n d e d to co v er c e r ta in c h a r g e s in t h e n a tu r e o f b ro k era g e fe e s w h ic h are im p o sed in a d d itio n to t h a t p o r tio n o f t h e fin a n c e ch a r g e a t tr ib u ta b le to th e a p p lic a tio n o f a p e r c e n ta g e r a te or r a te s to t h e a m o u n t fin a n c e d . A n y su c h s e p a r a te f e e m u st, o f cou rse, b e s e p a r a te ly item ized . ( I n te r p r e ts a n d a p p lie s 12 C F R 226.8.) B y ord er o f th e B o a rd o f G ov ern o rs, M a rch 2 8 ,1 9 7 7 . T h e o d o r e E. A l l i s o n , S e c r e ta r y o f th e B o a r d . (P R D oc.77-10632 P ile d 4 -1 1 -7 7 :8 :4 5 a m ]
@FedFRASER