Full text of Federal Reserve Bank of New York Circulars : 8449. Amendment to Interpretation of Regulation Z

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

FED ER AL RESERVE BANK
O F NEW YORK

Circular No. 8449
November 8, 1978

AMENDMENT TO INTERPRETATION OF REGULATION Z
Notice of Right of Rescission in Open End Credit Plans
To All Member Banks, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has amended an inter­
pretation of Regulation Z, “Truth in Lending,” to modify a sample notice, regard­
ing a consum er’s right of rescission, that a creditor may use to comply with certain
disclosure requirements of the regulation when the creditor proposes a change in the
terms of an open end credit plan secured by the consumer’s residence. The am end­
ment modifies a sample notice that was sent to you with our Circular No. 8401,
dated August 10, 1978. Use by a creditor of the sample notice as originally
suggested will not, however, be a violation of the requirements of Regulation Z.
Enclosed is a copy of the amendment to the Regulation Z interpretation.
Questions regarding the amendment may be directed to our Consumer Affairs
Division (Tel. No. 212-791-5921).




PAUL A. VOLCKER,

President.

Board of Governors of the Federal Reserve System
TRUTH IN LENDING
AM ENDM ENT TO INTERPRETATION OF REGULATION Z
(effective October 31, 1978)

[Reg. Z]
PART 226— TR UTH IN LENDING
Right of Rescission

AGENCY: B oard of G overnors of th e
F ed eral R eserve S ystem .
A CTION: F in al in te rp re ta tio n .
SUM M ARY: T h e B oard h ereb y adopts
an
a m e n d m e n t to
in te rp re ta tio n
§ 226.904 of re g u la tio n Z concerning
disclosures w hich cre d ito rs m ay use to
satisfy c e rta in re q u ire m e n ts of th e
reg u la tio n in con n ectio n w ith open
end cre d it p lans secured by co n su m er’s
residences. S pecifically, th e am en d ­
m e n t m odifies th e sam ple disclosure
w hich cre d ito rs m ay use to advise con­
sum ers of th e ir rig h ts w hen a change
in th e u n d erly in g te rm s of su ch a
cred it p la n is proposed by a creditor.
T h e am ended disclosure is in te n d e d to
em phasize th e se rig h ts of th e co n su m ­
er. H ow ever, use by a cre d ito r of th e
disclosure as o riginally p ro m u lg a ted
by th e B oard sh a ll n o t c o n s titu te a
violation of th e reg u la tio n .
E FF E C T IV E DATE: O ctober 31, 1978.
FOR
FURTHER
IN F O R M A T IO N
CONTACT:
G len n E. Loney, S ectio n C hief, D ivi­
sion of C onsum er A ffairs, B oard of
G overnors of th e F ed eral R eserve
System , W ashington, D.C. 20551
202-452-3867.
S U P PL E M E N T A R Y IN FO R M A T IO N :
O n A ugust 3, 1978, th e B oard p u b ­
lished (43 F R 34111) an a m e n d m e n t to
reg u latio n Z, § 226.9(g)(6) of th e re g u ­
lation, cre atin g an ex c ep tio n to th e re ­
scission provisions of th e reg u la tio n
for individual tra n sa c tio n s u n d er cer­
ta in open end cre d it accounts secured
by co n su m ers’ residences. U nder th e
term s of t h a t am en d m e n t, consum ers
would n o t have th e rig h t to cancel
each individual tra n sa c tio n on such ac­
counts, provided t h a t th e specific r e ­

q u ire m e n ts of th e a m e n d m e n t are
m et.
T h e am e n d m e n t provides, am ong
o th e r th in g s, th a t a cre d ito r m ay n ot
ch an g e th e u n d erly in g te rm s of an
open end ac co u n t secu red by a cu sto m ­
e r ’s hom e w ith o u t a ffo rd in g th e cu s­
to m e r an o p p o rtu n ity to refu se th e
ch a n g e in term s. If th e c u sto m e r re ­
fuses th e p ro p o sed c h a n g e in term s,
th e c re d ito r n eed n o t e x te n d an y f u r ­
th e r c re d it on th e acco u n t; how ever,
th e cu sto m e r re ta in s th e rig h t to co n ­
tin u e to rep ay an y ex istin g obligation
on th e a c co u n t u n d e r th e th e n e x ist­
ing te rm s of th e acco u n t. T h e a m e n d ­
m e n t req u ires t h a t a c re d ito r t h a t p ro ­
poses to ch a n g e th e te rm s of a cu sto m ­
e r ’s a c co u n t disclose th e se rig h ts to
th e custom er.
In te r p r e ta tio n § 226.904 of re g u la ­
tion Z, p u b lish ed by th e B o ard to g e th ­
er w ith th e am en d m e n t, provides,
am ong o th e r th in g s, a sam p le disclo­
su re w hich cre d ito rs m ay use to s a tis­
fy, as to fo rm an d c o n te n t, th e a m e n d ­
m e n t’s disclosure re q u ire m e n ts in co n ­
n ec tio n w ith a p ro p o sed c h a n g e in
term s. F o r co n v en ien t referen ce, th a t
sam p le disclosure is rep ro d u ce d below:
Section 226.9(g)(6)(iii) (Change in Terms)

N otice T o C ustomer R equired B y F ederal
L aw :
(Name of c r e d it o r )----------- -----------------Intends to change the terms of your open
end credit account which is secured by your
home. You have a right to refuse to accept
this change in terms. If you refuse this
change in terms, we have the right to refuse
to extend any further credit on your open
end account and may require you to repay
any existing obligation on your account
under the present terms of the account.
You may exercise your right to refuse the
change in terms within three business days
of (date disclosure delivered to customer)
-------------------------by notifying us at (ad­
dress of creditor's place of business)
------------------------- by mail or telegram sent
not
later than midnight of (date)

-------------- You may also use any other
form of written notice to refuse the change
in terms if it is delivered to the above ad­
dress not later than that time. This notice
may be used for that purpose by dating and
signing below
I hereby refuse tin* change in the
iny account.

terms

(customer’s signature!

It has been suggested to th e B o ard
th a t th e foregoing disclosure, sp ecifi­
cally th e th ird se n ten c e th e re o f, m ay
not su fficien tly in fo rm co n su m ers of
th e rig h ts w hich th e y h av e in th e
ev e n t of a proposed c h a n g e in te rm s of
open end cred it acco u n ts se cu red by
th e ir hom es and, f u rth e r , t h a t th e im ­
pression m ay be cre ate d t h a t th e rig h t
to pay any existing o b lig atio n w ith o u t
th e ch an g e in te rm s is, in fact, a p e n a l­
ty to co n su m ers w ho refu se su ch a
change.
T h e B oard believes t h a t it m ay b en e­
fit consum ers to m odify th e disclosure
se t f o rth above to f u r th e r em p h asize
co n su m ers' rig h ts in co n n e ctio n w ith
ch an g es in th e term s of o p en en d ac­
co u n ts secured by th e ir h o m es an d to
avoid an y im p licatio n t h a t th e se rig h ts
co n s titu te a p en a lty . H ow ever, by
am en d in g th e disclosure, th e B o ard
does not in te n d t h a t use of th e disclo­
su re as o rig in ally p u b lish ed sh a ll co n ­
s titu te a violation of re g u la tio n Z.
In asm u c h as th e follow ing a m e n d ­
m e n t to in te rp re ta tio n § 226.904 co n ­
s titu te s an in te rp re tiv e ru le w ith in th e
m ean in g of 5 U.S.C. §553 (1976), and,
f u rth e r , because th e a m e n d m e n t p ro ­
vides only a sam p le disclo su re wrh ich
c re d ito rs m ay b u t n eed n o t use, th e
B o a rd fin d s t h a t p u b lic atio n of th e
a m e n d m e n t fo r public co m m en t p rio r
to fin a l a d o p tio n an d & d elay in th e e f­
fective d a te of th e a m e n d m e n t a re u n ­
necessary.

PRINTED IN NEW YORK FROM FEDERAL REGISTER, VOL 43, NO. 211

QEnc. Cir. No. 8449^]




of

(Over)

A ccordingly, p u rs u a n t to th e a u th o r ­
ity g ra n te d in 15 U.S.C. 1604 (1976),
th e B o ard h ere b y am en d s official
B o ard in te rp re ta tio n of re g u la tio n Z,
12 C FR 226.904, effective im m ediately,
by d eletin g th e th ird se n te n c e of th e
disclosure
ca p tio n e d
"S ec tio n
226.9(g)(6)(iii) (C h an g e in te rm s )’’
w h ich reads, "If you refu se th is
ch an g e in term s, we have th e rig h t to
refu se to ex ten d any f u r th e r cre d it on
your acco u n t an d m ay re q u ire you to
rep ay any ex istin g o b lig a tio n on y o u r
ac co u n t u n d er th e p re s e n t te rm s of
th e a c c o u n t’’ and s u b s titu tin g th e re fo r
"If you refu se th is c h a n g e in term s,
you h a v e th e rig h t to c o n tin u e to
rep ay y o u r ex istin g o b lig a tio n u n d e r
th e p re se n t te rm s of th e account.




H ow ever, we w ould th e n h av e th e
rig h t to refu se to e x te n d any f u r th e r
cred it, e x c ep t p u r s u a n t to th e se new
te rm s ”, so t h a t th e disclosure read s as
follows:
Section 226.9(g)(6)(iii) (Change in Terms)

N otice To C ustomer R equired

B y F ederal

Law :

(Name of C red ito r)--------------------------- -----Intends to change the terms of your open
end credit account which is secured by your
home. You have a right to refuse to accept
this change in terms. If you refuse this
change in terms, you have the right to con­
tinue to repay your existing obligation
under the present terms of the account.
However, we would then have the right to
refuse to extend any further credit, except
pursuant to these new terms. You may exer­
cise your right to refuse the change in terms
within three business days of (date disclo­

sure
delivered
to
customer)
— — -------------- by notifying us at (ad­
dress of creditor’s place of business)
-------------------------by mail or telegram sent
not later than midnight of (date)
---------------. You may also use any other
form of written notice to refuse the change
in terms if it is delivered to the above ad­
dress not later than that time. This notice
may be used for that purpose by dating and
signing below.
I hereby refuse the change in the terms of
my account,
(date; -------------- ------------------------------------(customer’s signature)

By o rd er of th e B o ard of G ovenors,
O cto b er 23, 1978.
T h e o d o r e E. A l l i s o n .
Secretary o f the Board,