Full text of Federal Reserve Bank of New York Circulars : 8814. Truth in Lending Simplification and Reform Act

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FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 8 8 1 4
L May 1, 1980

TRUTH IN LENDING SIMPLIFICATION AND REFORM ACT
Comment Invited on Proposed Revision of Regulation Z

To A ll Member Banks, and Others Concerned,
in the Second Federal Reserve D istrict:

The Board of Governors of the Federal Reserve System has proposed a revision of its
Regulation Z, “Truth in Lending,” to carry out the objectives of the Truth in Lending Simplification
and Reform Act (Title VI of the Depository Institutions Deregulation and Monetary Control Act
of 1980—Public Law 96-221), which became law on March 31, 1980. The revised regulation will
become effective when adopted in final form, not later than April 1, 1981.
Comments on the proposed revision of Regulation Z should be submitted by July 31, 1980, and
may be sent to our Consumer Affairs and Bank Regulations Department.
The following is quoted from the text of the Board’s announcement:
The proposed revision would make nearly a dozen major simplifying, clarifying and streamlining changes
in Regulation Z in conformity with the Act. In addition, t^e Board issued model disclosure forms and language
aimed at giving creditors a ready-made means of complying with the requirements of the Truth in Lending Act
and Regulation Z and thereby assure borrowers of a higher level of compliance.
The Board’s proposals also include a number of changes in the regulation that the Board regards as desirable
simplifications and clarifications, but that are not expressly mandated or permitted by the new Act. The Board
requested especially that it receive comment on the merits of including these proposed changes in the revision
of Regulation Z and whether, if they are used, they should be modified. These proposals include a number of
new definitions intended to facilitate compliance by creditors and to increase knowledge by borrowers of their
rights.
In making its proposals to simplify and clarify the regulatory requirements under the Truth in Lending
Act, the Board said:
The proposed revision of Regulation Z reflects not only the Truth in Lending Simplification and
Reform Act, but also the work of the Board’s staff and the staff of the Federal Reserve Bank of Atlanta
in rewriting the regulation as part of the Board’s Regulatory Improvement Project to reexamine and
reevaluate all Federal Reserve regulations. It is the beginning of the final phase of an effort that began
three years ago with the Board’s submission to the Congress of a proposal for revising and simplifying
the Truth in Lending Act.
Although the revised statute and regulation simplify current requirements, the law remains relatively
complex. Consumer credit and personal property leases are offered in a wide diversity\of forms, on a
revolving or closed-end basis; payable on demand or in equal or graduated installments; secured or
unsecured; and with or without credit and property insurance, which may be voluntary or required. It
may be requested in person, by mail, or by telephone and may be refinanced, assumed, or deferred. The
same variety occurs with leases. A regulatory scheme that tries to accommodate such diverse arrangements
must itself be diverse and, hence, to an extent, complicated. The proposed restructuring of the regulation
is an attempt to make that complexity more manageable.
Understanding of, and compliance with, disclosure requirements should be enhanced, however, by
the inclusion of model forms and language. The models translate the details of the regulation into a straight­
forward, easy-to-understand format for the consumer. At the same time the suggested forms or language,
properly used, would protect the creditor or lessor from civil liability.
The Board noted, further:
That the proposed revision of Regulation Z would (1) reduce required disclosures from 24 to 12, and
(2) provide consumers with more practical credit-shopping assistance by allowing advertising-like disclosures




(

over)

of the creditor’s representative credit terms, which must be available to the public at large.
These proposed changes are both intended to enhance the consumer’s ability to comprehend and benefit
from the disclosure requirements of the Act and the regulation.

Enclosed is the text of the Board’s summary of the proposed revision and of the two principal
proposed model forms. The full text of the proposal (encompassing over 150 pages) will be published
in the Federal Register; single copies will also be available upon request directed to our Circulars
Division.




A

nthony

M. S o l o m o n ,

President.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

TRUTH IN LENDING
Revision of Regulation Z

SUMMARY: The Board seeks public comment on a completely revised version of
Regulation Z. The proposed revision of the regulation is based upon the
Truth in Lending Simplification and Reform Act, which is Title VI of the
Depository Institutions Deregulation and Monetary Control Act (Public Law
96-221). The act was signed into law on March 31, 1980, and will become
fully effective on April 1, 1982, with an implementing regulation required
to be in place by April 1, 1981.
DATE:

Comments must be received on or before July 31, 1980.

ADDRESS: Comments may be mailed to the Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551 or delivered to Room B-2223,
20th and Constitution Avenue, N.W., Washington, D.C. 20551, between 8:45 a.ra.
and 5:15 p.m. Comments may also be inspected at Room B-1122 between 8:45
a.ra. and 5:15 p.m. The comments should refer to docket number R-0288.
FOR FURTHER INFORMATION CONTACT: In general, Robert C. Plows, Assistant
Director (202/452-3667); for Subpart B, Maureen P. English, Section Chief
(202/452-3867); for Subparts A, C, and E, Margaret A. Stewart (202/452-2412)
or Ellen Maland (202/452-3867), Senior Attorneys; and for Subpart D, Lynne B.
Barr, Senior Attorney, (202/452-2412), Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington, D.C.
20551.
Major Changes
The proposals would make eleven major changes in the regulation.
The proposals would:
° Restructure the regulation* s format to group together related
provisions in separate subparts. Although that results in some duplication
and therefore lengthening of the regulation, it means that the substantive
rules for closed-end (for example, installment and mortgage) credit, open-end
(for example, revolving) credit, and personal property leases are presented
separately, eliminating the need to search through the regulation for the
applicable provisions.
° Incorporate into the regulation the substance of many Board
and staff interpretations and clarify several troublesome questions raised
by court decisions.
° Include model disclosure forms and language to enhance under­
standing and compliance and to provide a safe harbor from civil liability
for those who make proper use of the models.
Exempt agricultural credit from disclosure requirements.

[Enc. Cir. No. 8814]


http://fraser.stlouisfed.org/
Federal Reserve Bank of St.
Louis
-

A

-2-

Encourage early disclosure through the use of streamlined
closed-end credit disclosures reflecting representative transactions. In the
Board's view, that is the most innovative provision in the proposed amended
regulation. It is designed to provide consumers with a realistic opportunity
for credit shopping. If implemented, it has the potential to become the
single most effective mechanism for achieving the statutory goal of fostering
the informed use of credit.
Eliminate 12 of the 24 closed-end credit disclosures currently
required for certain transactions, while permitting consumers to request an
explanation of how the credit proceeds were disbursed if they desire.
Require for the first time that closed-end credit and consumer
lease disclosures be placed together and segregated from other contract pro­
visions and any other federal or state disclosures.
Eliminate many of the current format requirements for openend credit disclosures, thereby giving creditors more flexibility in designing
their forms to convey necessary information more effectively.
Conform the open-end credit disclosures to the requirements
of Regulation E (Electronic Fund Transfers) wherever necessary and possible.
Exempt from the right of rescission advances made under an
open-end credit account that is secured by the consumer's home.
Although, like the new statute, the Board's proposals do not
materially change open-end credit disclosures, they clarify a number of
points about those disclosures and ease several requirements regarding
billing statements and error notices.
Regulatory Options
The proposals incorporate several requirements that are not expressly
mandated by statute. The Board specifically invites comments on the merits
of including those requirements and on how they might be modified to further
the purposes of the amended Truth in Lending Act. Examples of such provisions
are:
0 The proposals would define certain refinancings and assumptions
of existing closed-end credit obligations as new transactions requiring new
disclosures. It also requires advance notice of changes affecting open-end
credit plans. In both instances, it generally follows the current regulation.
The proposals would require an explanation of any variable
rate feature in a consumer credit obligation.
° For an obligation payable on demand, the proposals would require
disclosure of the demand feature and further requires that other relevant
disclosures be based upon a one-year assumed maturity, unless the creditor
and consumer agree upon a repayment schedule.




-3-

0 The proposals would mandate that a deposit or investment required
by a creditor as a condition for granting credit be taken into account in
calculating the annual percentage rate for the transaction, unless the deposit
or investment will earn interest or dividends during the period that credit
is outstanding.
#

The proposals would define:

—
Consummation of a transaction, in part, as the payment by a
consumer of any nonrefundable fee, other than a good-faith application fee.
—

A creditor's business days to include Saturdays.

—

A billing cycle to be no longer than a quarter of a year.

—

A consumer to include a guarantor or similar party.

In addition to these and other requirements not expressly mandated
by the statute, the proposals also offer several options not expressly per­
mitted by the act. The Board specifically invites comment on the appropriate­
ness of the following options:
° The most significant option for creditors contained in the pro­
posal is the so-called alternate shopping disclosures— advertisement-like
disclosures that generally may be made in lieu of the regular, transactional
disclosures. The Board is particularly eager to receive comment on that idea.
Other proposed options would:
° Permit a number of payment irregularities to be disregarded
in making disclosures.
° Require the disclosure of only the initial insurance premium
as the relevant cost disclosure to exclude credit life, accident, health, and
property insurance from the finance charge.
°

Permit fewer disclosures to be made for interim student loans.

Attached are several model forms and clauses that reflect some of
the proposed revisions to the regulation for closed-end credit. Although use
of these models would not be mandatory, creditors properly using them would
be considered to be in compliance with the requirements of the regulation.
Comment on these forms and clauses is particularly welcome.




Prepayment
If you pay off early, [you are [not] entitled to a refund of some of
the finance charge.]
[you will pay a penalty.]
See your contract documents for additional information about nonpayment, default, our
right to accelerate your debt, and prepayment rebates and penalties.
**

A subsequent purchaser or assignee may [not] assume this obligation on its original terras.
[I have received a copy of this statement.]

[_____________________________________

3

(name)

*This disclosure is required only for credit sales.
and loans are identical.

[_________________________ ]
(date)

Otherwise, disclosures for sales

**This disclosure is required only for residential mortgage transactions.

id




MODEL FORM FOR TRANSACTIONAL DISCLOSURES

(Name of Creditor)
(Address)

FINANCE CHARGE (the dollar amount the credit will cost you)

J>____________

ANNUAL PERCENTAGE RATE (the cost of your credit as a yearly rate)

____________%

Amount Financed (the amount of credit provided to you or on your behalf)

_$

You have the right to receive a written itemization of the Amount Financed
at this time. Please initial the appropriate space.
____

Yes, I want a written itemization.
No, I do not want a written itemization.

Total of Payments (the amount you will pay when you make all payments as
scheduled)
$
The total of payments will be paid in _______[monthly] payments of $________
starting on _________ and due on the ________ day of each [month] .
* Total Sale Price (the total cost of your purchase on credit, including
your downpayment of $________ )_

$______

Insurance
Credit life and disability insurance is not required to obtain credit, and it
will not be provided unless you sign and agree to pay the additional cost.
The cost for such insurance is :
Credit Life [for _____ years]

$________

Credit Disability [for ____ years]

$________

______ I want credit life insurance
______ I want credit disability insurance

(signature)
Property insurance may be provided by anyone you choose.
us, the cost will be $_______ .]

[If you get the insurance from

Late Charge
You will be charged [$_______ ] [_____ % of the payment] if a payment is
not received within _____ days of its due date.
Security
We are taking a security interest in [the goods being purchased.]
[
___________________________ .]
(other property)
[Enc. Cir. No. 8814]




(Over)

New Car Financing
15% ANNUAL PERCENTAGE RATE (the cost of your credit expressed as a yearly rate)
Loan Terra
(in months)

Amount Financed*

36

$5000
6000
7000

48

5000
6000
7000

Monthly Payment
Amount
$

173.33
207 .99
242.66

139.15
166.98
194.82

Total of
Payments**

FINANCE CHARGE (the dollar
amount the credit will cost you)

$

$

6239.76
7487.71
8735.66

6679.38
8015.26
9351.13

1239.76
1487 .71
1735.66

1679.38
2015.26
2351.13

*The amount financed is the amount of credit provided to you or on your behalf, figured by taking the cash price
of the car, subtracting the downpayment (including any trade-in) and any finance charge you must pay at the time
of purchase, and adding other items you wish to finance, such as insurance.
You have the right to receive a written itemization of the amount financed before your purchase is completed, if
you request it in writing.
**The total of payments is the amount you will pay when you make all payments as scheduled. The total of pay­
ments plus your downpayment and trade-in equals the total sale price of your car bought on credit.
Your new car will serve as security for repayment.
If any payment is more than 10 days late, you will have to pay a late charge of $5.
If you pay off early, you will be entitled to a refund of some of the finance charge.
For more information on the effects of early payment, default, nonpayment and our right to accelerate your debt,
see the installment sales agreement.
[Enc. Cir. No. 8814]



Proposed Rulemaking
Federal Reserve System
[12 CFR Part 226]
[Reg* Z; Docket No. R-0288]
TRUTH IN LENDING
Revision of Regulation Z

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Proposed rule.

SUMMARY: The Board seeks public comment on a completely revised version of
Regulation Z. The proposed revision of the regulation is necessitated by the
adoption of the Truth in Lending Simplification and. Reform Act, which is
Title VI of the Depository Institutions Deregulation and Monetary Control Act
(Public Law 96-221). The act was signed into law on March 31, 1980, and will
become fully effective on April 1, 1982, with an implementing regulation
required to be in place by April 1, 1981.
DATE:

Comments must be received on or before July 31, 1980.

ADDRESS: Comments may be mailed to the Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, or delivered to Room B-2223,
20th and Constitution Avenue, N.W., Washington, D.C., between 8-:45 a.m and
5:15 p.m. Comments may also be inspected at Room B-1122 between 8:45 a.m.
and 5:15 p.m. The comments should refer to docket number R-0288.
FOR FURTHER INFORMATION CONTACT: In general, Robert C. Plows, Assistant
Director (202/452-3667); for Subpart B, Maureen P. English, Section Chief
(202/452-3867); for Subparts A, C, and E, Margaret A. Stewart (202/452-2412)
or Ellen Maland (202/452-3867), Senior Attorneys; and for Subpart D, Lynne B.
Barr, Senior Attorney, (202/452-2412), Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington, D.C.
20551.
SUPPLEMENTARY INFORMATION:
Introduction
On March 31, 1980, the President signed into law the Truth in Lending
Simplification and Reform Act (Title VI of Public Law 96-221, the Depository
Institutions Deregulation and Monetary Control Act). The simplification
act significantly amends the Truth in Lending and Fair Credit Billing Acts
(Title 15, sections 1601 through 1666 of the United States Code) and will
become fully effective on April 1, 1982. The act mandates that an implementing
regulation be in place by April 1, 1981, and provides that a creditor may
comply with the new law as soon as the regulation is adopted in final form.




-2-

The accompanying proposal represents the first step in implementing
that mandate.
It is also the product of the first stage of the comprehensive
review of Regulation Z undertaken pursuant to the Board's Regulatory Improve­
ment Project. The purpose of that review is to determine how the regulation
and related interpretations can be modified within the revised statutory frame­
work to implement more effectively the comparative and descriptive disclosure
functions intended by the Congress, while also providing creditors and lessors
with clearer, more understandable, and less burdensome rules.
Although the simplification act does not change any of the provisions
of the Consumer Leasing Act (Title 15,’section 1667 of the United States Code),
which is also implemented by Regulation Z, the accompanying proposal includes
revised rules (Subpart D) on consumer leasing to parallel as much as possible
the proposed changes in the other portions of the draft regulation. If the
Congress makes any amendments to the Consumer Leasing Act, the proposed reg­
ulation will be altered to reflect those amendments.
Although the proposal would simplify current requirements, the law
remains relatively complex for two reasons. First, consumer credit and
personal property leases are offered in a wide diversity of forms. For
example, credit may be available on a revolving or closed-end basis; payable
on demand or in equal or graduated installments; with a precomputed finance
charge, on a simple interest basis, or both; secured or unsecured: and with
or without credit and property insurance, which may be voluntary or required.
It may be requested in person, by mail, or by telephone and may be refinanced,
assumed, or deferred. Nearly the same variety occurs with leases. A regula­
tory scheme that tries to accommodate such diverse arrangements must itself
be diverse and, hence, to an extent, complicated.
Second, the revised statute continues to provide for significant
civil penalties for violations (between $100 and $1000 for each violation, up
to $500,000 in a class action, plus attorney's fees and court costs). Since
there have been thousands of court suits involving alleged violations over the
past 11 years, creditors and lessors have demanded specificity in the disclosure
rules. That has been the principal impetus for the 65 Board interpretations
and approximately 1500 published staff letters that have been issued since
1969. The new statute reduces the number of disclosures that are subject to
statutory penalties; on the other hand, it makes understatements of the annual
percentage rate and finance charge subject to administratively ordered restitu­
tion. Thus, the need for specificity spawned by the concern over damages
remains.

Major Changes
The proposal makes at least eleven major changes in the regulation.
It restructures the regulation's format to group together related
provisions in separate subparts. Although that results in some duplication
and therefore lengthening of the regulation, it means that the substantive
rules for closed-end (for example, installment and mortgage) credit, open-end
(for example, revolving) credit, and personal property leases are presented




-3-

separately, eliminating the need to search through the regulation for the
applicable provisions.
It incorporates into the regulation the substance of many Board
and staff interpretations and clarifies several troublesome questions raised
by court decisions.
It includes model disclosure forms and language to enhance under­
standing and compliance and to provide a safe harbor from civil liability.
It exempts agricultural credit from disclosure requirements.
It encourages early disclosure through the use of streamlined
closed-end credit disclosures reflecting representative transactions. In the
Board's view, that is the most innovative change in the regulation and is
designed to provide consumers with a realistic opportunity for credit shopping.
If implemented, it has the potential to become the single most effective
mechanism for achieving the statutory goal of fostering the informed use of
credit.
It eliminates 12 of the 24 closed-end credit disclosures currently
required for certain transactions, while permitting consumers to request an
explanation of how the credit proceeds were disbursed if they desire.
It requires for the first time that closed-end credit disclosures
be placed together and segregated from other contract provisions and any other
federal or state disclosures.
* Although, like the new statute, it does not materially change the
open-end credit disclosures, it clarifies a number of points about those dis­
closures and eases several requirements regarding billing statements and error
notices.
* It eliminates many of the current format requirements for openend credit disclosures, thereby giving creditors more flexibility in designing
their forms to convey necessary information more effectively.
It conforms the open-end credit disclosures to the requirements
of Regulation E (Electronic Fund Transfers) wherever necessary and possible.
* It exempts from the right of rescission advances made under an
open-end credit account that is secured by the consumer's home.
Regulatory Options
The proposal incorporates several requirements that are not expressly
mandated by statute. The Board specifically invites comments on the merits
of including those requirements and on how they might be modified to further
the purposes of the amended Truth in Lending Act. Examples of such provisions
are:
° The proposal defines certain refinancings and assumptions of
existing closed-end credit obligations as new transactions requiring new dis­
closures. It also requires advance notice of changes affecting open-end
credit plans. In both instances, it generally follows the current regulation.



-4-

0 The proposal requires an explanation of any variable rate feature
in a consumer credit obligation.
° For an obligation payable on demand, the proposal requires dis­
closure of the demand feature and further requires that other relevant dis­
closures be based on a one-year assumed maturity, unless the creditor and
consumer agree upon a repayment schedule.
* It mandates that a deposit or investment required by a creditor
as a condition for granting credit be taken into account in calculating the
annual percentage rate for the transaction, unless the deposit or investment''
will earn interest or dividends during the period that credit is outstanding.
* It defines consummation of a transaction, in part, as the payment
by a consumer of any nonrefundable fee, other than a good-faith application fee.
It defines a creditor's business days to include Saturdays.
It defines a billing cycle to be no longer than a quarter of a
year.
°

It defines a consumer to include a guarantor or similar party.

In addition to those and other requirements not expressly mandated
by the statute, the proposal also offers several options not expressly
permitted by the act. The Board specifically invites comment on the appro­
priateness of these options.
* The most significant option for creditors contained in the
proposal is the 30 -called alternate shopping disclosures— advertisement-like
disclosures that generally may be made in lieu of the regular, transactional
disclosures. The Board is particularly eager to receive comment on that idea.
* It permits a number of payment irregularities to be disregarded
in making disclosures.
* It requires the disclosure of only the initial insurance premium
as the relevant cost disclosure to exclude credit life, accident, health, and
property insurance from the finance charge.
*

It permits fewer disclosures to be made for interim student

loans.
There are, of course, other provisions in the proposal that are not
derived directly from the statute, and the Board invites comment on those
points as well. The Board 3eeks comment on the organizational structure
of the proposal and whether the division into subparts is helpful. It also
would appreciate comments on whether additional model forms and clauses should
be provided and, if so, suggestions about what would be useful. Eventually
the Board intends to provide an official commentary to accompany the revised
regulation. In considering how to present the commentary, the Board would
like to know whether official comments should follow each regulatory section
in the style of the Uniform Commercial Code or whether the comments should be
presented together in a separate document.



-5-

The various supplements to Regulation Z are not included in this
proposal since the Board has not made any revisions to them at this time. If
revisions do become necessary, the Board expects to publish them for comment
later.

Discussion of Proposal
SUBPART A— GENERAL

Section 226.1— Authority, purpose, scope, organization, circumvention or evasion.
Paragraphs (a) and (b), on authority and purpose of the regulation
restate what is contained in present § 226.1(a). The proposed scope paragraph
has been drafted to explain clearly the coverage of the regulation.
The draft regulation has been significantly reorganized by divid­
ing it into five subparts— grouping together provisions relating to general
matters (coverage, definitions, exemptions, finance charge), open-end credit,
closed-end credit, consumer leasing, and miscellaneous rules (record reten­
tion, Spanish language disclosures, effect on state laws, state exemptions,
staff interpretations). To explain that new structure, paragraph (d) on
organization has been added.
The final paragraph, prohibiting circumvention or evasion of the
proposed regulation, is also new. It is designed to prevent a creditor
from avoiding disclosure responsibilities by taking an otherwise permis­
sible action for the purpose of circumventing or evading the regulation's
requirements. For example, a required deposit balance is defined in proposed
§ 226.2(z) as a balance or investment that does not earn interest or dividends
during the terra of the obligation. If a creditor paid a nominal dividend or
interest payment on a balance or investment in order to avoid having to take
account of what would be, absent the nominal interest or dividend, a required
deposit balance, that would constitute circumvention or evasion of the regu­
lation and would violate this proposed paragraph.
The provisions on administrative enforcement and civil liability
currently in the regulation (present § 226.1(b) and (c)) have been deleted
as unnecessary, since the entire statute, including the provisions addressing
these matters, will be reprinted in an appendix to the regulation. The provision
on the issuance of staff interpretations (current § 226.1(d)) appears in proposed
§ 226.21 in Subpart E.

Section 226.2— Definitions and rules of construction.
Section 226.2 incorporates virtually all of the defined terms
used in Regulation Z. For ease of reference, they have been assembled into
one section, even though several definitions, such as those pertaining to
leases, may be relevant to only one or two substantive sections. Several




-6-

terms are defined only in the substantive sections to which they relate, pri­
marily because they relate to only one particular provision or because they
have different definitions depending on the section to which they apply. A
number of the terms come directly from statutory definitions, while others
have been added to clarify regulatory provisions or to reduce the need for
repetition.
Section 226.2(a) describes advertisements that may be subject to
§§ 226.10, 226.14 or 226.16. The definition, which has no statutory counterpart,
is based on § 226.2(d) of the current regulation. The definition includes
commercial messages in any visual, oral, or print medium such as television,
radio, or newspaper. It is not intended to encompass direct personal contact
such as telephone conversations or door-to-door sales, but it does include
commercial messages in pamphlets, brochures, and other printed material.
The second sentence of the definition specifically excludes the
alternate shopping disclosures described in § 226.11(h). These shopping
disclosures may well contain commercial messages, but creditors utilizing
this alternative would not thereby trigger the advertising requirements.
The definition of "arrange for a lease" in § 226.2(b) is drawn from
the present § 226.2(h).
The definition of an "arranger of credit" under § 226.2(c) is based
primarily on amended § 103(f) of the act, which includes in the definition
of "creditor" persons in the business of arranging credit under certain
circumstances. It replaces the existing definition in § 226.2(h) and is
intended to include only professional arrangers acting on behalf of primary
lenders who are not themselves "creditors." The credit extended must also
be subject to a finance charge or be payable by agreement in more than four
installments. The proposal•does not attempt to describe what constitutes
the degree of involvement in the transaction necessary to bring the person's
activities under the regulation. Under the current definition, an arranger
is one who either receives compensation for the service or prepares the
contract documents with knowledge of their terms. The statute does not use
such a standard and the Board believes that its inclusion in the regulation
may be unnecessary, in view of the fact that the person's activities must be
conducted on a regular professional basis in order to come within the defini­
tion. The Board solicits comment, however, on whether further guidance may
be needed with regard to this determination.
The definition of "billing cycle" corresponds to present § 226.2(i).
The proposal retains the present provision allowing intervals to be considered
equal for purposes of computing the annual percentage rate unless the day or
date varies by more than four days from the regular one. The definition has
been modified to reflect that the creditor may establish regular days, as well
as regular dates, on which to send periodic statements, without having to rely
on the four-day variance in order to ignore the difference in the number of
days within the cycle. For example, a creditor could use the third Thursday
of every month as a regular billing day. The Board solicits comment on
whether this four-day variance should be retained in its present form.
The definition also has been amended to make clear that the provisions
concerning periodic statements apply regardless of whether the creditor "bills" in
the traditional sense or merely sends a statement of the account, as many credit
unions do.



-7-

"Board" is defined here in order to avoid needless repetition elsewhere
in the regulation.
"Business day " which was previously defined only in a footnote to
present § 226.9(a), has been included in the definitional section. The defi­
nition relates not only to the rescission requirements, but also to certain
open-end credit provisions such as prompt notification of returns and crediting
of refunds under proposed § 226.8(e).
The definition of "cardholder" in § 226.2(g) is essentially unchanged
from § 226.2(m) of the present regulation. The first clause has been modified
to emphasize that a cardholder includes any person to whom a credit card is
issued, even for a business or commercial purpose. This is in direct contrast
to the general applicability of Regulation Z, since business or commercial
credit is normally exempted from coverage.
The definition of "card issuer" in proposed § 226.2(h) is substantially
similar to current S 226.2(1).
"Cash price" is defined in § 226.2(i). While no longer a required
disclosure unless the consumer requests itemization of the amount financed,
the amount of the cash price is still useful as a starting point in computing
the amount financed under § 226.11. The proposed definition is similar to
current § 226.2(n), but has been amended to emphasize that charges imposed
equally in both cash and credit transactions may be included in this amount.
For example, license and registration fees, to the extent they are equally
imposed on cash and credit customers, may be incorporated in this amount.
As before, however, any charge which constitutes a finance charge under
§ 226.4 must be excluded from this amount.
Section 226.2(j), "closed-end credit," defines the term which has
long been used unofficially to describe the type of credit referred to in the
act as "other than open end." Closed-end credit continues to be defined by
exclusion; that is to say, if credit does not fit the definition of open-end
credit, it must be considered closed-end. Subpart C sets forth the substantive
rules applying to these transactions.
The definition of "consumer" in § 226.2(k) is based partly on the
statutory definition in § 103(h) and partly on the definition of "customer"
in present § 226.2(u). The definition includes a cardholder as well as a
natural person, emphasizing the fact that several of the credit card provisions
protect cardholders who are organizations as well as individuals. The list
of secondary parties, such as sureties, has been amended to indicate that
the list is not exclusive. Other persons in a similar position may also
constitute consumers, even if they cannot technically be categorized as one
of the parties listed.
"Consumer credit" in § 226.2(1) clarifies that there must be both a
consumer and a creditor, as those terms are defined in the proposal. The
definition also eliminates agricultural purpose credit from the types of
credit which are subject to the regulation. This reflects its recent
deletion from the coverage of the Truth in Lending Act under amended § 104(1).




-8-

The ''consumer lease" definition in § 226.2(m) is similar to that in
the current regulation, although the language has been simplified by the
deletion of material believed unnecessary. The proposal makes clear that the
original term of the lease must be more than four months to make the lease
subject to the regulation. There has been litigation on the issue of whether
a month-to-month lease (with no penalty for cancelling before five months
and with an obligation only to pay the rental and any accrued and unpaid charges)
constitutes a "consumer lease" or a "credit sale," as defined in the regulation.
The Board generally does not think that such leases are subject to either the
credit or the leasing provisions of Regulation Z. The Board solicits comment
on whether additional clarification is needed, either in the definition or in
the commentary to the regulation.
The definition of "consummation" in § 226.2(n) is important because
in most closed-end credit transactions and leases it determines the time by
which disclosures must be given. Additionally, the occurrence of consummation
is one condition for starting the running of the rescission period in certain
transactions. The proposed definition would change the approach reflected
in present § 226.2(kk). Currently, consummation is defined in terms of the
creation of a contractual relationship, a matter normally determined by
reference to state law. The new definition, which has no statutory counter­
part, would place the time of consummation at the point when the consumer
becomes bound to the transaction legally or financially. As in the current
regulation this may occur when a contractual relationship i3 created. Under
the proposed definition, however, the prospect of economic loss, such as for­
feiture of a nonrefundable fee, would also constitute consummation, since
the consumer at this point could no longer reject the terms of the transaction
without incurring cost. It should be emphasized that the payment of an appli­
cation fee, even though nonrefundable, would not constitute consummation.
"Credit" as defined in § 226.2(o) is similar to § 103(e) of the
act and § 226.2(q) of the current regulation. However, the language relating
to the purchase of property or services in the current regulation has been
eliminated as unnecessary. The Board believes that the statutory language
regarding the incurring of debt applies equally to purchase and loan trans­
actions. Comment is requested on whether the regulation should specifically
address whether "credit" includes such situations as home construction con­
tracts with payments made as the work progresses, layaway plans, insurance
policy loans, and obligations arising from court judgments.
Section 226.2(p), defining "credit card," implements § 103(k) of
the act and is not substantially changed from current § 226.2(r). The credit
card must be usable "from time to time"; this standard contemplates repeated
use of a single device and therefore the definition excludes checks and similar
instruments usable only once to obtain a single credit extension.
The definition of "creditor" in § 226.2(q) determines which persons
bear responsibility for most Truth in Lending requirements. The definition
is substantially changed from present § 226.2(s), primarily to reflect amended
§ 103(f) of the act and to simplify the current provision.




-9-

The definition describes four types of persons, each of whom inde­
pendently constitutes a creditor. Section 226.2(q)(l) reflects the basic
definition in the act, and it has two parts. Paragraph (q)Cl)(i) incor­
porates the current regulatory standard, under which a person must regularly
extend credit payable by agreement in more than four installments or that may
be subject to a finance charge. Paragraph (q)(l)(ii) is a departure from the
present regulation and is mandated by amended § 103(f)(2) of the act. Under
the new statutory provision, the debt must also be payable to a person in
order for that person to be a creditor. This new definition should eliminate
many questions raised under the current definition about whether assignees
of contracts are "creditors” for purposes of Truth in Lending. (Note, however,
that assignees may still be subject to civil liability for disclosure viola­
tions; see new § 131 of the act.)
Paragraphs (q)(2), (q)(3), and (q)(4) of this section define other
persons who are considered creditors, even though they may not meet the condi­
tions set forth in the first subparagraph. These provisions incorporate
other aspects of the creditor definition in § 103(f).
One who is an arranger of credit within the meaning of § 226.2(c) is
a creditor under paragraph (q)(2). This provision encompasses professional
arrangers such as loan brokers, but only where the credit extender is not
itself a creditor under the regulation. If the latter is a creditor— and thus
responsible for Truth in Lending disclosures— Congress apparently considered it
unnecessary to require the arranger to duplicate those responsibilities by
bringing it within the definition.
Card issuers as defined by § 226.2(h) are creditors by virtue of
paragraph (q)(3). This aspect of the definition imposes creditor responsibil­
ities even on those card issuers whose plans involve no finance charge and no
agreement to repay in more than four installments.
Under paragraph (q)(4), a person who honors a credit card and does
not otherwise come within the definition would be a creditor for certain
limited purposes. This provision, like its counterpart in the current regula­
tion, would apply primarily to merchants accepting third-party credit cards.
Even though they are not otherwise creditors, they must comply with the
regulatory requirements regarding discounts for cash, finance charges imposed
at the time of a transaction, and prompt notification to card issuers when
merchandise is returned.
The definition of "credit sale" in § 226.2(r) implements § 103(g)
of the act and is similar to current § 226.2(t). The distinction between
sale and non-sale credit is less significant in this proposal than in the
current regulation, where the disclosure requirements for credit sales are
more extensive. However, the distinction must still be made, since several
disclosures, such as "total sale price" under proposed § 226.11(f)(9), continue
to apply only to thi3 type of credit. Note that if the seller of the goods or
services involved is not a creditor as to that sale, even though it may have
arranged for financing, the transaction does not constitute a credit sale.
The definition includes bailments or leases meeting the conditions in paragraphs
(r)(l) and (r)(2), unless the consumer may cancel the agreement at any time
without incurring a penalty, such as forfeiture of a deposit.




-10-

Section 226.2(s), which defines "dwelling," implements § 103(v) of
the act, as amended.
In contrast to present § 226.2(v), it includes mobile
homes and cooperatives, as well as other residential units. A residence
need not be classified as realty under state law, as is generally required
under the present definition, in order to be considered a dwelling. This
expanded definition is particularly important with regard to the right of
rescission (since the proposal speaks in terms of "dwelling" rather than
"residence") and with regard to the special rules for residential mortgage
transactions.
The definition of "lessor" in § 226.2(t) is essentially the same as
present § 226.2(oo), except that it eliminates the language about "ordinary
course of business." That language is unnecessary since the definition
already requires that the actions be performed "regularly."
"Open-end credit," as defined in § 226.2(u), corresponds to § 226.2(x)
of the current regulation. The proposed definition attempts to clarify the
difference between open-end and closed-end credit and to accommodate problems
associated with particular credit plans. The present regulation applies a
three-prong test to determine whether a plan is open-end credit. The proposed
definition modifies one of those requirements in order to bring more plans
within its scope and adds a fourth characteristic in order to clarify the
distinction between open-end and closed-end credit.
Under paragraph (u)(l)(i), the creditor must reasonably contemplate
repeated transactions. This element restates the current requirement that
the plan be usable "from time to time." The change incorporates the amended
language in § 103(i) of the act and is intended to emphasize an important
characteristic of true open-end credit plans. While purchases of large-ticket
items may be part of a valid open-end plan, questions could arise about the
validity of structuring some major purchases, such as pianos or automobiles,
as open-end credit.
The second part of the traditional test
for what is open-end credit
is that the consumer have the privilege of paying
the balance in full at
any time, as well as paying in installments. The proposal changes this test
in paragraph (u)(i)(ii). The Board believes that the emphasis should be on
the right of the consumer to pay the outstanding balance in full at any time
without incurring any penalty or additional charge for such payment. The
ability to pay in installments, while permissible in an open-end credit
plan, would not be necessary under the proposal.
For example, a plan in
which purchases are permitted from time to time, with finance charges imposed
on the outstanding unpaid balance, would qualify as open-end credit, even
though full payment would be required at the end of each month.
Under the present regulation, a finance charge may be computed by
the creditor from time to time on an outstanding unpaid balance. The pro­
posal retains this requirement in paragraph (u)(l)(iii). A number of
credit plans exist in which purchases may be added from time to time, and
the balance is payable either in full or in installments, but no finance
charge is ever imposed on the account. The Board solicits comment on
whether it should include such plans in open-end credit by providing that the
possible imposition of a finance charge is not necessary to characterize a



-11-

plan as open-end credit. (Any finance charge that is imposed on the account
would still have to be computed from time to time on the outstanding unpaid
balance.) Of course, if no finance charge would ever be imposed under a
particular plan, then the consumer would have to have the privilege of paying
the balance in installments (as well as in full) in order to qualify as credit
extended by a creditor for purposes of the regulation.
The proposed draft adds a fourth characteristic by which open-end
credit may be distinguished from closed-end credit: the concept that the
total amount of credit that may be extended during the existence of the plan
is unlimited. To illustrate, if a credit line is $500, a consumer may charge
the full $500, repay that amount and then incur another $500 in charges any
number of times during the existence of the plan. This characteristic dis­
tinguishes open-end credit from a series of advances made under a loan commit­
ment, which normally is not a replenishing line. An example of such a closedend transaction is an agreement by a creditor to lend a total of $500 in a
series of smaller advances; when the consumer has borrowed the $500, no more
money is advanced under that agreement, even if there has been a repayment.
The definition of open-end credit in the current regulation provides
that, for limited purposes, the term includes consumer credit extended on an
account by use of a credit card, whether or not a finance charge may be
imposed. This provision has been omitted from the open-end credit definition
in the proposal; card issuers would be considered creditors without regard
to the characteristics of the plan. The statutory provision extends a number
of the open-end credit provisions to card issuers whether or not they allow
payment in more than four installments or impose a finance charge. The
Board solicits comment on the necessity of making credit extended by use of
a credit card open-end credit per se, in order to assure that card issuers
comply with all applicable open-end credit requirements.
The present regulation excludes from the definition of open-end
credit negotiated advances under an open-end real estate mortgage and letters
of credit. The Board solicits comment on whether these exclusions are neces­
sary, and on the impact of omitting them from the regulation, as reflected in
the current proposal.
"Periodic rate" in § 226.2(v) combines the present terms "period"
(current § 226.2(z)) and "periodic rate" (current § 226.2(aa)). The draft has
been amended to emphasize that an initial transaction charge (even if computed
on the basis of a percentage of the transaction amount) is not a periodic
rate for purposes of the regulation. The Board particularly solicits comment
regarding one aspect of the proposed definition. Currently, a creditor may
use any subdivision of a year in applying its rate and a number of creditors
use 1/360 of a year as their period. Use of this subdivision may create
difficulties in computing the annual percentage rate, as for example by
applying a daily rate based on 360 days to a 365-day year. The Board is
considering amending the definition to preclude the use of any period other
than a day, week, or month as the basis for the periodic rate and solicits
comment on any computational or state law problems which might arise from
such a prohibition.




The definition also provides that the periodic rate may be stated
either as a percentage or as its decimal equivalent. It should be noted,
however, that the corresponding annual percentage rate must always be stated
as a percentage.
The definition of "person" in § 226.2(w) implements § 103(c) and
(d) of the act, by combining the statutory definitions of "person" and "organi­
zation." The list of types of organizations in the proposal is illustrative
only and is not intended to be all-inclusive.
"Personal property" and "realized value," as defined in § 226.2(x)
and (y), respectively, are similar to their counterparts in the current
leasing provisions of the regulation. However, the definition of "realized
value" has been clarified to permit the use of either wholesale or retail
fair market value, so long as the basis for thi3 amount is consistent with
the basis used for determining estimated value at consummation.
The definition of "required deposit balance" in § 226.2(z) is drawn,
in substantially modified form, from the current § 226.8(e)(2). Under the
proposal, this item no longer is to be disclosed. However, these amounts
would continue to affect the calculation of the annual percentage rate in
closed-end credit transactions, as outlined in Supplement I (present § 226.40)
to the regulation.
Under the revised definition, the number of deposits which would
constitute required deposit balances has been substantially reduced. The
concept was originally designed to reflect the loss of use of funds by the
consumer in order to obtain credit. To better effectuate this goal, the
definition would now be confined primarily to nonproductive funds, by excluding
from its scope any amounts which will earn interest or dividends. Thus, even
where the consumer is required to make or keep a specified deposit to obtain
credit, the amount would not be considered a required deposit balance so long
as the funds will earn interest or dividends. While the proposal makes no
attempt to specify any minimum yield necessary to exclude these amounts from
the definition, it should be emphasized that creditors' actions in this
regard would be measured against the general prohibition in § 226.1(e) against
circumvention or evasion of the regulation. An unusually low rate of return
could raise questions regarding the proper classification of these deposits.
The Board specifically solicits comment on any difficulties which may arise
from this exception to the required deposit balance definition, together
with any possible alternatives to this approach.
The second exception to the required deposit balance definition
incorporates and expands the current § 226.8(e)(2)(i). Escrow accounts for
taxes and insurance, whether or not earning interest, would not be considered
required deposit balances. Unlike the current escrow exception, the account
need not be tied to a real property transaction. For example, property insur­
ance escrows for mobile home transactions would be excluded, even in jurisdic­
tions where mobile homes are classified as personal property.




-13-

The definition of ’’residential mortgage transaction” in § 226.2(aa),
which implements amended § 103(w) of the act, has no counterpart in the cur­
rent regulation. It covers the purchase or construction of a dwelling which,
under a mortgage or similar consensual device, serves as security for the
transaction. Junior liens as well as first liens are included in this cate­
gory, provided they relate to the acquisition or initial construction. The
terra is important to three substantive provisions in the regulation. First,
under § 226.11(f)(16), a disclosure regarding whether the obligation is
assumable must be made in these transactions. Second, certain residential
mortgage transactions are subject to the special rule on timing of disclo­
sures contained in § 226.11(g). Third, these transactions as a class are
exempt from the right of rescission under § 226.13(f)(1).
"Security interest" and "security," as defined in § 226.2(bb), are
essentially unchanged in substance from the current § 226.2(gg). However,
the list of types of charges has been taken from the text of the definition
and placed in a footnote, to emphasize that the types mentioned are merely
illustrative, rather than all-inclusive. Note that a right of set-off is
included in the list. The new definition looks to applicable state law to
determine what is a security interest. As under the current regulation,
it is the responsibility of the creditor or lessor to decide whether its
interest is recognized by and enforceable under that law.
"State" is defined as in the present § 226.2(h).
The "total lease obligation" definition in § 226.2(dd) of the pro­
posal has been significantly amended from current § 226.2(rr) to incorporate
the position taken by the staff in several official interpretations. Para­
graph (dd)(l) clarifies that amounts that are not financed by the lessor or
upon which no lease charge is assessed are not to be included in the total
lease obligation.
Paragraph (dd)(2) reflects the fact that trade-ins or other advance
payments are often made some time after consummation, at the time the leased
property is actually ready for delivery. Under the proposal, any payments
or trade-in made before delivery are included in the total lease obligation.
Refundable security deposits are eliminated from the total lease obligation.
Since security deposits will be identified and disclosed under proposed
S 226.15(e)(4), inclusion in the total lease obligation as well appears to
be unnecessary.
The rules of construction in § 226.2(ff), (gg) , (hh), and (ii) are
intended to assist in understanding the regulatory language and to permit
abbreviated references. Footnotes are used extensively in the regulation
to provide special exceptions, more detailed explanations, examples, and so
forth; paragraph (ii) provides that footnotes have the same effect as the
text.

Section 226.3— Exemptions.
The principal change in this section is the exemption of agricul­
tural credit from all regulatory requirements. This is in accord with the



-14-

new statutory exemption for agricultural credit in § 104(1) of the amended
act. The footnote makes clear that even if real property with a dwelling is
acquired (for example, a farm with a house on it), the exemption will apply
according to its terms.
Otherwise, the substance of proposed § 226.3 is essentially the
same as the current version of that section, with the incorporation of sev­
eral existing interpretations. The business credit exemption is qualified
to reflect the fact that several credit card provisions do apply to business
credit. The public utility credit exemption is clarified so as to apply to
charges associated with services provided through radio transmission (for
example, microwave telephone relays), but not to charges imposed in connec­
tion with the financing of home improvement or durable goods such as furnaces
or telephones.
The securities and commodities credit exemption has been expanded
to recognize the role of the Commodity Futures Trading Commission, which par­
allels that of the Securities and Exchange Commission.
Paragraph (e) incorporates all of the exemptions for lease trans­
actions into a single provision. A new exemption is proposed for leases of
safe deposit boxes and the Board solicits comment on this.
Section 226.4— Finance charge.
This section, like the current § 226.4, sets forth the rules gov­
erning the determination of the finance charge for both open-end and closedend credit. However, it has been reorganized.
(a) Definition.
This paragraph reiterates in condensed form the existing definition
of what constitutes a finance charge. The last sentence of the paragraph
reflects the recent amendment to § 106(a) of the act, and states explicitly
that the finance charge does not include any charges that would be imposed
uniformly in comparable cash and credit transactions— for example, sales
taxes, license or registration fees, or basic checking account maintenance
charges.
(b) Charges included in the finance charge.
This paragraph contains a list of charges that are part of the
finance charge, much as it appears in present § 226.4(a). These are examples
of finance charges, and the list is not intended to be all-inclusive. Many
of the items listed here may be excluded from the finance charge; the following
paragraphs in the section spell out the special exclusion rules, for example
for credit life and property insurance premiums, certain fees in real property
transactions, and filing fees.
Paragraph (b)(2) includes examples of finance charges commonly
imposed in open-end credit plans, such as minimum charges. It also clarifies
that the portion of checking account maintenance fees that are attributable




-15-

to the existence of a credit feature (for example, overdraft lines of credit)
are included in the finance charge.
Footnote 4 includes the provision from present § 226.4(h) that
insurance premiums should be included for the period that insurance must be
maintained. The rule on applicable insurance rates and classifications in
present § 226.4(h) has been deleted because it is part of the broader issue
of making disclosures based on estimates; this matter is dealt with in new
§ 226.11(d).
Discounts to induce payment other than by use of credit are specif­
ically mentioned in paragraph (b)(9) as part of the finance charge. It should
be noted that a discount offered for prompt payment of a credit obligation
(which is treated as a type of finance charge in present § 226.8(o)) would
not be included in the finance charge under thi3 provision. This change is
based on the idea that the finance charge should reflect only the comparison
between cash and credit transactions and should not be applied to distinctions
made among credit customers. The Board would appreciate comments on this
change.
(c) Charges excluded from the finance charge.
This paragraph lists a number of fees and charges which are not part
of the finance charge. Unlike the items covered by the two paragraphs that
follow, the creditor need not make any disclosure of these items in order to
exclude them from the finance charge.
Paragraphs (c)(1), (2), and (4) are condensed and rewritten versions
of current § 226.4(c), (d), and (e), respectively. Paragraph (c)(3) provides
that where a fee is charged for membership in a credit card plan, that fee
is not a finance charge. The Board is aware that such fees are becoming
increasingly popular and that they are being imposed in a variety of ways.
Comment is requested on whether this provision is appropriate and whether it
should be qualified in any way.
(d) Insurance.
This paragraph presents in one place all of the procedures necessary
to exclude credit life, accident, health, loss of income, and property damage
insurance premiums from the finance charge. It basically restates the rules
applicable under the current regulation and Board interpretations. However,
where the disclosed cost is subject to increase, that fact must also now be
stated; the Board seeks comment on this new provision.
There are a number of provisions that should be noted. For example,
the term of the insurance coverage must be stated only if it is shorter than
the term of the transaction. The consumer who is the insured party is the
one who is required to sign the statement indicating a desire for insurance.
If more than one consumer is to be insured, however, any one of them may
sign the statement on behalf of all of the insured consumers. The consumer's
initials on the authorization form will be deemed to be a signature.




Thi3 paragraph eliminates the requirement in the current regulation
that the credit life insurance authorization be dated. Since the authoriza­
tion will now appear with all the other disclosures, there seems little need
to require a separate date on the authorization.
Although single interest insurance as a general rule is included
in the finance charge (see new § 226.4(b)(5)), under certain circumstances it
may be treated like regular property insurance and excluded from the finance
charge by following the procedures outlined in paragraph (d)(2). First, the
single interest insurance must be the type that functions like regular, dual
interest insurance; therefore, the so-called "blanket coverage VSI" that pro­
tects a creditor against loss on its entire portfolio would not qualify for
this treatment and may not be excluded from the finance charge. Second, the
insurer must waive all rights of subrogation against the consumer (although
it may retain such rights against others). Note, however, that disclosure
to the consumer of the waiver of subrogation is not required.
(e) Itemized charges.
This paragraph allows certain charges having to do with security
interests to be excluded from the finance charge, as long as they are itemized.
Paragraph (e)(2) makes clear that only the amount of a "non-filing insurance"
premium that does not exceed the usual filing fee is excludable; any excess
must be included in the finance charge. If a creditor imposes charges repre­
senting both § 226.4(e)(1) fees and (e)(2) premiums, the entire amount of
the premiums must be included in the finance charge.
Note that the other items listed in present § 226.4(b)(3) and (4)
(taxes and license, certificate of title, and registration fees) have been
deleted in light of the recent amendments to § 106 of the act.
(f) Discounts.
This paragraph explains the conditions under which a discount
offered for paying cash in lieu of using an open-end credit card account may
be excluded from the finance charge. It restates in somewhat simpler form
the rules found in present § 226.4(i). For example, it eliminates detailed
directions on how the availability of the discount must be displayed in the
seller's place of business, stating only that it must be clearly and conspic­
uously disclosed.
(g)

Prohibited offsets.

This paragraph restates the prohibition on offsetting interest
earned by the consumer on deposits against finance charges paid by the con­
sumer, which is found in present § 226.4(f).
It eliminates the requirement
that a creditor have a security interest in the consumer's property before
the ban on offsets applies, because the rule logically applies whether or
not the creditor holds a security interest.




-17-

SUBPART 3— OPEN-END CREDIT
This section deals with open-end credit accounts (for example,
revolving credit, credit card accounts, overdraft and cash advance loans)
and the disclosures required to be provided for such types of credit (proposed
§ 226.5). It also details special rules to be followed for credit card
accounts (proposed § 226.6) and outlines the procedures to be followed
where errors occur in open-end credit accounts (proposed § 226.7). This
section also provides the rules for determining annual percentage rates for
open-end credit accounts (proposed § 226.8). Section 226.9 of the proposal
deals with rescission requirements as they apply to open-end credit. Finally,
proposed § 226.10 deals with the rules for open-end credit advertising.
Model language is proposed in certain instances to facilitate com­
pliance with the regulatory requirements. Comment is solicited on the model
language and suggestions for improvement are encouraged. Also, it is requested
that commenters, in reviewing the proposed regulation, identify provisions
that would benefit from model language.
Most open-end credit Board Interpretations and many open-end credit
staff intepretations have been addressed in the regulation. Two Board Inter­
pretations, § 226.703 and § 226.707, have not been incorporated into the regu­
lation at this point. The Board is aware that interpretive problems may exist
with regard to these two interpretations and expressly requests that comment
be submitted identifying those problems and suggesting solutions to them.
Suggestions for proper placement in the regulation would be most welcome.
Comment is also encouraged with regard to identifying staff inter­
pretations that may be candidates for regulatory incorporation.
Section 226.5— Disclosures.
(a) General requirements.
The general housekeeping requirements relating to open-end credit
have been assembled in § 226.5(a) of the proposed draft. In general, this
section draws from several different sections of the present regulation and
incorporates in one section of the regulation the timing and format require­
ments for the disclosures required upon opening an account (initial disclo­
sures) and for the disclosures required to be given periodically (periodic
statements).
Proposed § 226.5(a)(1) (Who must make disclosures to whom) clearly
provides that only one creditor in a multiple creditor situation need make
disclosures. It i3 contemplated that creditors will agree among themselves
in a multiple creditor situation as to who will in fact provide the disclo­
sures so as to achieve the desired result that the consumer receive one
complete set of disclosures. Section 226.5(a)(l)(ii) corresponds in part to
§ 226.6(e) of the present regulation. The proposal enunciates the rule
regarding multiple consumers and provides that where multiple consumers are
involved, disclosures may be made to any one of the consumers who is primarily
liable on the obligation. Where the right of rescission is applicable,
however, the disclosures shall be made to each person who has the right to
rescind.



-18-

Section 226.5(a)(2) of the proposal (What disclosures must be made)
provides a brief, general summary of the disclosures that must be furnished
and the procedures that must be followed in open-end credit plans.
Proposed § 226.5(a)(3)(i) deals with the general timing and form
rules for open-end credit disclosures. This section corresponds to parts of
§ 226.6(a) and § 226.7(a) of the present regulation, retaining the require­
ments that required disclosures be made clearly and conspicuously in writing
in a form that the consumer may keep. However, in order to facilitate the
use of required terminology, the proposal, unlike the present regulation,
permits the use of modifying or identifying language with required terminology.
In doing so, the Board recognizes that such additional language may be necessary
in order for the required terminology to be used effectively. Pluralization
of required terminology is also expressly permitted so as to ease its use in
certain contexts.
Section 226.5(a)(3)(ii) of the proposal corresponds to § 226.6(a) of
the present regulation. The proposal provides that the terms "finance charge”
and "annual percentage rate" are to be more conspicuous than other required
terminology only when they are disclosed together with a corresponding amount
or percentage rate. Examples of ways to make those terms more conspicuous, as
discussed in several staff interpretations, are included in the proposed
regulation.
Section 226.5(a)(4) of the proposal regarding the timing and form
of the initial disclosures corresponds in part to the introductory language
of § 226.7(a) of the present regulation and retains the provision that the
initial disclosures be provided to the consumer before the first transaction
is made under the plan. The proposed regulation incorporates the present
staff position that the initial disclosures can be made on one or more pages
of an integrated document. Where the initial disclosure statement is multi­
page, it is suggested that the pages be numbered in sequential order and
stapled together or otherwise affixed.
As provided in the present § 226.6(c), additional information can
appear on or with the initial disclosures as long as the additional material
does not contradict or detract attention from the required disclosures. (Note
the discussion in Subpart E regarding the manner in which inconsistent state
law is treated under the proposal.)
Proposed 226.5(a)(5) deals with the timing and format requirements
for periodic statements. Paragraph (a)(5)(i) provides, as is presently the
case under the existing regulation, that a periodic statement can be multi­
page. Note the absence of any provision parallel to the present § 226.7(c)
regarding the location of the periodic statement disclosures. In that the
regulation already provides that disclosures be made "clearly and conspicu­
ously," the Board believes that a provision parallel to the existing § 226.7(c)
is unnecessary. The Board solicits comment on the consumer protection
implications that may result from the absence of a provision parallel to
S 226.7(c).




-19-

Section 226.5(a)(5)(H) parallels the introductory language of the
present § 226.7(b) and basically requires, like the present regulation, that
a periodic statement be provided at the end of any cycle in which a debit or
credit balance in excess of $1 exists in the account or on which a finance
charge has been imposed. Language has been added to indicate that cycles can
be no longer than quarterly and that periodic statements cannot, therefore,
be provided any less frequently than quarterly. The proposal retains language
waiving the periodic statement requirement where the creditor deems the
account uncollectible. Language has been added in the proposal incorporating
staff position that a creditor's following its standard procedures for uncol­
lectible accounts shall be evidence that the creditor considers the account
uncollectible.
Section 226.5(a)(5)(iii) corresponds to the present § 226.7(b)(1)(ix)
regarding the timing of periodic statements when free-ride periods are involved.
No substantive change is intended.
Section 226.5(a)(6) of the proposal deals with the basis of disclo­
sures and the use of estimates. Paragraph (a)(6)(i) incorporates present
staff position that disclosures (both the initial and periodic statement
disclosures) be based on the assumption that the consumer will comply with
the terms of the agreement. Language is included in the proposal, incorpora­
ting staff interpretations, that the disclosures should reflect the terms
agreed upon even if they differ from the written obligation.
Paragraph (a)(6)(ii) of the proposal corresponds to § 226.6(f) of
the present regulation and set3 forth the rules regarding estimated disclosures
where the information necessary to make accurate disclosures is unknown to
the creditor at the time disclosures are made. This provision is more liberal
than present § 226.6(f), which provides that estimates may be used only where
disclosures were given at the latest possible time. The change has been made
in order not to discourage creditors from providing disclosures earlier. As
before, of course, the creditor is required to use the best available informa­
tion, and the estimated disclosures must be designated as such.
Section 226.5(a)(7), which corresponds to § 226.6(g) of the present
regulation, deals with the effect that subsequent events have on disclosures.
Paragraph (a)(7)(i) of the proposal retains the existing regulatory provision
that where a disclosure is rendered inaccurate as a result of an event that
occurs after delivery of either the initial or periodic statement disclosures,
the resulting inaccuracy would not constitute a violation of the regulation.
Paragraph (a)(7)(ii) provides that new disclosures may be required
where disclosures already provided are later rendered inaccurate. Reference
is made to § 226.5(i) dealing with changes in terms for guidance on when new
disclosures should be provided. It is not anticipated that any new disclosures
would be required where the inaccuracy results from the consumer's failure to
perform his or her obligations.




-20-

Paragraph (a)(7)(iii) incorporates staff position that creditors
can use inserts with outdated disclosure forms when a term change occurs until
the form supply is exhausted. Needless to say, it is contemplaced that the
insert will clearly reference the disclosure provision(s) it replaces.
Attention is drawn to the fact that the proposal, unlike the pres­
ent § 226.6(a), does not mandate that numerical amounts and percentages be
represented in figures or that disclosures be made in any particular type size.
(b) Initial disclosures.
The timing and format requirements for new account disclosures
(the initial disclosures) on open-end credit accounts, located in § 226.7(a)
of the present regulation, are set forth in § 226.5(a)(4) of the proposal
(see discussion above). Section 226.5(b) of the proposal requires that the
initial disclosures be made in terminology consistent with that required to
be used on periodic statements. Thus the terms "previous balance," "payment,"
"credit," "periodic rate," "annual percentage rate," "finance charge," and
"new balance" should be used where appropriate.
For clarity's sake, § 226.5(b)(1) of the proposal combines the dis­
closures relating to the imposition of finance charges into a single paragraph.
To the extent that a creditor's open-end plan permits various types of credit
transactions for which the finance charge may be computed differently, the
disclosures required by this paragraph must clearly distinguish between types
of transactions.
Section 226.5(b)(1)(i) corresponds to § 226.7(a)(1) of the present
regulation and requires generally that the conditions under which a finance
charge may be imposed be disclosed. Language has been added requiring a
creditor to disclose specifically the absence of a "free-ride" period if its
plan has no such period. This change implements new language in the amended
act. Otherwise, no substantive change is intended.
Section 226.5(b)(1)(ii) of the proposal corresponds to § 226.7(a)(4)
of the present regulation and requires that any periodic rate that may be
imposed be disclosed, together with the range of balances to which it is
applicable and its corresponding annual percentage rate. The material con­
tained in footnote 6a of the present regulation dealing with minimum charges
can be found in footnotes 17 and 19 of the proposal. Clarifying language has
been added to indicate that where different periodic rates are applied to
different types of transactions (for example, purchases and cash advances),
that fact must be clearly explained. No substantive change in current
requirements is intended.
Section 226.5(b)(l)(iii) of the proposal incorporates § 226.7 (a)(2)
of the current regulation dealing with the disclosure of the method of
determining the balance upon which the finance charge may be computed. It
makes clear that the method of computing the balance must be explained, and
not merely identified by a shorthand phrase such as "previous balance method."




-21-

Additional language, incorporating Board Interpretation § 226.706, has been
added to the proposal indicating that the manner in which a creditor chooses
to allocate payments and credits (for example, first to finance charges,
second to purchases, and third to cash advances) need not be disclosed.
The Board requests comment on the model clauses in Appendix A
which describe various methods used to compute balances. Comment is solicited
about the extent to which they adequately (1) reflect methods being used by
creditors, and (2) ensure that the disclosure of balance computation methods
is meaningful to consumers.
Section 226.5(b)(l)(iv) of the proposal corresponds to § 226.7(a)(3)
of the present regulation requiring an explanation of how the amount of any
finance charges will be determined. No substantive change is intended;
footnote 20 has been added, however, to provide examples of types of finance
charges other than periodic rates.
Section 226.5(b)(2) of the proposal corresponds to § 226.7(a)(6) of
the present regulation. Clarifying language has been added, in conformance
with the amended act, to require disclosure of either the amount or the
method of computing the amount of any charge other than a finance charge that
may be imposed. Footnote 21 has been added to provide guidance regarding
what constitutes an "other charge." Attention is drawn to the fact that
charges for voluntary credit life insurance are specifically excluded.
This represents a change in the staff's position. Insurance premiums must,
of course, be identified as transactions on periodic statements in accordance
with § 226.5(d) of the proposal.
Also specifically excluded from the concept of "other charges" are
costs for which the consumer may be liable after credit privileges have been
terminated as a result of the consumer's default. Currently, default charges
such as attorney's fees and collection costs that are automatically imposed
by the creditor are considered "other charges." Comment is solicited about
the propriety of the changes in what is considered an "other charge," about
the usefulness of the general definition contained in footnote 21, and
about whether there are types of charges that should be included or excluded
from the examples listed in footnote 21.
Section 226.5(b)(3) of the proposal corresponds to § 226.7(a)(7)
of the present regulation. The proposed disclosure of a security interest
differs substantially from current requirements and is patterned after
language in the amended act. The proposal eliminates the need to disclose
the conditions under which a security interest will be taken and to identify
the type of security interest. In their place the proposal requires disclo­
sure about the property that will be pledged as security. If an interest
is or will be taken in all goods purchased on the account, that fact must be
disclosed. If a security interest is taken in other property owned by the
consumer, that fact and an identification of the property by item or type
must be disclosed. The Board solicits comment on whether model clauses would
be helpful for the security interest disclosure, and if so, requests that
suggested language be submitted.




-22-

Section 226.5(b)(4) of the proposal corresponds to § 226.7(a)(8)
of the current regulation. The proposal incorporates a staff position that
permits creditors to disclose the method of computing the amount of any
minimum payment required rather than the specific dollar amount. The words
"minimum periodic payment" refer to the amount required to be paid at speci­
fied intervals in order that the account not be considered delinquent.
In
accordance with § 226.5(a)(6) of the proposal dealing with the basis of dis­
closures, this determination is based on the assumption that the consumer
will pay the obligation as scheduled. In other words, the disclosure of the
minimum periodic payment need not contain language indicating, for example,
that it is 10 percent of the new balance plus any amount delinquent or over­
due from the previous month. Moreover, no requirement is to be inferred
that the timing of minimum payments must coincide with receipt of periodic
statements sent by the creditor. Thus, it is permissible, for example, to
require minimum payments on a monthly basis and still maintain a quarterly
billing cycle. Moreover, in accordance with present staff position, where a
consumer opts for a voluntary payroll deduction arrangement that differs from
the minimum periodic payment, the creditor can continue to disclose for
purposes of § 226.5(b)(4) the minimum amount required rather than the voluntary
payment schedule.
The proposal does not include a provision comparable to
§ 226.7(a)(5) of the current regulation regarding disclosure of the Compar­
ative Index of Credit Cost. It has been eliminated in accordance with its
deletion from the amended act.
Section 226.5(b)(5) of the proposal corresponds to § 226.7(a)(9)
of the current regulation. The requirements for placement of the consumer
rights notice have been eliminated in view of the fact that the proposal
refrains from mandating specific locations for disclosures in an effort to
encourage creativity in developing forms that are clear and understandable.
Moreover, the Board regards the placement requirements and the corresponding
"notice" language as unnecessary in light of the general requirement in
§ 226.5(a)(3) that disclosures be made clearly and conspicuously. The text of
the notice itself is found in Appendix A and is offered merely as a model,
not as required text (see discussion below). It has been rewritten in simpler
language, and its length has been reduced by one-third. Paragraph 7 of
the current notice, regarding a consumer's right to assert claims and defenses
arising from credit card transactions, has been separately subtitled in the
proposal to better distinguish it from the billing error provisions. As a
whole, the proposed notice is intended to convey the same information to
consumers as the current notice, but in a more brief and clear form.
Attention is drawn to the proposal's requirement that creditors pro­
vide consumers with a notice "substantially similar" to that in Appendix A.
Currently, the regulation prescribes the exact text of the notice, and varia­
tion from that text is allowed only when portions are inapplicable and likely
to be misleading. As stated above, under the proposal, the notice is offered
merely as an example. As indicated by footnote 22 of the proposal, the Board
intends to permit creditors to tailor the notice to apply more uniquely to
their individual credit programs and to provide latitude for creditors that




-23-

wish to personalize their forms or alter them further in light of plain
English state laws. Comment is requested on whether and how the proposed
notice can be improved to be simpler and more straightforward and to better
meet the "plain English" standards mandated by some state statutes. The
Board also requests comment on whether the expansion of the "substantially
similar" standard will provide creditors sufficient flexibility while insuring
meaningful disclosure to consumers.
Finally, the Board requests comment on the necessity of a creditor
identification requirement on the initial disclosures. If more than one
creditor exists, only one would have to be identified. Comment is solicited
about the advisability, advantages, and disadvantages of requiring identifi­
cation of the creditor of an open-end plan.
(c) Periodic statements.
Section 226.5(c) requires that consumers be provided with periodic
statements and sets out the items of information that must be disclosed on
them. It corresponds to § 226.7(b)(1) of the existing regulation. The
time, form, and applicability requirements previously contained in the
introductory language of § 226.7(b)(1) now appear in § 226.5(a)(5).
Section 226.5(c)(1), which corresponds to S 226.7(b)(l)(i) of the
existing regulation, requires disclosure of the outstanding account balance
at the beginning of the billing cycle, using the term "previous balance."
No substantive change has been made in the proposal. Language incorporating
present staff interpretation has been added, however, to indicate that,
where more than one type of transaction can be made on the account (for .
example, purchases and cash advances), the creditor may, but is not required
to, disclose a separate previous balance for each type of transaction.
Section 226.5(c)(2) of the proposal corresponds to § 226.7(b)(1)(ii)
of the present regulation and requires that each credit extension be identified
in accordance with the specific identification requirements of § 226.5(d) of
the proposal (S 226.7(k) of the existing regulation). While the language of
this paragraph has been changed for purposes of clarity, no substantive
changes have been made.
Section 226.5(c)(3) corresponds to the present § 226.7(b)(1)(iii)
and requires that creditors disclose the amounts and dates of crediting any
payment or other credit. Unlike the present regulation, the proposal does
not require the specific identification of the type of credit. In accord
with the existing regulation, the proposal does not require the date of cre­
diting if the time of crediting does not result in a finance or other charge.
As in the present § 226.7(b)(1)(v), § 226.5(c)(4) requires disclo­
sure of any periodic rate used to compute finance charges and its corresponding
annual percentage rate. Clarifying language has been added to indicate, as
in the initial disclosures, that where different periodic rates are applied
to different types of transactions, that fact must be clearly stated. The




-24-

last sentence of the present § 226.7(b)(1)(v) has been deleted from the
proposed § 226.5(c)(4) and included in footnote 24 to the proposed
§ 226.5(c)(5) (Other types of finance charges). The present footnote 9a
(referencing the last sentence of existing § 226.7(b)(1)(v)) has been more
appropriately placed in proposed paragraph (c)(4) and i3 numbered footnote
23 in the proposal.
As in the existing regulation, proposed paragraph (c)(4) contains
alternative terminology for identifying the corresponding annual percentage
rate. The Board questions, however, whether all of the alternatives are
necessary and requests comment as to which terminology should be retained.
Section 226.5(c)(5), requires disclosure of the amount or method of
computing the amount of any other type of finance charge that may be imposed.
It incorporates the Board's position that, where minimufii charges may be imposed
on an account (see present § 226.7(b)(1)(v)), the amount of that charge must
be disclosed. Likewise, where other types of finance charges, such as trans­
action or activity charges may also be imposed, those charges should also be
disclosed. Footnote 24 to the proposed paragraph (c)(5) gives examples of
the types of finance charges that would be disclosed pursuant to this paragraph.
Included in the footnote are checking account charges presently mentioned as
finance charges in footnote 9 to the present § 226.7(b)(1)(iv).
For a billing cycle in which a finance charge i3 imposed,
S 226.5(c)(6), which corresponds to S 226.7(b)(1)(viii) of the present regu­
lation, requires a creditor to disclose the dollar amount of the balance on
which the finance charge was computed. If an account reflects more than one
type of transaction subject to different periodic rates (for example, 1 1/2%
per month on purchases and 1% per month on cash advances), a separate balance
must be disclosed for each type. Where the same periodic rate is applied to
both purchases and cash advances, there is no need to disclose separately
the balance for purchases and the balance for cash advances. Separate dis­
closure of the balances would not be prohibited, however. If more than
one balance is used in computing the finance charge on a particular type of
transaction (for
example, a periodic rate is applied to the average daily
balance of cash advances while a transaction charge is applied to the total
amount of cash advances), each balance used in computing each finance charge
component must be shown since the balance amounts would be different.
As the
present § 226.7(b)(l)(viii) requires, the creditor must also
explain how each
balance was determined. As mentionedabove, the Board
solicits comment on model clauses provided in Appendix A in this regard.
Footnote 25 to the proposed paragraph 226.5(c)(6) incorporates Board
Interpretation § 226.706 which makes clear that the creditor need not disclose
how payments or other credits will be allocated. However, if a creditor
does not deduct payments and credits in determining the balance on which the
finance charge is imposed, the creditor is expressly required to disclose
that fact and the amounts of such payments and credits. This does not mean
that the dollar amount of such payments and credits must be specifically




-25-

included in the explanation of the balance method. Listing the payments and
credits under proposed paragraph (c)(3) together with an explanation of
which payments and credits will not be deducted in determining the balance
method would suffice.
Proposed paragraph (c)(7), which corresponds to § 226.7(b)(1)(iv)
of the present regulation, requires that the creditor disclose the amount of
the finance charge debited or added to the account during the billing cycle.
It continues the existing statutory and regulatory requirement for disclosing
the periodic rate component separately from the amount of any other type of
finance charge. The proposal incorporates Board Interpretation § 226.701 which
provides that, where there is more than one periodic rate, the rates need not
be separately itemized and identified. Clarifying language indicates that
other types of finance charges must continue to be individually itemized and
identified.
Some creditors do not debit or add on finance charges during a
cycle, but rather take accrued finance charges out of each payment. A foot­
note to paragraph (c)(7) incorporates a staff interpretation and makes clear
that such creditors need not disclose any finance charges that may have accrued
between the date of the last payment and the closing date of the cycle.
The examples of finance charges listed in the existing
§ 226.7(b)(1)(iv) are, as mentioned above, reflected in footnote 24 to pro­
posed § 226.5(c)(5).
Proposed § 226.5(c)(3) corresponds to § 226.7(b)(l)(vi) of the
existing regulation and requires that the annual percentage rate be disclosed
(in accordance with proposed § 226.8) whenever a finance charge is imposed
during the billing cycle. Language has been added to address those instances
where an annual percentage rate cannot be determined (for example, where a
minimum charge is imposed and the balance on which the finance charge is to
be imposed is zero). In such instances, it is contemplated that the creditor
shall disclose the fact that a minimum finance charge is being imposed but
that no meaningful annual percentage rate can be determined. The Board is
aware that a similar problem exists where a minimum charge is applied to a
very small balance. The Board solicits comment on alternative approaches
that may be used in both instances.
Present staff interpretation requires that charges other than finance
charges that are imposed be reflected as transactions on the periodic state­
ment. Proposed § 226.5(c)(9) implements this staff position and requires
that the amounts of any charges other than finance charges that are debited
to the account during the billing cycle be itemized and identified. This
paragraph does not require that the date of imposing or debiting the amount
be disclosed. Moreover, the creditor need not disclose the amount or method
of computing the amount of any such charge that may be imposed; this paragraph
requires disclosure of only those charges that were in fact imposed.




To facilitate its use, § 226.7(b)(1)(ix) has been divided into two
separate sections in the proposed regulation - §§ 226.5(c)(10) and (11).
Section 226.5(c)(10) requires disclosure of the closing date of the billing
cycle and of the new balance. Language has been added to permit the creditor
to disclose a new balance for each type of transaction (for example, purchases
and cash advances) if the creditor so desires. Section 226.5(c)(11) deals
with the disclosure of any free period permitted. No substantive change in
these provisions is intended.
Proposed § 226.5(c)(12) parallels § 226.7(b)(1)(x) of the existing
regulation which requires that an address be provided on the periodic state­
ment for use in submitting billing error inquiries. Language has been added
indicating that this address may be provided by inclusion in the alternative
billing rights statement permitted by S 226.5(e)(2).
Note that present § 226.7(b)(1)(viii) dealing with the Comparative
Index of Credit Cost has no parallel provision in the proposal. As mentioned
earlier, it has been deleted in the amended act.
(d) Identification of transactions.
This section of the proposal corresponds to § 226.7(k) of the cur­
rent regulation which deals with the identification of transactions. Very
few substantive changes are reflected in the proposal, although it has been
significantly reorganized to facilitate its use. Note that footnote 27 has
been added to the proposal to draw attention to language in the amended act
regarding the liability implications for failure to comply with the identifi­
cation provisions.
The rules for identifying transactions on periodic statements
vary depending upon three factors: (1) whether the transaction involves a
purchase or a cash advance; (2) whether a copy of the document evidencing
the transaction accompanies the statement; and (3) whether the creditor and
seller are the 3ame or related persons. The proposal separately groups the
rules for each situation.
Section 226.5(d)(1) of the proposal specifies identification require­
ments for purchase transactions. Paragraph (d)(l)(i) applies when "country
club" billing is used; paragraph (d)(l)(ii) applies when descriptive billing
is used and the creditor and seller are the same or related persons; and
paragraph (d)(l)(iii) applies when descriptive billing is used and the
creditor and seller are unrelated. These three subsections correspond, respec­
tively, to §§ 226.7(k)(l), (k)(2)(i), and (k)(2)(ii).
Footnote 28 of the proposal states the rule currently contained in
S 226.7(k)(6)(i) concerning the creditor's reliance on information supplied
by a seller. Footnote 29 of the proposal corresponds to footnote 9b in
the current regulation dealing with related persons, and has been expanded
in two respects. First, in deciding whether the creditor and seller are
"related" persons, the fact that there exists a corporate connection between
the two will not make them "related" if that connection is not obvious from




-27-

the names they use in doing business. Second, a creditor may consider itself
"related" to a seller for purposes of transaction identification if the
sales transaction being described resulted from promotional material mailed
to the consumer by the creditor (commonly, advertisements accompanying a
periodic statement). These two rules represent staff interpretations of the
current "related" standard, and comment is solicited as to the reasonableness
of the interpretations in light of the purpose of the section, viz, to enable
consumers to identify transactions reflected on their periodic statements.
Footnote 30 of the proposal corresponds to footnote 9d in the
present regulation. The current language permitting identification to be
made on a slip accompanying the periodic statement has been deleted as
unnecessary since the periodic statement may comprise more than one page.
Footnote 31 establishes an exception to the property identification require­
ments for certain creditors that are also sellers and that use descriptive
billing on their periodic statements. Small (i.e., having less than 15,000
accounts) creditors that provide their customers with copies of charge slips
at the point of sale may disclose their name and the location of the trans­
action in lieu of identifying the property purchased. If this alternative
is used, however, the creditor must treat its description as being in error
if a consumer submits a billing error notice concerning the transaction
(see discussion in next paragraph). This alternative has been added to
implement language in the amended act.
Attention is drawn to the change of language in § 226.5(d)(l)(ii)(B)
of the proposal relating to the treatment of a "notice of a billing error"
(as described in § 226.7(b) of the proposal and which corresponds to the
existing regulation's "proper written notification of a billing error") in
which a consumer questions a transaction identified by a number or symbol,
rather than by a description of the property purchased. The current regulation,
in § 226.7(k)(2)(ii), requires that such an inquiry be treated as an "erroneous
billing" (i.e., no charges may be imposed as a consequence of a transaction's
being in dispute, whether or not there is, in fact, a mistake on the consumer's
statement). While the proposal does not use the phrase "erroneous billing,"
its requirement that the account be corrected "in accordance with § 226.7(e)(1)"
is intended to mandate the same treatment. It should be noted that any
consumer allegation of error regarding the transaction must be accorded
special treatment. The allegation need not relate to the alternative identi­
fying information that the creditor has used on its periodic statements.
Footnote 32 in the proposal incorporates the rule contained in
S 226.7(k)(6)(i) of the current regulation, and expresses a staff position
that for mail order transactions the date of debiting may be considered the
transaction date for disclosure purposes. Footnote 33 contains the rule
currently found in § 226.7(k)(6)(iii) regarding disclosure of the seller's
name. Footnote 34 of the proposal corresponds to § 226.7(k)(6)(ii) of the
current regulation with regard to providing information where no meaningful
address is available. It contains the same requirements except that the
proviso about disclosures made or omitted for purposes of circumventing or
evading the regulation has been deleted as unnecessary in light of the lan­
guage in S 226.1(e) of the proposal.




-28-

Section 226.5(d)(2) of the proposal relates to nonsale credit, and
paragraphs (d)(2)(i) and (ii) restate the rules found in §§ 226.7(k)(3)(i)
and (ii) respectively. With respect to the amount of a transaction required
to be disclosed by proposed paragraph (d)(2)(ii)(B), in the case of an amount
debited to an account under an overdraft checking plan, the amount to be
disclosed is the amount of the credit extension, not necessarily the face
amount of the check. Paragraph (d)(2)(ii)(C) replaces the "erroneous billing"
language with a reference to § 226.7(e)(1) of the proposal (see discussion
above). Footnote 35 of the proposal corresponds to footnote 9e of the current
regulation regarding the debiting date being considered the transaction date
for identification purposes for overdraft checking plans.
Section 226.5(d)(3) of the proposal, which relates to transactions
billed in precomputed installments, changes both the requirement of footnote
9c of the current regulation and the current staff position. The new section
would require that on the first periodic statement where a precomputed por­
tion of a transaction is billed, the transaction date and total transaction
amount (together with other identifying disclosures) must be disclosed.
Thus, if a $100 purchase is billed as $20 on five statements, the first
statement must give full identification of the transaction. There would be
no specific requirement for identification of the $20 debits on the four
subsequent statements. Footnote 36 gives an example of the section's appli­
cability. Comment is solicited on whether this new section facilitates
compliance, better informs the consumer, and is operationally feasible, and
whether sufficient information will be provided to consumers to avoid confu­
sion about transactions not billed in full.
Section 226.5(d)(4) of the proposal reflects the rules contained in
§ 226.7(k)(4) of the current regulation regarding information unavailable to
the creditor despite the maintenance of procedures reasonably adopted to pro­
cure the required information. Again, the reference to "erroneous billing"
has been replaced with a requirement to correct the account in accordance
with § 226.7(e)(1) of the proposal (see discussion above).
Section 226.5(d)(5) of the proposal, regarding foreign transac­
tions, corresponds to § 226.7(k)(5) of the current regulation with no change
intended. Section 226.7(k)(7) of the current regulation, a transition pro­
vision, has been eliminated because it contains rules that are now outdated.
(e) Routine furnishing of billing rights statement.
Section 226.5(e) of the proposal corresponds to § 226.7(d) of the
current regulation. To implement the amended act, paragraph (e)(1) of the
proposal contains the new requirement that the long form billing rights
statement required by § 226.5(c)(5) be sent at least once per calendar year,
at intervals of not less than six months and no more than 18 months. Currently,
the regulation requires semi-annual statements. In addition, the proposal's
use of the phrase "at least once" is intended to mean that a creditor may
choose to send the notice as frequently as desired. Thus § 226.7(d)(4) of




-29-

Che current regulation has been deleted. Section 226.7(d)(3) of the current
regulation regarding altering the cycle for providing semiannual statements
has been eliminated in light of the amended act's provisions.
As in the current regulation, the proposal mandates delivery of the
statement only to consumers who are entitled to receive periodic statements
for the billing cycle selected by the creditor. Because § 226.7(d)(2)(ii)
simply restates thi3 rule as applied to new customers, it has been deleted
as redundant. In light of the fact that the billing error rights statement
need only be provided annually, comment is solicited on whether delivery of
the billing rights statement should be required to be furnished to all
consumers (as is the case in the electronic fund transfers regulation) or
only to those entitled to receive periodic statements for the particular
cycle selected by the creditor (as is presently the case under the current
Regulation Z).
•

Section 226.5(e)(2) of the proposal corresponds to § 226.7(d)(5)
of the current regulation, and gives creditors the alternative of providing
consumers with a summary explanation of their rights on or with each periodic
statement. In order to offer a creditor greater flexibility where there is
limited space on its periodic statement, language has been added permitting
the summary statement to appear on the portion of a periodic statement that
must be returned to the creditor (with payment, for example).
A sample text of the summary statement is found in the Appendix.
It has been revised to be simpler, briefer, and more straightforward. The
"substantially similar" standard that governs the long form notice required
to be given with Che initial account disclosures is also applicable to the
summary notice, as referenced by footnote 37 of the proposal (see discussion
of § 226.5(b)(5) above). Comment is solicited as to ways in which the summary
statement might be improved.
The rules currently in Board Intepretation § 226.708 regarding the
transition from a creditor'3 use of one form of billing rights statement to
another are no longer accurate in light of the changes made in the amended
act. Comment is solicited about problems that creditors might encounter in
changing from the long to the 3hort billing rights statement under the new
provisions regarding annual notice.
(f) Supplemental credit devices.
Section 226.5(f) of the proposal corresponds to § 226.7(j) of the
current regulation. Other than the fact that proposed footnote 38 contains
material now found in the body of the regulation this section reflects two
substantive changes.
First, the proposal would impose a requirement of sending specified
disclosures for only those supplemental credit devices that are provided
on an unsolicited basis or whose finance charge terms are different than
those previously disclosed. This presumes that a consumer who has requested




-30-

a supplemental credit device is aware that use of the device is related to
an open-end account, and will result in an extension of credit. Second, the
proposal would also eliminate the current restriction that the required
disclosures cannot appear on promotional material delivered with the credit
device, but would require highlighting the disclosures when they are included
in such material.
(g) Prompt crediting of payments.
Present § 226.7(g) requires that a consumer's account be credited
as of the date a payment is received regardless of the date the payment is
posted, and, in paragraph (g)(2), permits the creditor to specify reasonable
requirements with respect to the form, amount, manner, location and time for
receipt of payments. If the creditor specifies requirements for receipt of
payments under (g)(2) and the consumer does not comply with those instruc­
tions, the creditor is relieved of the duty to credit the payment as of the
date of receipt; however, the regulation in its present form does not spec­
ify the time period within which the payment must be credited. The Board
proposes that a sentence be added to § 226.5(g)(2) to require that, when a
creditor has established reasonable requirements under that paragraph and a
payment is received which does not conform to the creditor's specifications
the payment must be credited as soon as possible, but in no event later than
five business days from receipt.
The language of (g)(2)(ii) relating to presentment of payments has
been eliminated to make the paragraph consistent with other provisions of
(g) which provide for crediting as of the date of receipt or within a certain
time thereafter.
The word "properly" has been deleted from the first part of para­
graph (g) because the relationship between the creditor's duty to credit the
payment as of the date of receipt and the provisos of paragraphs (l)-(4) is
clear without it.
Currently, § 226.7(g)(3) and (4) require that under certain circum­
stances a payment need not be credited as of the date of receipt but must be
credited "promptly" and, under (g)(3), no later than five days from the date
of receipt. The proposal incorporates a staff interpretation in changing
the word "promptly" to "as soon as possible." The Board believes that the
proposed language is a clearer statement of the present requirement that the
creditor must credit the consumer's account as soon as it is capable of
doing so and, under (g)(3), no later than five days from the date of receipt
of the payment.
The remainder of (g)(1), (3), and (4) is essentially unchanged
from the present regulation.
Existing paragraph (g)(5) is a transitional paragraph and has been
deleted from the proposal.




-31-

Proposed footnote 39 addresses the question of when a payment must
be credited to a consumer's account if regular payroll deductions have been
deposited into a share, escrow or similar account and are later applied by
agreement, in whole or in part, as a periodic payment to the consumer's
account. In the staff's opinion, if the payroll deductions are authorized
by the consumer, and are not required a3 a condition of the extension of
credit, and the consumer retains the right to withdraw any or all of the
funds up until the time the periodic payment is withdrawn by the creditor,
the payment may be credited as of the date it is withdrawn from the share,
escrow or similar account and not the date that the regular payroll deduction
was made. Footnote 39 incorporates the staff's position in this regard. It
has been drafted in broader terms to cover other than payroll deductions
(for example, deductions from demand deposit or other accounts).
(h) Treatment of credit balances.
Section 226.5(h) establishes requirements for the treatment of
credit balances and incorporates substantive changes to the existing regula­
tion corresponding to § 165 of the amended act.
The amended section of the act now provides that a credit balance
in excess of $1 created by (1) transmittal of funds in excess of the total
balance due on the account, (2) rebates of unearned finance charges or
insurance premiums, or (3) amounts otherwise owed to or held for the benefit
of an obligor must either be credited to the consumer's account or refunded
upon the consumer's request.
Proposed § 226.5(h) states that whenever the creditor receives a
payment or other credit which exceeds the new balance (as determined by
§ 226.5(c)(10)) by $1 or more, the creditor must either credit the account
with an amount equal to the new balance and refund the excess amount, or
credit the entire amount of the payment or credit to the account. If the
consumer later requests a refund of a credit balance of $1 or more the creditor
must refund it.
The Board is aware that creditors may wish to refund credit balances
on consumer's accounts in order to be relieved of the duty to provide periodic
statements under § 226.5(c). The Board believes that it is clear without
specific regulatory language that a creditor may refund the full amount of
any credit balance, at any time, after having complied with the requirements
of § 226.5(h).
Section 226.5(h)(2) incorporates in the regulation the requirement
imposed by § 165 of the amended act that the creditor make a good faith
effort to refund credit balances that remain in an account for more than six
months.




-32-

(^

Change in terms.

Section 226.5(i) outlines the requirements for notifying consumers
in the event a creditor makes a change in the terms of a consumer's account.
The proposed draft reflects a restructuring of the existing regulation and
incorporates a number of substantive changes.
The existing regulation requires that notice of a change in a term
previously disclosed be sent to consumers who are entitled to receive a
periodic statement 15 days prior to the billing cycle in which the change
takes place and to any consumer who subsequently activates his or her account.
If the change in terms is an increase in periodic rate(s), or in any minimum,
fixed, check service, transaction, activity or similar charge, notice must be
sent to all consumers whether or not they are entitled to receive a periodic
statement.
Proposed § 226.5Ci)(1) reflects a change in the timing of delivery
of the notice of change in terms from the present requirement of 15 days
prior to the billing cycle in which the change will be effective to 15 days
prior to the effective date of the change. This standard is consistent with
the requirement of the Electronic Fund Transfer Act and Regulation E. Comment
is solicited as to whether the 15 day time period should be changed to 21
days to coincide with Regulation E. The Board is concerned that the incon­
sistency between the two regulations in the number of days required for
notice may unnecessarily complicate compliance.
Present staff interpretation is that a § 226.7(f) change in terras
notice must be provided whenever a change occurs in one of the initial disclo­
sures. Similarly, the proposal provides that whenever a term required to be
disclosed under proposed § 226.5(b) is changed, a written disclosure of the
change must be furnished to the consumer. Section 226.5(i)(l) further provides,
unlike current regulatory interpretation, that no disclosure is required when
the change involves late payment charges, charges for documentary evidence or
over-the-limit charges. It also provides that no change in terms disclosure
is necessary where there is a change in collateral requirements (subject, of
course, to the rescission provisions of proposed S 226.9, if applicable).
Section 226.5(i)(l) incorporates a staff position that provides
that only those consumers whose accounts will be affected by the change in
terms need be notified. For example, if a creditor offers an overdraft credit
plan to a small number of consumers and proposes a change in the terms of
the overdraft plan, notice of the change in terms need be sent only to those
who participate in the overdraft plan.
The existing § 226.7(f) does not require notice of a change in
terms if the change is a reduction in the minimum periodic payment, periodic
rate or rates, or in any minimum, fixed, check service, transaction, activity,
or similar charge applicable to the account. Proposed § 226.5(i)(2) retains
this exception. Paragraph (i)(2) also incorporates staff position in that
it excludes from the notice requirement the suspension or termination of
credit privileges. To the extent that it is applicable, Regulation B affords
protection through it3 requirement that a creditor notify a consumer of
adverse action taken on an account.



-33-

In light of the above discussed changes, proposed § 226.5(i) elimi­
nates the distinction between the type of change in terms that requires
notice to each consumer and the type of a change in terms that requires
notice to only those consumers entitled to receive periodic statements.
Note that it is the Board's intention to rescind Board Interpreta­
tion § 705 which provides, in certain circumstances, that a change in terms
notice is not required when changing the balance computation method. Although
a change in a balance computation method may result in a decrease in finance
charges, depending on a consumer's use of and payment on the account, the
3oard believes that reliance on consumer behavior in determining whether the
change in terms provision applies is impractical. Consequently, the Board
contemplates that, under the new § 226.5(i), a change in balance computation
method would require a change in terms notice.
Paragraph (i)(3) is new and incorporates several staff interpreta­
tions addressing the conversion of closed-end to open-end credit and open-end
to closed-end credit. In such instances, if a written agreement signed by
the consumer is involved, the creditor shall provide the applicable disclosures
under either proposed § 226.5(b) or § 226.11(f)(2), (3) and (4). Where openend credit is terminated but not converted to closed-end credit, the creditor
is required to continue providing periodic statements and to follow the
error resolution procedures of proposed § 226.7. Creditors must determine
whether the action they take as to an existing account or loan constitutes
conversion. Conversion may occur, for example, when an open-end account is
terminated and a new agreement is signed providing for a certain number of
installments and a definite maturity date.
Paragraph (i)(4) i3 new and states that a change in terras notice is
not required if the change results directly or indirectly from the consumer's
default or delinquency unless the periodic rate or other finance charge is
increased. If the creditor increases the periodic rate or any other finance
charge, the creditor must notify the consumer of that fact in writing but i3
not required to do so within the time limitations of paragraph (i)(l).
Paragraph (i)(5) is also new. It reflects staff opinion that any
agreement approved by a court does not require disclosure.
Staff opinion has always been that a new initial disclosure state­
ment can be provided in lieu of a change in terms notice, as long as it is
properly timed. Comment is solicited on whether 3uch an interpretation
should be reflected in the regulation. Comment is also solicited on whether
the changed terms should be highlighted or referenced when an initial disclo­
sure statement is used.
(j) Finance charge imposed at the time of transaction.
Proposed 226.5(j)(l) requires that certain disclosures be given by
persons honoring a consumer's credit card who impose a finance charge which
is not excepted by § 226.4(i) (Discounts for payments in cash) at the time
of honoring a consumer's credit card. With the exception of the addition of
some clarifying language, the paragraph is unchanged from the regulation.



-34-

Section 226.5(j)(2) has been changed to incorporate staff position
that the creditor of the open-end account, if other than the person honoring
the consumer's credit card, has no responsibilities for the disclosures
required under paragraph (j)(l). The paragraph is otherwise unchanged.

Section 226.6— Credit card provisions.
(a) Issuance of credit cards.
Section 226.6(a), which parallels § 226.13(a) of the present regu­
lation, sets forth restrictions on the distribution of credit cards. A
number of changes are reflected in the proposal.
First, the introductory language in § 226.6(a) has been revised
for purposes of brevity and clarity, but no substantive change is intended.
Second, S 226.13(a)(1) of the present regulation, now S 226.6(a)(1)
of the proposal, has been revised and a footnote has been added to it. The
words "by that person" have been added, to indicate that card issuers may
send a credit card only to the person who requests or applies for the card.
Proposed footnote 40 incorporates into the regulation some principles stated
in existing staff interpretations. The Board is aware that there has been
considerable discussion concerning the proper interpretation of Truth in
Lending rules on issuance of credit cards (for example, in what names may
cards be issued). The Board solicits comment on this proposal, as well as
on the subject of issuance generally.
Lastly, § 226.6(a)(2) would be amended by the addition of a foot­
note and some additional material in the body of the provision. Proposed
footnote 41 sets forth the definition of "accepted credit card," which is
essentially the same as in present § 226.2, with changes made as appropriate
to reflect changes to § 226.6(a). Additional language in § 226.6(a)(2) adopts
as part of the regulation various staff interpretations.
(b) Liability of cardholder for unauthorized use.
Section 226.6(b) contains the rules concerning liability for unautho­
rized use of credit cards, and replaces §§ 226.13(b) through (h) of existing
Regulation Z. Through deletion of obsolete material, transfer of some model
disclosure language to the Appendix, replacement of some material by a reference
to a provision of the act, and greater economy in use of words, proposed
§ 226.6(b) is considerably more concise than the provisions it would replace.
Some of the more noteworthy changes are as follows.
Footnote 42 to § 226.6(b) references § 133(b) of the act for rules on
burdens of proof and replaces S 226.13(f). Section 226.6(b)(1), which states
the maximum limits on the amount of a cardholder's liability for unauthorized
use, would take the place of existing § 226.13(b)(2). Footnote 43 sets
forth the definition of "unauthorized use" in virtually the same language
as appears in § 226.2 of present Regulation Z.




-35-

Section 226.6(b)(2) states the conditions that must be fulfilled
in order for a card issuer to impose any liability on a cardholder for unau­
thorized use. It groups together in one place the provisions of existing
§ 226.13(b)(1), (b)(3), (c), and, in part, (d), as well as a provision imple­
menting an amendment to § 133(a) of the act.
Section 226.6(b)(2)(i) requires, as a condition of imposing lia­
bility, that the credit card used without authority be an accepted credit
card. This provision continues existing § 226.13(b)(1) without change.
Section 226.6(b)(2)(ii) specifies as a liability condition that the
card issuer must have given adequate notice of the cardholder's maximum lia­
bility. This condition appears as § 226.13(b)(3) of existing Regulation Z.
The proposed provision also provides details on what information the notice
must and may contain. These details are set forth in existing § 226.13(d).
(Section 226.13(d) also contains a sample notice, which in this proposal
appears in Appendix A.) Finally, proposed footnote 44 defines "adequate
notice"; in the existing regulation, this definition appears in § 226.2.
Section 226,6(b)(2)(iii) embodies an amendment to § 133(a) of
the act. The act formerly mandated that, in order to impose liability for
unauthorized use, a card issuer provide cardholders with a self-addressed,
prestamped form that cardholders could use to give notice of loss or theft
of a credit card. That requirement is reflected in existing § 226.13(b)(4).
The amended act now requires instead that the card issuer give cardholders
"a description of a means by which the card issuer may be notified of loss or
theft of the card," either on the periodic statement or on a separate notice
accompanying the statement. Section 226.8(b)(2)(iii) would implement this
new statutory provision by requiring disclosure, on or with the periodic
statement immediately preceding the unauthorized use, of the telephone number
and address of the person or office to receive notification. Comment is
solicited on whether the proposed language correctly reflects the intent of
the statutory amendment, as to both the time and content of the disclosure.
Section 226.6(b)(2)(iv) requires, as a condition of imposing lia­
bility, that the card issuer provide a means of identifying the cardholder.
This corresponds to existing § 226.13(c). There are two changes of substance.
First, obsolete transition provisions have been deleted. Second, § 226.13(c)
refers to identification of the user of the card, while the proposed version
would require identification of "the person to whom the credit card was
issued." This change makes the proposed provision parallel to the provisions
in Regulation E (the electronic fund transfer regulation) concerning liability
for unauthorized use of debit cards. The Regulation E provision permits a
single identifier (such as a PIN, or secret numerical code) to be used by all
persons who are account holders or users on a particular account. Using more
than one identifier per account may not be feasible. Adopting a similar
standard in Regulation Z might facilitate the use of combined debit/credit
cards.




-36-

Section 226.6(b)(3) corresponds to the present § 226.13(e) concerning
what constitutes notification to a card issuer of loss, theft, or possible
unauthorized use. Other than the deletion of considerable excess verbiage,
there are two respects in which the present and proposed versions differ.
First, in accordance with an amendment to § 133(a) of the act, proposed
§ 226.6(b)(3) provides that notice is deemed given when such steps have been
taken as may be necessary to furnish the card issuer with the information.
The present regulation specifies that the person who must take steps necessary
to furnish the information is the cardholder. Second, the steps to be taken,
rather than those "reasonably required in the ordinary course of business"
to provide the issuer with the pertinent information, would be those "reason­
ably necessary" to do so. Comment is solicited on the effect of these changes.
Section 226.6(b)(4) would replace existing § 226.13(g), concerning
lesser liability limits set by state law or agreement. No change in meaning
is intended.
Section 226.6(b)(5) deals with business use of credit cards, and
corresponds to existing § 226.13(h). While the proposal is considerably
shorter than the present version, no substantive change has been made.
(c) Right of cardholder to assert claims or defenses against card
issuer.
Section 226.6(c) deals with the right of a cardholder to assert
against the card issuer claims and defenses relating to property or services
purchased with a credit card, if the merchant fails to resolve satisfactor­
ily the cardholder'3 complaint. The corresponding provision in existing
Regulation Z is § 226.13(i). Most of the changes in thi3 section are for
the purpose of simplifying or clarifying the regulatory language, rather than
for modifying substantive requirements. However, there are some substantive
changes, as described below.
First, language has been added to § 226.6(c)(4) (corresponding to
existing § 226.13(i)(3)) to indicate that the right to assert claims and
defenses does not exist when a check guarantee card is used in connection
with a check. The relevance of this addition can be shown by the following
example. If a consumer purchases goods with a check, using a check guarantee
card to permit the check to be accepted as payment by the merchant, and if
the consumer's checking account has an overdraft line of credit that is
drawn upon by the check, then the check guarantee card falls within Che defi­
nition of "credit card." Thus, the goods would be "property . . . purchased
with a credit card in a consumer credit transaction," and if any dispute
occurs as to the goods and the merchant fails to resolve it, the consumer
would appear to have the right to assert any claims or defenses against the
card issuer.
There are several problems with this result. First, if the card
issuer has no recourse to the merchant in case of a claim relating to propperty purchased, as may often be the case where check guarantee cards are
concerned, the issuer, rather than the merchant, will be forced to bear the




-37-

loss occasioned by the merchant's wrongdoing. In the case of credit cards
in general, by contrast, the card issuer will ordinarily have the right,
under an agreement with the merchant or otherwise, to charge back any item
as to which there is a dispute traceable to the merchant.
Second, in many cases the consumer will not even know whether a
particular check will trigger an extension of credit on the overdraft line,
since several checks may be written in a short time span and checks may not
clear in the order in which they were written. Some checks may have been
written in connection with the check guarantee card, and others not. Thus,
the consumer may not intend to use credit in making a particular purchase as
to which a dispute later arises, although it may be that the check used in
that transaction triggers an extension of credit.
In light of these considerations, it seems desirable to expressly
exclude use of check guarantee cards from the requirements of § 226.6(c).
This change embodies existing staff interpretations of the regulation.
Note that use of a check guarantee card that is also an ordinary
credit card may remain subject to S 226.6(c). For example, where such a
card i3 used to purchase goods or services, not in conjunction with a check
but rather as an ordinary credit card, the right to assert claims or defenses
would apply.
The Board solicits comment on this proposed exemption and on whether
other types of transactions should be exempted from § 226.6(c). One such
type of transaction might be the purchase of goods or services with a debit
card that, in accessing the consumer's account, draws on an overdraft line
of credit. Comments on this subject should also address whether the exemption
should be afforded only to debit card transactions that are purely electronic,
only to those that are paper-based, or to both.
Comment is also requested on whether the proposed language exempts
purchases made with cash advance checks (i.e., special checks that, when used,
result in extensions of credit on the consumer's open-end credit account). If
such checks are used in conjunction with a card, S 226.6(c) would apply, unless
the card is a "check guarantee card," in which case the proposed language would
exempt transactions of this type. Whether or not the proposed exemption does
cover such transactions, the Board also requests comment on whether they should
be exempted.
Section 226.6(c)(5) deals with the prohibition on adverse credit
reports and has been revised so that the prohibition would take effect only
when the card issuer knows or has reason to know that the claim or defense
exists. If the issuer does not know of the dispute, and if the cardholder
ceases payment, the card issuer has no way of knowing that it is prohibited
from making an adverse credit report. Also, the material in present footnote
15a would be placed in the body of the regulation.




-38-

(d) Offsets by card issuer prohibited
Section 226.6(d) corresponds to existing § 226.13(j). The first
change is the addition of the words "whether before or after termination of
credit card privileges," to incorporate in the regulation the existing staff
position that a creditor does not gain the right of offset where it did not
previously exist merely by terminating the consumer's credit card account.
Next, the phrase "unless a court order is obtained" has been deleted,
but no change in substance is intended since existing footnote 16, which has
been moved into the body of the regulation as § 226.6(d)(2), appears to give
creditors the same rights as the deleted language. Proposed § 226.6(d)(2)
contains language regarding obtaining or enforcing security interests in
order to reflect the interpretation of the existing regulation viewing con­
sensual security interests as distinct from the right of offset and, therefore,
as permissible. Comment is solicited, however, on whether a security agreement
in funds held on deposit with the card issuer should be required to be limited
in any way in order to be distinct from the right of offset (for example, under
existing staff interpretation, the security interest must be limited to a
specific amount). An additional change in § 226.6(d)(2) indicates that a
card issuer may obtain and enforce a security interest under federal law (if
such a procedure is available), as well as under state law.
The language of existing § 226.13(j)(2)(i) is considerably abbrevi
ated as it appears in S 226.6(d)(3), but no change in substance i3 intended.
Present § 226.13(j)(2)(ii) is eliminated since it is obsolete.
Finally, a sentence would be added, as proposed § 226.6(d)(4),
stating that card issuers may not obtain from consumers waivers of the prohi­
bition against offsets, and that such waivers would be void if obtained.
(e) Prompt notification of returns and crediting of refunds.
The changes to § 226.6(e) are primarily stylistic. Proposed
§ 226.6(e) corresponds to the present § 226.13(k). "As soon as possible" is
substituted for "promptly" in two places in order to clarify the promptness
standard.
(f) Prohibited acts of card issuers.
There are two changes of note in § 226.6(f), which corresponds to
§ 226.13(1) of the present regulation. First, a footnote is added to indicate
that the prohibition does not apply to requiring the maintenance of an account
for clearing purposes, where this is essential to the operation of the credit
card plan and where no minimum balances or service charges are imposed. This
position is expressed in existing staff interpretations. Second, existing
S 226.13(1)(2) is deleted as obsolete.
(g) Prohibition of surcharges.
Section 226.6(g) i3 transferred from existing § 226.4(i)(4).
Since the prohibition of surcharges applies only where credit cards are
used, it is more appropriately placed in this section, rather than in the
section on determination of finance charges as is presently the case.




*4.

-39-

(h) Relation to Electronic Fund Transfer Act and regulations.
Section 226.6(h) is new. It explains the relationship of § 226.6
to various sections of Regulation E, the Board's regulation governing elec­
tronic fund transfers, in circumstances involving credit cards that are also
"access devices" under Regulation E (i.e., combined credit/debit cards). In
cases involving these multi-function devices, it is not always clear whether
Regulation E, Regulation Z, or both, apply.
Section 226.6(h)(1) deals with the application of the two regula­
tions in the area of unsolicited issuance of credit cards and access devices.
Paragraph (l)(i) specifies what is governed by the unsolicited issuance restric­
tions of Regulation Z. Paragraph (l)(i)(B) provides that adding a credit
capability to an accepted access device is considered to be, in effect,
issuance of a credit card. Thus, Regulation Z applies, and the credit capa­
bility may not be added on an unsolicited basis. This is so even if the
credit feature is being added when the accepted access device is renewed,
which, under Regulation E, may generally be done on an unsolicited basis.
Paragraph (l)(i)(C) deals with the issuance of combined credit card/
access devices, and specifies that, with an exception set forth elsewhere in
the paragraph, the Regulation Z restrictions apply. Since the Regulation Z
rules on unsolicited issuance are stricter than those of Regulation E, it
seems appropriate that Regulation Z apply to the issuance of devices with
both credit and debit functions, in order to avoid undercutting the protec­
tions of Regulation Z designed for the credit function.
Paragraph (l)(ii) lists the acts that will be covered by Regulation E.
Paragraph (l)(ii)(B) relates to the addition of an EFT capability to an accepted
credit card. The same principle applies here as under paragraph (l)(i)(B),
i.e., the addition of such a capability will be considered to be issuance of
an access device, and therefore may not be done on an unsolicited basis
unless the Regulation E rules are followed, even though the EFT capability
is added during renewal of an accepted credit card.
Paragraph (l)(ii)(C) sets forth the exception to the rule stated in
Paragraph (l)(i)(C). This is the one type of combined credit card/access device
whose issuance is governed by Regulation E, rather than by Regulation Z. The
excepted type is a credit/debit device whose only credit function is to permit
extensions of credit on a preexisting overdraft line of credit (or similar line
of credit designed to maintain a specified minimum balance in the consumer's
checking account or other asset account). As explained below, the Electronic
Fund Transfer Act provides for a somewhat similar exception where liability
for unauthorized transfers is concerned; it appears desirable for the sake of
uniformity to have the same exception apply in the area of unsolicited
issuance.
Section 226.6(h)(2) deals with liability for unauthorized use of multi­
function devices. The difference between this and the rules of unsolicited
issuance discussed above is that the choice of which regulation applies in
the case of liability depends upon the specific transaction, rather than upon




-40-

Che type of card or device involved. Essentially, when a transaction made
with a combined credit/debit device is purely a credit transaction (i.e., no
electronic fund transfer is involved), Regulation Z applies (paragraph (2)(i));
when a transaction is purely an EFT transaction, Regulation E applies
(paragraph (2)(ii)(A)). When a transaction made with a combined device has
both credit and EFT aspects, in that the transaction involves not only an
electronic fund transfer but also an extension of credit under an overdraft
or similar agreement, then Regulation E applies (paragraph (2)(ii)(B)).
This appears to be the only possible type of transaction involving both
credit and electronic fund transfer aspects in a single transaction, although
the Board solicits comment on this point.
With respect to both S 226.6(h)(1) and (2), note that virtually
identical provisions have already been adopted in final form as part of
Regulation E (as §§ 205.5(c) and 205.6(d), respectively). Thus, any changes
to the Regulation Z provisions proposed here would require parallel changes
to the Regulation E provisions.
Section 226.6(h)(3) provides that the rules set forth in the
balance of § 226.6 (other than the issuance and liability rules) apply to
credit cards that also constitute access devices to the extent that those
rules indicate. There are no provisions in Regulation E corresponding to
these portions of § 226.6; therefore, choices between competing rules are
not necessary. Paragraph (3) merely makes clear that although the credit
card is also an access device, the provisions of § 226.6 (other than the
issuance and liability rules) still apply.
Comment is solicited on whether greater specificity is desirable
in delineating the applicability of §§ 226.6(c) through (g) to the use of
combined credit/debit devices.
Section 226.7— Billing error resolution.
Proposed § 226.7 deals with error resolution procedures and cor­
responds to §§ 226.2(j), 226.2(cc) and 226.14 of the present regulation.
While few substantive changes are reflected in the proposal, substantial
restructuring has been done in an effort to facilitate the use of these
regulatory provisions.
(a) Definition of billing error.
Section 226.7(a) corresponds to § 226.2(j) of the current regulation,
and § 226.7(b) (Notice of a billing error) corresponds to existing § 226.2(cc)
(Proper written notification of a billing error). In the proposal, these two
definitions have been moved from the definitional section to the section on
billing error resolution. The reason for this change is to compile in one
section of the regulation all provisions relating to billing error resolution,
including the proper steps that a consumer must take to allege billing errors
and the steps that a creditor must take to resolve them.




- 41

The billing error definition language of proposed § 226.7(a) has
been simplified and, where possible, modified to parallel the proposed
billing error definition in the Electronic Fund Transfer regulation. One
major change from the present regulation is that billing errors would be
tied to activity in the account rather than reflections on the periodic
statement. The consumer would be able to activate the billing error pro­
cedure upon learning about the problem with the account even if that knowl­
edge predated receipt of a periodic statement. For example, if a consumer
attempts to use a credit card, and is told that no extension will be approved
because no payment has been received for the last two months, the consumer
should be able to utilize the error resolution procedures by writing to the
creditor and indicating that an error exists in the account because payments
have always been made in a timely manner.
In general, the specific billing error definitions contained in
§§ 226.7(a)(1) through (6) of the proposal reflect minor changes other than
to indicate that billing errors need not appear on periodic statements before
a consumer can trigger the error resolution procedures. Proposed 226.7(a)(7)
corresponds to § 226.2(j)(2) and (6) of the current regulation and reflects
a substantive change, however. Under the current S 226.2(j)(6), the creditor’s
failure to mail or deliver a periodic statement is an error under the regula­
tion. The Board believes that as a practical matter the event triggering
the error resolution procedures should be the consumer's request for a copy
of the periodic statement rather than the failure of the creditor to deliver
it. In making this change, the Board seeks to eliminate the kinds of factual
disputes that now arise. The Board contemplates that where the only billing
error alleged is a consumer's request for a copy of the periodic statement,
the creditor may resolve the error by supplying the copy of the statement in
a timely manner (see footnote 47 to § 226.7(a)(7) of the proposed regulation
in this regard).
Similarly, under S 226.7(a)(7), the Board believes that a consum­
er's request for documentation or other information concerning an extension
of credit should activate the billing error resolution process, even where
the consumer does not articulate any particular reason for believing that an
error exists in the account. This position implements language in § 161(b)(2)
of the act and parallels the electronic fund transfer regulation. The Board
contemplates that resolution in these cases consists merely of supplying the
documentation in a timely manner, which serves to diminish the burden to
creditors (see footnote 47 to § 226.7(a)(7) of the proposal). Furthermore,
the Board proposes to add language to the regulation, which incorporates
present staff position, that a request for documentation or information for
tax or business purposes does not activate the billing error resolution
procedures.
(b) Notice of billing error.
As stated above, § 226.7(b) of the proposal corresponds to § 226.2(cc)
in the current regulation. The substance of the proposed provision is substan­
tially the 3ame as in the current regulation, and the form parallels the
electronic fund transfer regulation. Language has been added to clarify
that the consumer need not indicate the reasons for believing the account is



- 42 -

in error, if the alleged error consists of the consumer's request for a copy
of the periodic statement or any documentation, information, or clarification
concerning an extension of credit. The provision has also been modified to
eliminate the need for a billing error to appear on the periodic statement
before the consumer can provide notice of a billing error and trigger the
error resolution procedures (i.e., the consumer may assert that an error
exists in the account).
(c) Time for resolution; general procedures. •Proposed § 226.7(c) corresponds to § 226.14(a)(1) and the general
timing requirements contained in § 226.14(a)(2). The last sentence has been
added to incorporate the staff's present interpretation that a creditor may
temporarily correct the consumer'3 account as long as the dispute is perma­
nently resolved within the time limits set forth in proposed § 226.7(c)(2).
(d) Rules pending resolution.
Section 226.7(d) of the proposal consolidates all the rights and
duties of the consumer and the creditor pending final resolution of the
dispute. Portions of this section correspond to parts of existing regulation
§§ 226.14(a) through (e).
Section 226.7(d)(1) of the proposal corresponds to § 226.14(b)
of the current regulation and addresses the consumer's right to withhold the
disputed amount pending resolution. Footnote 49 clarifies the meaning of
the concept of "the amount in dispute."
Section 226.7(d)(2) (Creditor's handling of disputed amount) corres­
ponds to § 226.14(b)(4) and the last sentence of § 226.14(d). This section
adds clarifying language to indicate that, pending resolution, a creditor may
transmit a periodic statement that reflects not only the disputed amount but
also finance or other charges computed on that amount, provided the creditor
indicates on the periodic statement that payment of the disputed amount and
related charges i3 not required. In light of the general requirement that
disclosures be made clearly and conspicuously, the proposal eliminates the
present requirement that the consumer be so informed by language appearing
on the face of the periodic statement.
Section 226.7(d)(3) (Action to collect disputed amount) corres­
ponds to § 226.14(a)(2) and footnote 17 of the current regulation. This
section implements the statutory mandate that the creditor resolve the dis­
pute before taking any action to collect any portion of the amount indicated
by the consumer as a billing error. The proposal retains the regulatory
two-day grace period for the creditor; therefore, if the creditor inadver­
tently takes action to collect within two business days after receiving a
notice of a billing error, the inadvertent action will not be considered a
violation of the regulation. The proposal further provides that the creditor
must promptly cease any collection activity and redress the results of the
collection activity undertaken within the two-day period. The Board contem­
plates that appropriate corrective action could include, for example, notifying




- 43 -

\

any individuals contacted in the collection action that the disputed amount
is not delinquent, and refunding disputed amounts collected as a result of
the collection action. Comment is solicited about the feasibility of such
procedures.
Section 226.7(d)(4) (Adverse credit reports prohibited) corres­
ponds to portions of current § 226.14(e). This paragraph provides that after
receiving notice of the billing error the creditor may not make an adverse
report to any person regarding the consumer* s credit standing because of the
consumer's failure to pay the amount specified as a billing error or any
finance charges imposed on that amount. The proposal incorporates footnote
19 in the body of the regulation with regard to reporting a disputed amount
or account as in dispute. The proposal retains the provision that, if the
creditor within two business days after receiving notice of the billing
error, inadvertently takes action prohibited by this provision the inadvertent
action will not be considered a violation; however, the proposal conditions
excusing the inadvertent action upon the creditor's prompt notification of
all credit bureaus and other creditors, to the extent possible, to which
adverse reports were made, that the disputed amount is not delinquent.
Section 226.7(d)(5) (Automatic debit of disputed amount) corres­
ponds to § 226.14(c) of the current regulation with no substantive change
intended. Attention is drawn, however, to § 913 of the Electronic Fund
Transfer Act regarding the compulsory use of electronic fund transfers.
Section 226.7(d)(6) (Acceleration of debt; closing of accounts)
combines the last sentence of § 226.14(b)(1) with the first sentence of
§ 226.14(d). The proposal provides that a creditor may not accelerate the
consumer's debt or restrict or close an account for which a consumer has
asserted a billing error, prior to complying with the requirements of this
section.
(e)

Procedures after creditor determines that a billing error
occurred.

Section 226.9(e) corresponds to § 226.14(a)(2)(i) and § 226.14(b)(2)
of the current Regulation Z and describes what a creditor must do if an
incorrect billing has occurred. The proposal substitutes the phrase, "a
billing error occurred" for the concept of "erroneous billing" as used in
existing § 226.14(a)(2) and § 226.14(b)(2). A billing error occurs, for
example, wherever there is a misidentification, insufficient identification
or incorrect date of a transaction; improper crediting of payments or other
credits; computation errors; a billing for property or services not accepted
or delivered in accordance with any agreement; or mistakes in dollar amounts.
The Board solicits comment on whether the term "erroneous billing" is neces­
sary to define the concept of when an actual mistake has occurred, or
whether the proposal clearly indicates when corrective action is required.
The proposed paragraph (e) also lists the steps a creditor must take
when a billing error occurs, including correcting the error and mailing or
delivering a notice of the corrections to the consumer. The proposal incorpor­
ates in the body of the regulation existing footnote 18 and provides that a
notice on the periodic billing statement that is mailed within the time for



- 44 -

resolution and that clearly identifies the correction is sufficient. The
Board contemplates that the amount of the correction will be identified by
stating that it is a correction of a billing error, rather than merely iden­
tifying the correction as a credit to the account.
(f)

Procedures after creditor determines no billing error
occurred.

Proposed § 226.7(f) corresponds, without substantive change, to por­
tions of §§ 226.14(a)(2)(ii) and (iii) of the current regulation and deals with
those instances in which no billing error occurred or an error occurred in a
manner differing from that alleged by the consumer. Like proposed S 226.7(e),
this section parallels Regulation E.
(g)

Special investigation rules.

Section 226.7(g) of the proposal corresponds, without substantive
change, to portions of current § 226.14(a)(2)(iii) regarding investigating
notices of billing errors that involve nondelivery of property or services
or that allege that the person honoring a credit card account made an incorrect
report to the card issuer.
(h)

Creditor's rights and duties after resolution.

Proposed § 226.7(h) details the creditor's duties after resolution
where the creditor determines that the consumer still owes all or part of
the disputed amount. Paragraph (h)(1) corresponds without substantive
change to the provisions of § 226.14(b)(3). The proposal provides that the
creditor shall promptly notify the consumer in writing of what the consumer
owes and when it is due. The Board contemplates that this notice can be
combined with the explanations required by § 226.7(e) and § 226.7(f).
Proposed paragraph (h)(2) corresponds to the current § 226.14(e)(1).
This paragraph provides that the creditor may report the disputed amount as
delinquent provided that the amount remains unpaid after the creditor has
complied with all other requirements of the section and then allowed the
greater of ten days or any free-ride period normally allowed for the consumer
to pay.
Proposed § 226.7(h)(3) corresponds without substantive change to
§ 226.14(e)(2) and incorporates footnote 20 of the existing regulation.
(i)

Withdrawal of billing error notice.

Proposed § 226.7(i) corresponds to the introductory language in
current § 226.14(a). Under this paragraph the creditor is relieved of its
error resolution responsibilities if the consumer subsequently agrees that
no error occurred.




- 45

(j)

Reassertion of error.

Proposed § 226.7(j) corresponds to the last paragraph of the cur­
rent § 226.14(a). It conforms with Regulation E in that the proposal permits
the consumer to assert billing errors of the type described in §§ 226.7(a)(1)
through (a)(6) when they were discerned from documentation requested under
§ 226.7(a)(7).
(k)

Forfeiture penalty.

Section 226.7(k) of the proposal corresponds to §
current regulation. The provision is unchanged, except for
clarifying language regarding the provision's applicability
has paid rather than withheld the amount in dispute pending

226.14(f) of the
the addition of
when a consumer
resolution.

(l) Exceptions to the general rule.
Proposed § 226.7(1) corresponds without substantive change to
§ 226.14(g) of the present regulation.
(m)

Relation to Electronic Fund Transfer regulations.

Section 226.7(m) is a new provision designed to alleviate confu­
sion concerning whether to use Regulation Z or Regulation E error resolution
procedures. Under proposed paragraph (m), if a consumer and a financial
institution have an agreement to extend credit when the consumer's account
i3 overdrawn or has dropped below a specified minimum balance, and there is
an error as to the extension of credit, the creditor is instructed to follow
certain error resolution provisions in Regulation E.
Section 226.8— Determination of annual percentage rate.
(a)

General rule.

Proposed § 226.8 is substantially similar in content to the present
§ 226.5(a) of the regulation, but has been restructured in an effort to
provide greater clarity regarding its requirements. Paragraph (a) incorpor­
ates the general standard of accuracy of 1/8 of 1Z above or below the exact
annual percentage rate, in line with a recent Board amendment.
As noted below in the discussion of proposed S 226.12 regarding
annual percentage rate calculations for closed-end credit transactions, in
light of amended § 130 of the act which provides a defense to civil liability
where errors result from the good faith use of calculation tools, the Board
proposes to eliminate, as no longer needed, § 226.5(c) regarding the protec­
tion afforded creditors for use of faulty calculation tools.
(b)

Annual percentage rate for initial disclosures and for adver­
tising purposes.

Under § 226.8(b) of the proposal, the annual percentage rate for
advertising disclosures under proposed § 226.10 and initial open-end credit
disclosures under proposed § 226.5(b) would be determined by multiplying
each periodic rate by the number of periods in a year. This reflects the
current requirements of the regulation.



- 46

(c)

Annual percentage rate for periodic statements.

Section 226.8(c) of the proposal provides rules for determining
the annual percentage rate to be disclosed on periodic statements under the
new § 226.5(c). This paragraph reflects the current § 226.5(a)(1) through (3).
Paragraph (a)(1) addresses corresponding annual percentage rates required by
new § 226.5(c)(4), while paragraph (a)(2) sets forth the methods for determining
the annual percentage rate to be disclosed under new § 226.5(c)(8).
Section 226.8(c)(2)(i) permits creditors with no finance charge
other than one calculated solely on the basis of a periodic rate(s) either to
use the quotient method or to multiply the periodic rate(s) by the number of
periods in the year. Proposed paragraph (c)(2)(ii) restates the substance
of 226.5(a)(2) of the current regulation, explicitly incorporating the limita­
tions formerly set forth in § 226.5(c)(2)(iv). The final sentence of thi3
paragraph reflects the substance of Board Interpretation § 226.501. It
should be noted that this paragraph represents an exception to the general
requirement in S 107(c) of the act that the annual percentage rate in openend credit be calculated according to the quotient method, as reflected in
§ 226.8(c)(3). The Board is not aware of any widespread use of this excep­
tion, which permits a degree of understatement of the annual percentage rate
beyond the general accuracy limits of the regulation. In view of the appar­
ent lack of use of this provision and its potentially distorting effect on the
resulting annual percentage rate, the Board specifically requests comment on
whether this provision might be eliminated entirely.
Proposed S 226.8(c)(2)(iii) corresponds to the present § 226.5(a)(3).
As a general rule, where the finance charge imposed during the billing cycle
includes or consists solely of a charge other than an amount applicable to a
periodic rate, the creditor must use the so-called quotient method in deter­
mining the annual percentage rate. Under this method, the total finance
charge for the billing cycle is calculated by dividing the finance charge by
the total balances and multiplying the result by the number of periods in the
year. This approach is reflected in paragraph (c)(2)(iii)(A). Paragraph
(c)(2)(iii)(B) requires creditors to use a variation of the quotient method
in billing cycles where the finance charge includes transaction charges.
This method is similar to the quotient method set out in the paragraph above,
except with regard to the determination of the denominator, consisting of
the balances and other amounts on which a finance charge was imposed.
Appendix B contains an expanded version of present footnote 5a, which pro­
vides examples for determining the total amount to be used as the denom­
inator for these calculations. A further example has been added to this
material to reflect a situation in which no previous balance exists and a
transaction occurs sometime after the opening date of the billing cycle.
The example makes it clear that the denominator in such a situation cannot
be less than the amount of the transaction. The Board specifically requests
comment on the need for this example, together with alternative methods of
calculating the annual percentage rate in these situations.
Under § 226.8(c)(2)(iii)(A), the quotient method requires that
there be an outstanding balance in the account for that billing cycle, in
order to determine the denominator to be used in applying the method. Where
there is no outstanding balance, but a finance charge was imposed during that




- 47 -

billing cycle, the resulting annual percentage rate will be undefined, using
the quotient method. Footnote 51 to this paragraph requires creditors under
these circumstances to make special disclosures pursuant to § 226.5(c)(8),
rather than attempting to compute and disclose a meaningless annual percent­
age rate. The Board solicits comment on whether a provision should also be
added either exempting a creditor from computing and disclosing an annual
percentage rate or, in the alternative, establishing additional formulas for
such computation, for billing cycles in which there i3 an outstanding balance
on the account, but it bears no relationship to the finance charge imposed
during that billing cycle. For example, some plans may require an initial
loan fee, which is a finance charge but is not related to the balance on the
account for that month. Using the quotient method, a numerical annual per­
centage rate could be derived, but might not accurately reflect the cost of
credit on an annualized basis.
•

Section 226.8(c)(2)(iii)(C) reflects the current S 226.5(a)(3)(iii)
and permits creditors whose total finance charge for a monthly billing cycle
does not exceed 50 cents to multiply each periodic rate by the number of
periods in determining the annual pecentage rate, rather than performing the
more complex calculations required by the quotient method. However, as in
paragraph (c)(2)(iii), where there is no balance on the account for that
cycle, the creditor cannot determine an annual percentage rate and must
instead make the special disclosures required by § 226.5(c)(8).
(d)

Calculations where daily periodic rate applied.

Proposed S 226.8(d) corresponds to the first two paragraphs of Board
Interpretation § 226.506. As under the current regulation, it is available
to creditors whose finance charge either consists solely of a periodic rate
or includes other charges not associated with a specific transaction.
Section 226.9— Right of rescission.
(a)

Consumer’s right to rescind.

Proposed §§ 226.9 implements §§ 125(a) and (e)(4) of the amended
act, and applies to consumers' rescission rights when an open-end credit
plan is secured by the consumer's principal dwelling.
Generally, rescission rights arise with each transaction made on
an open-end account as provided by § 226.9(a)(1)(i) of the proposal. The
amended act provides, however, that a creditor need not provide the right to
rescind at the time of each transaction; instead, the consumer's rescission
rights need arise only at certain limited times. Those times are the opening
of the plan and the creditor's increasing the credit limit.
Section 226.9(a)(l)(ii) of the regulation provides accordingly and
also provides the consumer with the right to rescind when a security interest
in the consumer's home is taken to secure a preexisting open-end credit
plan. The Board requests comment on whether the Board should, by regulation,




- 48 -

require Chat Che right Co rescind be provided at any other time during the
existence of an open-end plan (for example, when a term originally disclosed
as an initial disclosure is changed).
Proposed footnote 54 implements § 125(e)(4) of the act and provides
that the special provisions regarding limiting the consumer's rescission
rights to certain events will expire three years after the effective date of
the Truth in Lending Simplification and Reform Act.
As is presently required, the rescission right will expire three
days after the event giving rise to rescission or after receiving a copy of
all material disclosures together with the notice of the right to rescind,
whichever is later. Footnote 55 to § 226.9(a) identifies which disclosures
are considered "material" disclosures (i.e., certain initial disclosures).
If the material disclosures and rescission notice are not properly provided,
then the consumer's right to rescind shall expire upon the earlier of three
years after the event giving rise to the rescission right or the date of the
transfer of the principal dwelling. Additionally, as the amended § 125(f)
of the act indicates, the right to rescind will expire, if an administrative
proceeding is instituted, one year following final administrative action or
judicial review of that proceeding. In some cases, therefore, the right to
rescind will extend beyond the three-year period.
(b)

Notice of the right to rescind.

Section 226.9(b) of the proposal corresponds to § 226.9(b) of the
present regulation. It no longer requires specific language or type size
for the rescission notice. The proposal replaces the mandatory text of the
rescission notice with only four stated disclosures that must be included in
a creditor's rescission notice. Furthermore, the creditor is no longer
required to give the consumer two copies of the notice. Model forms, for use
in the most common situations in which rescission will arise, are provided
in Appendix A to the regulation.
(c)

Delay of creditor's performance.

Section 226.9(c) of the proposal, which has been rewritten more con­
cisely, substantially restates the present § 226.9(c). The exemption for
agricultural credit has been deleted since agricultural credit is no longer
subject to Truth in Lending.
(d)

Effects of rescission.

Proposed § 226.9(d) deals with the effects of rescission and re­
states present S 226.9(d) with only minor change. The 10-day time period
in the present regulation, within which the creditor must return any money
or property should the consumer rescind, has been increased to 20 days in
order to implement the change in § 125(b) of the amended act.




-49-

(e)

Consumer's waiver of right to rescind.

Section 226.9(e) of the proposal deals with the consumer's
waiving the right to rescind. It restates with little change the present
§ 226.9(e). It eliminates as unnecessary the language that the emergency
be "bona fide", "immediate" and "personal"; it is believed that the general
requirement of a "financial emergency" appears to cover the targeted situa­
tions. The provision also makes clear that a waiver must be signed by all
persons entitled to rescind.
(f)

Exemptions.

Proposed S 226.9(f) corresponds to § 226.9(g) of the present regu­
lation. Proposed § 226.9(f)(1) restates the present §§ 226.9(g)(1) and (2);
proposed § 226.9(f)(2) restates the present § 226.9(g)(5); and § 226.9(f)(3)
restates the present § 226.9(g)(3), without substantive change. Present
§ 226.9(g)(4) regarding agricultural credit is no longer needed.

Section 226.10— Advertising.
This section corresponds to those provisions of S 226.10 of the
present regulation that govern the advertising of open-end credit.
(a)

Generally available terms; accuracy of advertising.

The proposal's § 226.10(a) corresponds to § 226.10(a)(1) of the
current regulation, and unlike the present regulation which relates only
to accuracy in stating the amount of credit, installment amount, and downpayment, implements a general standard that an advertisement for open-end
credit should accurately reflect actual terms that the creditor is prepared
to offer. It is the Board's belief that the proposed version better imple­
ments statutory intent by requiring accuracy in stating credit terms gener­
ally and by prohibiting any inaccurate or misleading information.
(b)

Advertisement of terms that require additional disclosures.

Section 226.10(b) corresponds to § 226.10(c) of the current regu­
lation. The proposal, while not intending any substantive change, clearly
indicates that for open-end credit the li3t of terms that trigger additional
disclosures corresponds to those required by S 226.5(b). The list, however,
no longer includes the Comparative Index of Credit Cost, which has been de­
leted from the amended act.
The additional information required to be set forth in an adver­
tisement when one of the § 226.5(b) terms is present has been shortened. In
comformity with amendments to the act, the proposal requires only (1) that
any minimum, fixed, transaction or activity charges involved be stated and
(2) that the corresponding annual percentage rates be set forth. This recog­
nizes, for example, that disclosing in an advertisement the method of deter­
mining the balance upon which a finance charge will be imposed (one of the




- 50 -

deleted items) is lengthy and complex. Since the amended act gives the
Board the authority to add to the statutory list of terms required to be
disclosed, however, comment is solicited on whether other terms should be
added to those required by the proposal.
(c)

Catalogs and multiple-page advertisements.

Section 226.10(c) corresponds to § 226.10(b) of the current regu- '
lation. Little change, other than style and format, has been. The proposed
version incorporates the substance of Board Interpretation § 226.1002, which
allows the use of representative amounts.
(d)

Use of annual percentage rate in oral disclosures.

Section 226.10(d) is new, and corresponds to a completely revised
§ 146 of the act. The original § 146, now repealed, required inclusion of
certain language in advertisements for credit repayable in more than four
installments but not subject to a finance charge. (The corresponding regula­
tory provision, § 226.10(f), has also been dropped.) The new § 146 requires
generally that, in responding orally to an inquiry about the cost of credit,
the creditor state a rate only in terms of an annual percentage rate. Sec­
tion 226.10(d) applies this rule to open-end credit. Section 226.10(d) of
the proposal, in accordance with the act's provisions, also permits periodic
rates to be stated as additional information.




- 51 -

SUBPART C~CLOSED-END CREDIT

Section 226.11— Disclosures.

This section is the heart of Subpart C, as it contains the basic
rules on closed-end credit disclosure: who must disclose what to whom, and
when and how. It also contains various qualifying rules for special circum­
stances. The content of this section has been drawn generally from §§ 226.6
and 226.8 of the present regulation, but it also reflects matters now found
in S 226.4 and in many Board interpretations. Some parts of it are new.
There are some Board interpretations that have not been incorporated into the
regulation and comment would be welcome about whether that should be done.
Appendix A contains model forms and clauses that may be used to
make the disclosures required by this section. Comment i3 welcomed on any
aspect of these forms and clauses, including design, content, and usefulness.
(a) Who must make disclosures to whom.
Although there will be very few transactions with more than one
creditor (since "creditor" is defined in new § 226.2(q) as the person to
whom an obligation is payable on its face), paragraph (a)(1) provides that
if there are multiple creditors, only one of them must make disclosures.
The object is to ensure that the consumer receives a single complete set of
disclosures concerning the transaction; any of the multiple creditors
may provide that set. This is different from the rule in present § 226.6(d)
which places disclosure responsibilities on all of the multiple creditors.
Those items unique to credit sales must be provided whenever one of the
creditors is a seller, whether that creditor or another actually makes the
disclosures.
Paragraph (a)(2) provides that where there are several consumers
in a transaction, the creditor must provide disclosures to only one of them,
provided that person is one primarily liable on the obligation. In rescindable transactions, however, disclosures must be made to each person entitled
to rescind.
(b) What disclosures must be made.
Paragraph (b)(1) provides that a creditor initially has a choice
of which type of disclosures to make, that is, transactional disclosures or
alternate shopping disclosures. Transactional disclosures are the type that
have traditionally been provided under Regulation Z. They reflect the spe­
cific terms of a particular obligation and they usually are provided very
close to the time a transaction is consummated. Alternate shopping disclo­
sures are new. They are not tailored to individual obligations, but rather
are based on representative amounts and terms the creditor usually offers.
Since they are more general in nature, they can be prepared in advance, made
available to the public, and provided to consumers much earlier than is pos­
sible with transactional disclosures. Thus, the shopping disclosures should




- 52 -

facilitate comparisons among credit sources by putting information into the
hands of consumers at a time when credit shopping is most likely to occur.
These two types of disclosures are more fully described in paragraphs (f)
and (h).
Paragraph (b)(2) is a reminder that where transactional or alter­
nate shopping disclosures are later rendered inaccurate, the creditor may
be required to redisclose. The rules governing redisclosure are more fully
described in paragraph (e), Effect of subsequent events.
(c) Timing and form of disclosures.
Paragraph (c)(1) states the timing rules for transactional disclo­
sures. In most cases, they must be made before consummation of the trans­
action (see the definition of "consummation" in new § 226.2(n)). In some
residential mortgage transactions, however, the disclosures must be given
earlier than that and in some transactions involving mail or telephone orders
and series of sales, the disclosures may be delayed. These special timing
rules are found in other paragraphs in this section.
Paragraph (c)(2) states the timing rules for alternate shopping
disclosures. They must be given at the time of application or as soon there­
after as possible. It is also permissible for these disclosures to be given
before a formal application is made. In no case may they be given later than
consummation.
Paragraph (c)(3) sets forth the format rules that are designed to
highlight the Truth in Lending disclosures and ensure that the consumer's
attention i3 drawn to them. In particular, it provides for segregation of
the disclosures from other matters. The disclosures may appear on their own
document or they may be included in another document (such as the contract).
In the latter case, however, they must be separated from other items. This
could be done, for example, by placing the disclosures in a boxed section of
the form, by separating them from the contract provisions with bold print
dividing lines, or a similar technique.
The disclosures must be presented together and they must begin on
the front of the document on which they appear. There is no limitation on
the number of pages that may be used for disclosures; therefore, as long as
they begin on the front of the document, they may continue on the reverse
side or on following pages.
There are two exceptions to the rule that all Truth in Lending
disclosures must appear together. First, the creditor's identity need not be
located with the segregated disclosures. Thus, for example, a company name
and symbol may appear at the top of a form, while the other Regulation Z
disclosures appear further down the page.
The second exception concerns the itemization of the "amount
financed." If the customer chooses to have the components of this figure
itemized (as provided in new §§ 226.11(f)(2) and 226.11(h)(2)(ii)), the
itemization may not appear with the other Truth in Lending disclosures.




- 53 -

The provision regarding additional information is stricter than
that in the present regulation. The section of the form containing the Truth
in Lending disclosures may not include any material that does not directly
relate to the disclosures. For example, a creditor may include with the
disclosures an explanation of why certain items are disclosed as estimates,
but may not include information on warranties. Although the regulation does
not require the customer to acknowledge receipt of the disclosure statement,
the final sentence of paragraph (c)(3) permits inclusion of an acknowledgment
of receipt with the disclosures.
Paragraph (c)(4) states that
and "finance charge" must be presented
disclosures. This may be done through
underscoring, asterisks, and so forth.
the creditor' 3 identity so that it may

the words "annual percentage rate"
more conspicuously than other required
use of bolder print, contrasting color,
An exception to this rule is made for
be more prominently displayed.

It should be noted that several requirements in the present regu­
lation relating to the format of disclosures have been eliminated. Two of
these are the requirement that numerical amounts be expressed as numerals and
the specifying of a minimum size of type for numerals. The Board believes
that such technical matters can be adequately policed under the general
"clear and conspicuous" requirement in paragraph (c)(3).
Another deletion is the requirement in present § 226.8(a) that all
disclosures in combined contract-disclosure documents be above the customer's
signature. Since that provision was originally intended to draw the custom­
er's attention to the disclosures when they are combined with other matters,
it appears unnecessary in light of the proposed requirement that all disclo­
sures be grouped and segregated on combined documents.
(d) Basis of disclosures and use of estimates.
Thi3 paragraph is intended to provide guidance in disclosing infor­
mation that may be subject to uncertainty or to minor irregularities over the
life of the transaction.
Paragraph (d)(1) first states the general rule that the creditor
should make its disclosures on the basis of the best information it knows at
the time disclosures are made. Furthermore, the creditor should assume that
the terras of the agreement will be complied with, for example, that payments
will be made on time.
The first paragraph also provides that the disclosures should be
based on the repayment arrangement agreed upon by the parties, even if that
arrangement differs from the one provided for in the contract. For instance,
if an employee/borrower signs a note reflecting one rate of finance charge
but the parties agree that a lower rate will be charged as long as the bor­
rower continues in the creditor's employ, the disclosures should be based on
the lower rate (and should include disclosure of the variable rate feature).
One exception is made to this rule that disclosures should be based
on the actual agreement, and it concerns a common situation for credit unions
and for creditors extending credit to their employees. The contract document



- 54 -

may provide, for example, for monthly payments, but the creditor and the
consumer may agree that payments will be made on another basis, such as bi­
weekly payroll deductions. Disclosures may be made on the basis of a monthly
repayment schedule in this instance, provided the consumer is free to ter­
minate the payroll deduction without penalty of any kind. The Board solicits
comment on whether this special rule is appropriate, and whether it should be
applied to any other situations.
Paragraph (d)(2) provides that disclosures may be estimated if the
exact information is unknown at the time disclosures are made. This provi­
sion is more liberal than its counterpart in present § 226.6(f), which pro­
vides that estimates may be used only where disclosures are given at the latest
possible time. The change has been made in order not to discourage creditors
from providing disclosures earlier. As before, of course, the creditor is
required to use the best available information, and the estimated disclosures
must be*designated as such.
Paragraph (d)(3) allows certain very minor variations in payment
amounts and timing to be disregarded. Since payments cannot be collected in
fractional cents, it is often difficult to exactly amortize an obligation
with equal payments; the amount of the last payment must often be adjusted
slightly to account for the rounding of the other payments to whole cent3.
Paragraph (d)(3)(i) permits the effects of this practice to be disregarded.
Similarly, the following three provisions permit creditors to disregard the
fact that dates for payments and advances must occasionally be changed on
account of weekends and holidays, the fact that months differ in length, and
the fact that leap years contain an extra day.
Paragraph (d)(4) also permits certain common variations in the
payment schedule to be disregarded for purposes of computations and disclo­
sures. It contains the so-called "minor irregularities" provisions from
present § 226.8(s). Where the final payment in a transaction differs from
the others because of an irregular first period (i.e., one that is shorter
or longer than the regular period by the number of days specified), the
variations may be ignored, for example, in disclosing the payment schedule
and the finance charge.
The length of the irregular first period that may be treated as
regular varies, depending on the term of the obligation; thus, in shorter
term transactions, the degree of variation from a regular period is smaller,
while in longer transactions, the variation can be much larger. Note that
the degree of variation in the first period is identical to the "minor
irregularities" provision for computation of the annual percentage rate
found in new § 226.12(e). Note also that additional guidance has been pro­
vided on how to determine the length of the periods in order to measure the
irregularity. A regular period is the most common payment interval in the
transaction. In measuring the length of that period, the creditor looks to
the next regular period following the irregularity and, as a general rule,
measures it based on the actual number of days. In transactions involving
payment intervals of a month, semi-month, or multiple of a month, however,
the creditor has the choice between using the actual number of days and an
assumed 30-day month.




- 55 -

Paragraph (d)(5) continues the policy in present § 226.4(g) that
disclosures for demand obligations should assume a certain maturity. How­
ever, the Board believes that an assumed maturity of one year is a simpler
standard to use for computations rather than the one-half year in the current
regulation. As in the present provision, if the demand instrument contains
an alternative maturity date, disclosures shall be based on that date. Also,
if a consumer executes a demand note but has an agreement with the creditor
that payments of interest or principal or both will be made in certain
installments, the disclosures must be based on that repayment schedule. This
rule is essentially a specific application of the more general rule stated in
the last sentence of paragraph (d)(1).
This subparagraph makes two other changes in the treatment of
demand loans. First, the creditor must state that disclosures are made on
an assumed one year maturity. Second, all of the usual disclosures must be
given; that is, the exemptions now provided in Board Interpretation § 226.815
have been eliminated.
Paragraph (d)(6) prohibits splitting up a single obligation for
purposes of disclosure, as well as combining what are actually two or more
obligations. The second sentence addresses a common situation in which the
downpayment in a credit sale of goods or services is itself financed. It
provides that in such cases, the two credit obligations arising from a single
sale may be disclosed as two transactions, incorporating a position taken in
Official Staff Interpretation FC-0161.
(e)

Effect of subsequent events.

This paragraph explains what happens when, after disclosures have
been made, something happens that makes those disclosures inaccurate. Exam­
ples of such "subsequent events" are a delay in the date of disbursement of
funds, a change in the finance charge to be imposed, and a change in the
creditor's policy concerning late payment charges.
Paragraph (e)(1) restates the rule found in present § 226.6(g)
that the regulation i3 not violated merely because a subsequent event renders
inaccurate the disclosures already given. This provision does not, however,
answer the question of whether new disclosures must be provided to reflect
the effect of the subsequent event; that question is addressed by the follow­
ing three subparagraphs for three different situations.
Paragraph (e)(2) explains what must be done if the change occurs
before consummation of the transaction and the disclosures already given
are transactional (rather than the alternate shopping disclosures). In such
cases, the creditor must disclose the changed term prior to consummation.
In general, it is not necessary to provide an entire set of disclosures,
although creditors may do so if they prefer. The exception to this general
rule that only the changed term must be redisclosed concerns certain resi­
dential mortgage transactions. As more fully explained in paragraph (g), an
entire new set of disclosures is sometimes required.




- 56 -

Paragraph (e)(3) also addresses changes occurring before consumma­
tion, but it applies where the disclosures already given are the alternate
shopping disclosures. In such cases, new transactional disclosures may be
required prior to consummation, and the explanation of when that must be
done is described in more detail in paragraph (h).
Paragraph (e)(4) concerns an event that occurs after consummation.
Once the transaction has begun, the question of whether new disclosures must
be given revolves around whether the change constitutes a refinancing. Para­
graph (i) on refinancings addresses thi3 in greater detail.
Note also that if the subsequent event is the fact that another
person is to take over the consumer's obligation, it may require new disclo­
sures to be given to the new party; see paragraph (j) on assumptions.
(f) Transactional disclosures.
This paragraph consolidates what is contained in current § 226.8(b),
(c), (d), and (e). It reduces the number and complexity of the current dis­
closures and combines into a single list disclosures for credit sales and for
nonsale credit. Certain disclosures, such as unpaid balance of cash price,
unpaid balance, and required deposit balance, have been eliminated. In addi­
tion, the required terminology has been eliminated for other items, including
balloon payment, cash downpayment, trade-in, and prepaid finance charge.
Required terminology is retained, however, for "amount financed,"
"finance charge," "annual percentage rate," "total of payments," and "total
sale price" (the last of these being the new term for what was formerly
called "deferred payment price"). The required terminology must be explained
to the consumer in simple language. The descriptive phrases for annual
percentage rate and finance charge are prescribed by the regulation. Des­
criptors for the other three disclosures are provided in the proposal as a
model, although that exact language need not be used.
Disclosures need be made only to the extent applicable and footnote
56 calls attention to the fact that there are a number of special exceptions
found in paragraph (f)(17). Finally, a creditor may choose to make either
the transactional disclosures required by this paragraph or the alternate
shopping disclosures found in paragraph (h).
Paragraph (f)(1) requires that the creditor making the disclosures
be identified. The purpose of this disclosure is to give the consumer the
name of a person to whom inquiries and complaints can be directed.
Paragraph (f)(2) requires disclosure of the "amount financed,"
using that term, and a descriptive explanation. The computations used to
figure the "amount financed" are the same as those currently required, but
the itemized computations no longer have to be shown in all cases. The
"principal amount of the loan" is a new phrase that essentially corresponds
to the term "amount of credit" found in present § 226.8(d)(1). The phrase
"cash price less downpayment (which includes any trade-in)" corresponds to




- 57 -

the "unpaid balance of cash price" in present § 226.8(c)(3). Paragraph
(f)(2)(i)(C) refers to prepaid finance charges, which are defined essentially
the same as in present § 226.8(e)(1).
In addition to showing the amount financed, the creditor must state
that the consumer is entitled to receive a written itemization of that figure
and provide a way for the consumer to indicate a desire for such an itemiza­
tion by initialing "yes" or "no." If the consumer requests an itemization, it
must be given at the time the other required transactional disclosures are
given or as soon as possible thereafter. This timing rule is a slight
relaxation of the statutory provision. It reflects the fact that it may be
difficult or impossible to provide the itemization simultaneously with the
other disclosures; the Board believes, however, that every effort must be
made to provide the itemization promptly.
Paragraph (f)(2)(ii)(B) lists the items that must be disclosed
when the consumer requests this itemization. This paragraph implements
amended § 128(a)(2) of the act with very few changes. The Board‘solicits
comment on this treatment.
Under paragraph (f)(3), creditors must disclose the total finance
charge and the specified description, using the required terminology. The
major change from the current regulation is that the finance charge no longer
needs to be itemized. Another change is that the finance charge must be dis­
closed in all transactions, including real estate transactions, in accordance
with the recent statutory amendments.
Paragraph (f)(4) requires disclosure of the annual percentage rate
and the specified parenthetical explanation, using the required terminology.
The de minimis exception found in the current § 226.8(b)(2) has been retained
but is now found in paragraph (f)(17)(ii) of the proposal.
Paragraph (f)(5) requires additional disclosures if the annual
percentage rate is subject to increase. These disclosures are similar to
those in current § 226.8(b)(8). However the disclosures in the proposal are
streamlined and clarified. In particular, the hypothetical examples showing
the effects of an immediate rate increase of 1/4 percent have been eliminated.
These hypothetical examples have caused considerable difficulty for creditors
and the Board questions their usefulness for consumers since the amount and
timing of the assumed rate increase generally bears little resemblance to the
rate changes likely under a variable rate contract. Comment on this matter
would be appreciated.
Section 226.11(f)(6) calls for disclosure of the payment schedule.
It calls for disclosure of the "timing" of payments, rather than the "due
dates or periods" as in present 5 226.8(b)(3), but it has the same meaning.
Although the amount of any large payment must be shown, it need not be
labeled as a balloon payment, as is now the case under present § 226.8(b)(3).
Similarly, the requirement of stating the conditions under which that payment
would be refinanced if not paid when due has been deleted.
Footnote 59 permits a simplified payment schedule disclosure when
the amount of any payment in a series is not more than 5 percent larger than
the smallest payment in that series. In such cases, the payments may be




- 58 -

disclosed as if they were uniform, at the highest level. This will simplify
disclosure of the payment schedule when the variation in payment amounts is
relatively small, for example, in mortgage transactions where the principal
and interest portion of the payment is uniform, but the portion attributable
to mortgage insurance differs slightly from year to year. Note, however,
that the actual amounts of payments would have to be accounted for in cal­
culating and disclosing the finance charge and the annual percentage rate,
even if this provision is used to simplify the payment schedule disclosure.
"Series" of payments as used here means consecutive payments in a
stream of payments. Therefore, for example, in a graduated payment mortgage
where payments rise sharply for 5 years and then decline gradually over the
next 25 years as the mortgage insurance premium decreases, the 25 years of
payments would be considered a series; if the "5 percent test" i3 met, those
300 payments could be disclosed as if they were equal in amount.
In applying the "5 percent test," an irregular first payment result­
ing from an odd first period may be disregarded; however, the amount of such
a payment would have to be separately disclosed.
Transactions of the type covered by present Board Interpretation
§ 226.808, as well as mortgages involving mortgage insurance premiums calcu­
lated on a declining unpaid balance, may be able to take advantage of this
"5 percent test." Transactions like the one described in Official Staff
Interpretation FC-0157, which involve premiums for credit life and disability
insurance that are computed on the outstanding principal balance, may also
take advantage of it. The Board solicits comment on the usefulness of this
rule and whether it should be modified in any way.
Section 226.11(f)(7) requires disclosure of the total of payments,
using that term, including a descriptive explanation. The descriptor in the
proposal is not required, but may be used as a guideline. Footnote 60 pro­
vides that if footnote 59 is used in disclosing the payment schedule, the
total of payments should be consistent with the payment amounts disclosed
and should be labeled as an estimate. The total of payments must be dis­
closed in all transactions, including purchase money mortgages, because of
the elimination of the exemption in the statute.
Section 226.11(f)(8) provides for disclosure of the fact that an
obligation is payable on demand. If the disclosures are based on an assumed
maturity of one year as provided in § 226.11(d)(5), that fact must also be
stated. Both of these are new disclosures that have been added in the pro­
posal in order to provide more complete information. Comment is solicited
on this provision.
Disclosure of the total sale price in credit sales, using that
term, along with a descriptive explanation, i3 mandated by § 226.11(f)(9).
As § 128(a)(8) of the amended act specifically requires, the description must
include reference to the amount of the downpayment. The total sale price is
the sum of the cash price, other charges, and the finance charge, and it cor­
responds to the "deferred payment price" in § 226.8(c)(8)(ii) of the present
regulation.




- 59 -

Section 226.11(f)(10), dealing with the effect of prepayment, is
virtually identical to amended § 128(a)(ll) of the act. It distinguishes
between obligations with precomputed finance charges, and so-called simple
interest obligations, but also recognizes that some obligations include both
types of finance charge. Where there is a precomputed finance charge, the
creditor must disclose whether or not the consumer will receive a rebate of
any finance charge upon prepayment. The method of rebate need not be named.
The distinction between "earned" and "unearned" finance charge in present
§ 226.8(b)(7) has been deleted. This provision applies to both voluntary
and involuntary repayment; therefore if there is a rebate upon voluntary
prepayment but none for prepayment upon acceleration, that would have to be
disclosed. If there is a penalty in simple interest obligations, only that
fact need be disclosed. If there is no penalty, no disclosure need be made.
The proposal eliminates the requirement in the present regulation
that an explanation be given of how rebates or penalties would be computed.
These matters are generally explained in greater detail in the contract, and
the Truth in Lending disclosures will now contain a cross reference to the
appropriate contract document for further information about these matters.
(See paragraph (f)(15) below.)
As mentioned above, some transactions involve both a precomputed
finance charge and a finance charge computed by application of a rate to the
unpaid balance. In these cases, § 226.11(f)(10)(iii) requires disclosures
about both prepayment rebates and penalties. Examples of this type of trans­
action include simple interest student loans with loan guarantee insurance
and mortgages with mortgage guarantee insurance. If the insurance premiums
are precomputed finance charges, disclosure about rebate of finance charges
would be required with regard to that portion of the obligation. In addition,
disclosure of a prepayment penalty would be required if one may be imposed.
Section 226.11(f)(11) implements amended § 128(a)(10) of the act.
This provision requires disclosure only of charges imposed on account of late
payments before maturity, that is, charges added to individual delinquent
installments by a creditor who otherwise considers the transaction ongoing
on its original terms. Therefore, this proposal does not require disclosure
of the right of acceleration or of charges involved in collecting a defaulted
obligation. The 3oard believes that in a simple interest obligation, the
continued accrual of a finance charge need not be disclosed as a late charge,
unless a higher rate of interest is imposed once a payment is overdue. This
accords with the position taken by the Board staff in Official Staff Inter­
pretation FC-0083. Deferral and extension charges are not covered by this
provision.
Section 226.11(f)(12) is proposed in virtually the same form as it
appears in S 128(a)(9) of the amended act and concerns disclosure of security
interests. The type of security interest no longer needs to be disclosed,
only the fact that there is a security interest. Again it should be noted
that under paragraph (f)(15), the consumer will be reminded to consult the
other documents in the transaction for additional information about the
security interest.




- 60 -

The property covered by the security interest must be identified.
If the collateral is the item purchased as part of the credit transaction, it
may be identified in a general fashion. (Note that this streamlined approach
is available only in credit sale transactions since there is no purchase if
it i3 non-sale credit.) Other collateral must be more specifically identi­
fied by item or type, although the description may be brief, e.g., "1980 Ford
Torino" or "household goods." If after-acquired property will be covered by
the security interest, that must be disclosed, but the "future indebtedness"
disclosure in present § 228.8(b)(3) has been eliminated.
Section 226.11(f)(13) relates to the disclosure of certain
insurance premiums. If the disclosures specified in § 226.4(d) are made in
order to exclude the insurance premiums from the finance charge, these dis­
closures must appear with the other required disclosures.
Similarly, certain charges are excludable from the finance charge
if itemized under S 226.4(e). Section 226.11(f)(14) provides that this item­
ization also must appear with the other disclosures.
Section 226.11(f)(15) is virtually identical to amended § 128(a)(12)
of the act. Since some disclosures have been eliminated and others have been
abbreviated this provision requires a cross reference to the contract docu­
ments for certain information not contained in the disclosure statement.
Information about nonpayment, default, the right to accelerate the maturity
of an obligation, and prepayment rebates and penalties is covered.
Section 226.11(f)(16) implements amended § 128(a)(13) of the act
and adds a disclosure. For residential mortgage transactions (as defined
in new § 226.2(aa)), the consumer must be told whether or not a subsequent
purchaser or assignee may assume the obligation on its original terms. If
a creditor requires an assignee to pay an assumption fee or similar charge,
this would not mean the assumption was on terms differing from the original
ones, but if the interest rate differs from that originally imposed, that
would be considered to be on different terms.
Various disclosures otherwise required need not be made in certain
types of transactions, and these special rules are gathered in § 226.11(f)(17).
In interim student credit transactions, the finance charge, schedule of pay­
ments, total of payments, and total sale price need not be disclosed. The
Board intends "interim credit extension" to mean one without a set repayment
schedule. This phrase is used in place of "student loan" since some trans­
actions are actually credit sales, for example, where a university is the
creditor. Present Board Interpretation § 226.809 and staff letters have been
incorporated in this subparagraph since all student credit guarantee programs
are covered, whether federal, state, or private. In transactions with small
finance charges, as described in paragraph (f)(17)(ii), the annual percentage
rate need not be disclosed. In transactions with a single payment, the total
of payments need not be disclosed. The disclosure exemptions for residential
mortgage transactions in the present regulation have been eliminated. (See
proposed § 226.11(g) for the special rules concerning these transactions.)




- 61 -

(g) Special rule for certain residential mortgage transactions.
This paragraph implements § 128(b)(2) of the amended act, requir­
ing early disclosure in residential mortgage transactions that are also
subject to the Real Estate Settlement Procedures Act (RESPA). Just as the
good faith estimates under RESPA must be made within three business days of
the consumer's written application, the Truth in Lending disclosures must
be given in the same time period. Transactional, rather than alternate
shopping, disclosures must be given, but they may be based on good faith
estimates.
As long as the annual percentage rate in the mortgage transaction
actually entered into is within 1/8 percentage point of the rate disclosed
on these early disclosures, the creditor will have no further obligations.
If, however, the variance is greater than 1/8 percentage point in either
direction, a complete set of transactional disclosures is required prior to
consummation or settlement.
The statutory provision has been implemented virtually unchanged.
The Board solicits comment on whether this matter requires further elabo­
ration.
(h) Alternate shopping disclosures.
The proposals in this paragraph are altogether new and represent
a radical departure from past thinking about Regulation Z disclosures.
In essence, it provides an alternative to the current requirement that all
disclosures be based on the specific details of the actual transaction; this
requirement has in practice meant that the consumer almost always receives
the information at the last possible moment before consummation, when the
consumer is, at least psychologically, committed to the transaction. Rely­
ing on this paragraph, creditors could prepare disclosures for representative
transactions and give them to consumers upon inquiry or application, before
the details of a particular loan or credit sale are negotiated. Since they
would be given to the consumer early in the shopping process, these alterna­
tive disclosures may be far more likely to influence the consumer's shopping
decision than the individualized disclosures currently required.
Although this approach to providing disclosures about credit terms
differs from the traditional approach, the Board believes it is well within
its authority under § 105 of the act to write regulations containing whatever
adjustments and exceptions may be required to carry out the purposes of the
law. Since this alternative scheme has the potential of greatly enhancing
credit shopping, the Board considers the provision an appropriate exercise
of its rule-writing responsibility. Furthermore, the Board would note that
the idea of early disclosures has been supported by Senator Proxmire, the
principal sponsor of the recent Truth in Lending reform amendments. See 125
Cong.Rec. S15262 (October 29, 1979.)
The shopping disclosures would have to be made at or as soon as
reasonably possible after application, and copies of them would have to be
available to the public generally. A creditor electing to rely on this




- 62 -

section would compile the specified disclosures for representative amounts
of credit. The creditor would determine a range of typical (albeit hypo­
thetical) credit extensions— perhaps loans from $1,000 to $5,000, in $500
increments— and present the required disclosures in a format which would
permit an applicant or prospective applicant to examine the terras of those
representative transactions. Being more or less standardized transactions
with standardized terms, these disclosures would provide immediate descrip­
tive and comparative information on credit costs.
The specific items to be disclosed (listed in paragraph' (h)(2))
parallel those for transactional disclosures, although there are some diver­
gences. For example, rather than showing a figure for the "total, sale price"
(since that depends largely on the amount of the downpayment), the shopping
disclosures would instead include a statement that the total sale price
equals the total of payments plus any downpayment and trade-in. Similarly,
although consumers will be told of their right to receive an itemization of
the amount financed, the shopping disclosures will not provide "yes" and
"no" boxes to be initialed, since they will be provided to the public like
advertisements and will not be returned to the creditor.
Paragraph (h)(3) provides a check against a creditor providing
shopping disclosures that bear little resemblance to the terms actually
contained in consummated transactions. A creditor providing shopping disclo­
sures under this paragraph will also have to make transactional disclosures
under paragraph (f) unless several conditions are met.
The schedule of payments in the actual transaction must be essen­
tially the same as that disclosed and the annual percentage rate and amount
financed must be within a specified percentage of those disclosed— 1/8 percent­
age point for the annual percentage rate and 10 percent for the amount financed.
As an example, a creditor might provide alternate shopping disclosures des­
cribing loans for $1,000, $2,000, and $3,000, at an annual percentage rate
of 17.125% and payable in 24 equal monthly installments. If the actual
loan negotiated and consummated with the consumer had an amount financed of
$2,200 at an annual percentage rate of 17.25%, payable in 24 equal monthly
installments, the creditor would not need to make new transactional disclo­
sures to the consumer. On the other hand, if the amount financed of the
consummated transaction was $2,350, a new set of transactional disclosures
for that loan would be required.
Furthermore, if credit life insurance or property insurance is
written in connection with the transaction and excluded from the finance
charge, the creditor must comply with the usual rules outlined in § 226.4(d).
Finally, if the consumer requests in writing an itemization of the amount
financed, the creditor must provide it prior to consummation.
The Board particularly solicits comment on this new approach to
disclosures. Although it realizes that this provision may be feasible only
for fairly standardized types of credit extensions, it welcomes views on
whether the provision promotes the credit shopping function of the Truth in
Lending Act, whether it provides a workable scheme, and whether there might
be any special problems in proving that these disclosures were provided.




- 63 -

CD

Refinancings— new disclosures.

Section 226.11(i) sets forth the conditions under which closed-end
creditors must provide new disclosures when the terras of the existing credit
transaction are changed. In substantially revised form, this paragraph
replaces the current § 226.8(j) and incorporates several Board and staff
Interpretations regarding refinancings. As a general rule, when the creditor
and consumer agree to change the terms of an existing transaction, that
agreement is a refinancing and it requires new disclosures.
Under paragraph (i)(l), the type of agreement giving rise to new
disclosures would not be limited to written agreements. The focus of the
rule, in the Board's view, should be on whether the creditor and the consumer
have a mutual understanding of the change, amounting to an offer and accept­
ance of that revision. Although a writing would simplify the determination
of whether an agreement in fact exists, the Board believes that requiring a
writing in order for a refinancing to exist would be unnecessarily formalistic.
In the Board's view, the need for a writing might eliminate agreements where
new disclosures would be equally useful to the consumer and no more difficult
to prepare than disclosures reflecting a formal written agreement. The
Board is aware, however, that the question of whether there is a new agreement
between the parties may cause difficulty, and specifically solicits comments
on whether a more precise definition of this term is possible.
The general rule in paragraph (i)C1) would apply only in those
situations where the existing obligation is itself a consumer credit trans­
action subject to Regulation Z. A change in terms in a transaction not
previously subject to the regulation would not be considered a refinancing
but would instead be measured against the general standards of coverage of
Regulation Z. Additionally, the terms whose revision may give rise to a
refinancing include only those terms originally required to be disclosed
under paragraph (f) or (h) and not to other contractual terms whose disclo­
sure was never required. As a general rule, this provision assumes that any
change in the terms originally required to be disclosed would constitute a
refinancing, unless otherwise specified in the exceptions set forth in the
following provisions of paragraph (i).
The new disclosures to be given in the event of a refinancing are
the transactional disclosures outlined in paragraph (f). The creditor must
give these individualized disclosures even if the alternate shopping disclo­
sures under paragraph (h) were given on the original transaction. The Board
believes that such a limitation is warranted, since the rationale for the
shopping disclosures, from the creditor's point of view, no longer applies.
In the event of a refinancing, the creditor already has the information
necessary for that specific transaction and should be able to provide those
disclosures without difficulty.
Paragraph (i)(2) sets out specific types of changes in terms which
do not trigger the refinancing disclosures. Paragraphs (3) and (4) of the
section provide further conditions regarding several of the exceptions noted




- 64 -

in paragraph (2). Each of these exceptions represents a change in terms
which, in the Board's view, need not be accompanied by new disclosures.
For the most part, they represent changes for which new disclosures are
unlikely to be of significant value to the consumer, in which the change
in terms is favorable to the consumer, or in which the change in terms is
unlikely to provide the consumer with a realistic opportunity for comparison
shopping.
Paragraph(i)(2)(i) restates existing Board Interpretation
§ 226.817 and further allows a change in the payment schedule resulting
from the reduction in the annual percentage rate to be excepted from being a
refinancing.
Under paragraph (i)(2)(ii), deferral of a single payment or a por­
tion of that payment would not constitute a refinancing. This replaces and
substantially revises the present § 226.8(1). This exception applies to the
deferral of a portion of a payment as well as a full payment. This exception
would not apply, however, where the creditor charges a fee for the deferral.
Where the creditor defers a series of payments, one at a time, merely to take
advantage of thi3 exception and not give disclosures, the general provision
in § 226.1(e) regarding circumvention or evasion may be applicable. While
circumstances may validly lead to a series of deferrals of more than one
payment, the Board believes that a single agreement by which more Chan one
payment is deferred or extended would not come within this exception but
would instead be considered a refinancing.
Paragraph (i)(2)(iii) 3tates that substitution or addition of
collateral, changes in late payment charges or changes in prepayment provi­
sions need not be treated as refinancings. However, a change in collateral
involving a security interest in the consumer's principal dwelling may give
rise to the right of rescission. (See footnote 67 to new § 226.13(a).)
Under paragraph (i)(2)(iv), an agreement approved by a court, 3uch as a
formal workout agreement, would not require refinancing disclosures. This
paragraph would also exempt from disclosure requirements reaffirmations of
debts discharged in bankruptcy, where approved by a court.
The exceptions from refinancing mentioned in paragraphs (i)(2)(v)
and (vi) are discussed more fully in paragraphs (i)(3) and (4), respectively.
The last subsection in paragraph (2) exempts from refinancing disclosures
workout agreements that result from the consumer's default or delinquency
and involve a change in the payment schedule. This exception would not
apply, however, if the annual percentage rate is increased on the transaction
or if additional credit i3 advanced beyond the amount already accrued plus
continuing insurance premiums. The Board specifically solicits comment on
whether this exception should be extended to workout agreements made in
anticipation of the consumer's default or delinquency.
Paragraph (i)(3) incorporates present Board Interpretation
§ 226.811. Under this provision, no additional disclosures are required for
renewal of single payment obligations so long as the appropriate disclosures
have already been made, the new amount financed and payment term are essen­
tially unchanged, and the annual percentage rate previously disclosed is not
increased.



- 65 -

Paragraph (i)(4) makes further disclosures unnecessary in three
situations where the amount of credit is increased. Under paragraph (i)(4)(i),
the increase results from the creditor reimbursing itself for expenses incurred
in performing the consumer's duties with regard to the transaction. Paragraph
(i)(4)(ii) exempts from refinancing disclosures the addition of subsequent
purchases to an outstanding balance under a series of sales agreement which
complies with proposed § 226.11(1).
Paragraph (i)(4)(iii) reflects the provisions of current Board
Interpretation § 226.814. Optional insurance purchased by the consumer after
consummation of the underlying credit transaction and added to the balance
on that transaction would require no new disclosures on the underlying credit
extension. However, as under the present interpretation, separate disclo­
sures must be provided for the insurance transaction itself.
(j )

Assumptions— new disclosures.

Under paragraph (j), a creditor must make disclosures to a new
consumer whom the creditor agrees to accept as an obligor on an existing
transaction. In substantially revised form, this paragraph is based on
present § 226.8(k) and Board Interpretation § 226.807. As in the refinancing
provision, the new disclosures required must be transactional disclosures.
Unlike the current regulation, the agreement by which the subsequent consumer
is accepted need not be in writing. At this time, the Board does not believe
that the existence of a writing is necessary to the finding of an agreement
between the parties. However, the Board understands that difficulties may
arise with regard to determining the existence of an agreement, and specifi­
cally requests comment on this issue.
(k)

Mail or telephone orders— delay in disclosures.

Paragraph (k) consolidates mail order and telephone credit sales
and loans into one set of disclosures. Thi3 paragraph implements amended
S 128(c) of the act and is essentially a restatement of current § 226.8(g)
and Board Interpretation § 226.802, with the addition of "total sale price" as
a required disclosure. If the procedure outlined in this paragraph is not
followed, the transactional disclosures found in paragraph (f) would have to
be provided in their entirety, following the normal timing rules.
(l)

Series of sales— delay in disclosures.

Paragraph (1) incorporates current § 226.8(h) and Board Interpre­
tations §§ 226.804 and 226.805. It implements § 128(d) of the act.
(m) Multiple advance transactions; series of sales.
Paragraph (m) combines the provisions of present § 226.8(i) and
(m). Neither situation is addressed in the act. Present § 226.8(i) makes it
optional for a creditor to treat a series of advances pursuant to an agreement
as a single transaction. The proposal definitely requires them to be treated
as a single transaction. Present § 226.8(m) has not been substantively
altered.




Section 226.12— Determination of annual percentage rate.
Section 226.12, setting forth the rules for calculation of the
annual percentage rate in closed-end credit transactions, is substantially
similar to § 226.5(b) of the current regulation (as amended effective
January 10, 1980). One minor change is found in paragraph (e), relating to
calculation of the annual percentage rate where the transaction involves
irregularities in the payment schedule. Additional guidance has been pro­
vided on how to determine the length of the periods in order to measure the
irregularity. A regular period is the most common payment interval in the
transaction. In measuring the length of that period, the creditor looks
to the next regular period after the irregularity, and, as a general rule,
measures the length based on the actual number of days. In transactions
involving months, semi-months, or multiples of a month, however, the cred­
itor could use either the actual number of elapsed days or an assumed 30-day
month in calculating the length of the periods involved.
A more important change is the elimination of a provision found in
current § 226.5(c). Under the existing provision, an error in disclosing
the annual percentage rate or finance charge that results from an error in
the calculation tool used in good faith by the creditor is not considered a
violation of the regulation. The creditor thus has no liability under the
act. The Board believes that this protection is no longer necessary or
appropriate for the regulation, in view of the fact that § 130 of the act
has been amended to provide a defense to civil liability where errors result
from the good faith use of calculation tools. In the Board's view, this
change in the act, combined with the administrative enforcement agencies’
present policy of not requiring reimbursement for violations in such cases,
makes the existing regulatory provision unnecessary. Thus, under the revised
regulation, there would be no counterpart to the present § 226.5(c).
Supplement I, which contains the detailed rules and equations for
calculation of annual percentage rates was recently revised by the Board.
No further revisions are planned at this time. If it should later be deter­
mined that revision i3 necessary, or if the comments suggest changes that
should be made, they will be published for comment.
Section 226.13— -Right of rescission.
(a)

Consumer's right to rescind.

Section 226.13(a) implements § 125(a) of the act, granting a con­
sumer the right to rescind a transaction in which a security interest is
retained in a consumer's principal dwelling. In one way,the applicability of
the right of rescission has been narrowed when compared to the general rule
in § 226.9(a) of the existing regulation. The present rule permits rescis­
sion whenever real property used or "expected to be used" as a consumer’s
principal residence is involved. Since the amended statute eliminates the
"expected to be used" language, the proposed rule does also. Therefore, the
right of rescission applies only where the property i3 used as the consumer's
principal dwelling at the time the security interest is retained.




- 67

On the other hand, the applicability of the right to rescind has
been somewhat broadened since it no longer is limited to security interests
in real property, but rather applies to any property used as the principal
dwelling. Therefore, it could apply to mobile home-secured transactions,
even where the mobile home i3 considered personal property under state law.
Footnote 67 provides that adding a security interest in the dwel­
ling to an existing obligation i3 a rescindable transaction. It should be
emphasized that the right of rescission applies only to the addition of the
security interest; if the right is exercised, it does not void the earlier
obligation.
Under paragraph (a)(1), the right of rescission is available to
any consumer whose ownership interest is subject to the security interest.
This language clarifies the rule in present § 226.9(f). The Board intends
the right of rescission to apply to any obligor, co-owner, guarantor, or
surety whose ownership interest in his or her own principal residence is sub­
ject to the risk of loss. This differs from the present regulatory language,
which appears to extend the right to rescind to any co-owner whether or not
that person's ownership interest is encumbered. The Board believes that
there is no reason for the right of rescission to apply to a person whose
ownership interest is in no way implicated in the credit transaction.
Paragraph (a)(2) describes how the right of rescission may be
exercised by the consumer and when notice is considered given. It generally
restates the corresponding provisions in S 226.9(a) of the existing regula­
tion.
Paragraph (a)(3) provides that the rescission period runs from the
later of the consummation of the transaction or delivery of the rescission
notice and all other material disclosures. Footnote 68 defines "material
disclosures" to be the basic credit cost terms included in § 226.11(f) and
(h). The "material disclosures" may be either transactional or alternate
shopping disclosures. Disclosure of a security interest i3 not a "material
disclosure" for rescission purposes since the existence of a security
interest in the dwelling will be stated in the rescission notice itself
under paragraph (b).
Paragraph (a)(3) is silent as to when a creditor must deliver the
rescission notice to a customer. The notice may be delivered before or after
consummation of a transaction and before or after disclosure of the other
material disclosures. But delivery of the notice is one of the conditions
that must be satisfied before the three-day rescission period starts to run.
The last sentence in paragraph (a)(3) corresponds to amended
5 125(f) of the act and states the rule for expiration of the right of res­
cission. The general rule is that the right expires the earlier of three
years from consummation or the transfer of the property. A transfer includes
sale and other types of transfers, such as gift and bequest. In the Board's
opinion, both voluntary and involuntary transfers terminate the right of
rescission. Therefore, a foreclosure sale could cause the right to expire.




68 -

To implement the recent amendment to § 125(f), an exception to the general
rule has been added. If certain administrative proceedings are instituted,
the rescission period will continue for one year following the conclusion of
those proceedings.
(b)

Notice of right to rescind.

Paragraph (b) replaces present § 226.9(b). One change is that the
precise language of the rescission notice is no longer specified in the pro­
posed regulation. Instead, to give creditors more flexibility, the proposal
3imply stipulates four disclosures that must be included in the notice. A
model form that may be used and that will insulate a creditor who uses it
from civil liability, is included in the appendix. The creditor may provide
a separate form that a consumer may use to exercise the right of rescission
or that form may be combined with the other rescission disclosures, as is
done in the Board' 3 model form. Note that only one copy of the rescission
notice, rather than two, need be given to a consumer.
(c)

Delay of creditor's performance.

Paragraph (c) essentially restates § 226.9(c) of the existing
regulation and prohibits disbursement of money (other than into escrow) ,
performance of services, or delivery of materials until the creditor is
reasonably satisfied that the consumer has not rescinded the transaction.
(d)

Effects of rescission.

Paragraph (d) implements amended § 125(b) of the act. The time
period within which the creditor must return a consumer's money or property
and terminate a security interest after receiving notice of rescission has
been expanded from 10 to 20 days. A creditor also has 20 days, instead of
10, to take back the money or property after a consumer has offered to
return it.
The final sentence of paragraph (d), which permits the procedures
to be modified by court order, reflects the recent statutory amendment to
§ 125(b). In the Board's view, thi3 could apply, for example, to a situation
where a consumer is in bankruptcy proceedings and may be prohibited from
returning anything to the creditor.
(e)

Consumer's waiver of right to rescind.

Paragraph (e) corresponds to § 125(d) of the act. The requirement
in the act that an emergency be "bona fide" and "personal" is eliminated
since the general requirement of a "financial" emergency appears to suffi­
ciently cover the situations where waiver would be appropriate. The provision
makes clear that a waiver must be signed by all persons entitled to rescind.
(f)

Exempt transactions.

Paragraph (f) is based on amended § 125(e) of the act. The
first exemption, residential mortgage transactions (as defined in proposed



- 69 -

§ 226.2(aa)), combines the purchase money and construction loan exemptions
contained in present § 226.9(g)(1) and (2). Note, however, that transac­
tions can qualify for this new exemption whether they have first lien status
or not. Thus a second lien transaction made to acquire a dwelling would be
exempt under the proposal, although it is now subject to rescission.
Paragraph (f)(2) incorporates the position taken in present Board
Interpretation § 226.903 concerning the right of rescission in refinancings.
The right applies only to the extent that a refinancing by the same creditor
involves new advances, and then only to the extent of those advances. If
the refinancing is with a different creditor, it is subject to rescission.
Paragraph (f)(3) exempts state and federal agencies from the res­
cission provisions. Although the act mentions only state agencies, the Board
believes that the policy reason for exempting state agencies is equally appli­
cable to federal agencies.
Paragraph (f)(4) corresponds to proposed S 226.11(m), covering
series of advances and series of single payment obligations that are treated
as a single transaction. Just as new disclosures need not be made for subse­
quent advances, no new rescission rights arise so long as the appropriate
notices were provided at the outset of the transaction.
Paragraph (f)(5) exempts any subordination of a security interest
and parallels § 226.9(g)(3) of the present regulation. The Board believes
subordination per se is not a rescindable event, regardless of whether the
original transaction was rescindable. This provision is broader than present
§ 226.9(g)(3), which exempts only transactions in which the security interest
was originally exempt from the right of rescission. If new funds are advanced
by the creditor at the time of subordination of the security interest, the
rules for refinancings in paragraph (f)(2) would apply, and the consumer has
the right to rescind to the extent of the new advances.

Section 226.14— Advertising.
Section 226.14, implementing Chapter 3 of the act, contains rules
for advertising closed-end consumer credit. For the most part, the proposal
reflects the approach taken in § 226.10 of the current regulation.
(a)

Generally available terms; accuracy of advertising.

Paragraph (a)(1) restates the present S 226.10(a) in a more
abbreviated form. Paragraph (a)(2) is a new provision and imposes a general
standard of accuracy on the advertising of consumer credit.
(b)

Advertisement of rate of finance charge.

Section 226.14(b) requires advertised rates of finance charge
to be stated in terms of an annual percentage rate. This paragraph is sub­
stantially similar to the present § 226.10(d)(1), including the authoriza­
tion to show a simple annual rate or periodic rate along with the annual
percentage rate.



- 70 -

(c)

Advertisement of terms that trigger additional disclosures.

In its use of "triggering" terms as the basis for more complete
disclosure, paragraph (c) takes the same approach as is utilized in the
present § 226.10(d)(2), but it has been restructured for clarity. Para­
graph (c)(1) set3 forth the credit terms whose use in advertising requires
disclosure of the credit terms listed in paragraph (c)(2). The terms that
trigger disclosure are unchanged from the current regulation, but the number
of items that have to be disclosed has been reduced, reflecting the recent
amendment to § 144(d) of the act. Under the proposal, an advertisement using
a "triggering" term would have to disclose only the downpayment or that none
is required, the repayment schedule, and the annual percentage rate (together
with any variable rate provision). In making these disclosures, creditors
may use examples and avail themselves of any special disclosure provisions
in § 226.11.
(d)

Transactions involving a dwelling.

Paragraph (d) includes a special rule to facilitate the advertising
of mortgages with varying payments due to mortgage insurance. It permits a
shorthand disclosure of the varying payment schedule.
Under the act, the Board is empowered to treat residential real
estate transactions differently or even exempt them from the requirements
of the advertising provisions. This paragraph reflects a special rule for
such transactions and the Board solicits comment on whether it is appropriate
as well as on the need for any further relief in this area.
(e)

Catalogs and multiple-page advertisements.

Paragraph (e) is substantially similar to existing § 226.10(b),
with the addition of paragraph (e)(2) to make it clear that all the terms
required by paragraph (c)(2) must be provided for a representative range of
transactions.
(f)

Use of annual percentage rate in oral disclosures.

Paragraph (f) reflects the current Board Interpretation § 226.101
and implements § 146 of the act.

SUBPART D— LEASING

Section 226.15— Disclosures.
Section 226.15 contains the basic rules relating to consumer
leases. Following the organizational framework established throughout the
proposal, paragraphs (a) through (d) set forth technical rules relating to
timing, form, and other general matters. These paragraphs are similar to
their counterparts in § 226.11, disclosures for closed-end credit, and the



71 -

above discussion relating to that section generally applies here. The dif­
ferences that do exist between these paragraphs in §§ 226.11 and 226.15
generally involve the omission of material deemed inapplicable to leasing.
The provisions that have been added to reflect concerns related to leasing
are discussed below.
A number of staff interpretations have been incorporated into the
proposal. The Board solicits comment on whether other interpretations could
appropriately be included in the regulation.
(a)

Who must make disclosures to whom.

This paragraph is substantively the same as § 226.11(a). Section
182 of the Consumer Leasing Act requires that each lessor give the consumer
the required disclosures. The proposal provides, like the closed-end credit
provisions, that only one lessor need make disclosures. The Board solicits
comment on this change.
(b)

Timing and form of disclosures.

Paragraph (b)(2) differs from its counterpart in § 226.11 in that
it requires the disclosures to be dated. This additional requirement stems
from § 182 of the act. Other provisions of the current regulation, such as
the special exemption for multiple-item leases, have also been retained. The
proposal requires segregation of disclosures from other information.
(c)

Basis of disclosures and use of estimates.

Paragraphs (c)(1) and (3) are substantively identical to
§ 226.11(d)(1) and (3) of this proposal. Paragraph (c)(2) is similar to
§ 226.11(d)(2), with the additional provision that a lessor may understate
the estimated value in calculating the total lease obligation. This provi­
sion is similar to § 226.6(f) of the current regulation, but has been amended
to permit lessors to understate the estimated value in any consumer lease,
rather than in purchase option leases only, as is the case under the current
regulation. This may be done, however, only if any excess of realized value
over estimated value will be returned to the consumer at the end of the lease
term. The Board believes that this condition does not materially reduce the
consumer protection offered by the current regulation.
(d)

Effect of subsequent events.

This paragraph is substantively identical to § 226.11(d) of the pro­
posal .
(e)

Content of disclosures.

This paragraph is largely unchanged from § 226.15(b) of the current
regulation, although the disclosures relating specifically to open-end leases
have been taken out of the list of generally applicable disclosures and placed
in a separate paragraph immediately following this one.




- 72 -

Paragraphs (a)(1) and (2) incorporate
§ 226.15(a) that the identity of the lessor and
one lessor need be identified, even where these
that the lessee be identified i3 found in § 182

the requirement in current
consumer be disclosed. Only
are several. The requirement
of the act.

Paragraph (e)(3) adopts, without substantive change, elements of
present S 226.15(a) and (b)(1).
Paragraph (e)(4) is an amended version of present § 226.15(b)(2).
It is standard practice for lessors to receive payments of the type described
in this provision after consummation, at or before the time the leased prop­
erty is delivered to the consumer. Such charges are generally disclosed
under present § 226.15(b)(5), which relates mainly to payments made at the
end of the lease term. It appears that a more logical treatment of these
charges would be to include them with other initial payments, even though
they are made after consummation. The proposal therefore requires that all
payments that are to be made at or before delivery of the leased property
must be included in the total figure disclosed under this paragraph. This
change is also reflected in the definition of "total lease obligation" under
proposed S 226.2(dd).
Paragraph (e)(5) remains substantively the same as § 226.15(b)(3)
of the current regulation, as it has been interpreted in several official
staff interpretations. Thus, in conformity with the amended definition of
"total lease obligation" under proposed § 226.2(dd), only lease charges that
are financed by the lessor are included in this item. The language has also
been amended to conform to similar sections in Subpart3 B and C. Footnote 71
permits a simplified payment schedule disclosure if the payments in a series
vary within a range of 5 percent of the lowest payment in the series. This
special rule is similar to that provided in footnote 59 to I 226.11(f)(6),
and the concept is discussed more fully above in connection with that section.
Paragraph (e)(6) differs from present § 226.15(b)(4) only in that
initial charges disclosed under proposed paragraph (e)(4) would not be inclu­
ded in this total. Since any charges of this kind that are paid initially
will be disclosed under paragraph (e)(4) there is no need to include them
here. Note that if they are financed, however, the initial charges will be
reflected in the schedule of payments under § 226.15(e)(5).
Proposed paragraph (e)(7) differs from present S 226.15(b)(5) by
expressly eliminating from this item any charges already disclosed under par­
agraphs (e)(4) (initial payments), (e)(5) (schedule of payments), and (e)(6)
(official fees and taxes). This change incorporates into the proposed regu­
lation a position taken in present Board Interpretation § 226.1501.
Paragraph (e)(8) differs from current § 226.15(b)(6) only in that
insurance procured by the lessor for its own benefit (such as residual value
insurance to protect the lessor's interest, or its equivalent) has been
explicitly excluded. Neither the cost nor the coverage of such insurance
needs to be disclosed under the proposed regulation.




Paragraph (e)(9) is unchanged from current § 226.15(b)(2).

- 73 -

Paragraph (e)(10) adds to current § 226.15(b)(8) the requirement
that if a maintenance agreement (such as a mechanical breakdown protection
contract) is provided or paid for by the lessor, a brief description of the
coverage must be disclosed.
Paragraph (e)(ll) adopts without change the second half of current
S 226.15(b)(8).
Paragraph (e)(12) is substantially the same as current § 226.15(b)(9)
The last sentence in the proposal makes clear that any security interest in
after-acquired property must also be disclosed. The Board solicits comment
on any further change that could be made in this disclosure or in the defini­
tion to clarify the security interest disclosure requirements for leasing.
Paragraph (e)(13) expands § 226.15(b)(10) of the current regulation
to include dollar charges for excessive wear or use. Deferral or extension
charges, however, need not be disclosed. The continued accrual of a lease
charge in a so-called simple interest lease when a periodic lease payment is
late need not be disclosed, confirming the position taken in Official Staff
Interpretation FC-0156.
Paragraphs (e)(14) and (e)(15) are substantively unchanged from
present S 226.15(b)(11) and (12), respectively.
(f)

Special disclosures concerning the consumer's liability on
termination of a lease.

The material contained in § 226.15(b)(13), (14), and (15) of the
current regulation relates only to open-end leases. (Briefly, an open-end
lease is one in which the consumer may be liable for the difference between
the actual or "realized1* value of the leased property at the end of the
lease term and its "estimated" value or the amount the lessor thought it
would be worth.) The proposed amendments segregate these sections from the
generally applicable disclosure requirements in order to make clear that
they relate only to open-end leases.
Paragraph (f)(1) restates current § 226.15(b)(13), without
substantive change.

Paragraph (f)(2) adopts the substance of § 226.15(b)(14) of the
current regulation, with the additional provision that the appraisal must be
obtained within a reasonable time after the lease has been terminated or has
run its term. The Board solicits comment on whether the standard of "reason­
ableness" is too vague, and whether it should be either amended to set a
specific time frame or eliminated entirely.
Paragraph (f)(3) is substantially the same as § 226.15(b)(15) of
the current regulation. One addition in the proposal, however, is a disclo­
sure that any final agreement must be reached after termination of the lease
in order to be binding. This disclosure is based on S 183(a) of the act.
(g)

Renegotiations— new disclosures.

This paragraph is a revision and extension of § 226.15(c) of the
current regulation. Proposed paragraph (g)(1) sets out the basic rule that



- 74 -

(g) Renegotiations— nev disclosures.
a renegotiation must be treated as a new transaction and that new disclosures
must be given.

Paragraph (g)(2) list3 some changes in terms for which no new
disclosures are required even though they might fit the definition of a
"renegotiation.” Paragraph (g)(2)(i) relates to certain changes in multipleitem leases, adopting without significant change present § 226.15(c)(1);
(g)(2)(ii) exempts a deferral of all or part of one periodic lease payment;
and (g)(2)(iii) covers the addition or renewal of optional insurance that is
purchased by the consumer after consummation. Under the last of these three
provisions, no new disclosures would have to be made on the underlying lease
if the insurance i3 financed and the appropriate credit disclosures are given
for the insurance transaction itself. This rule applies, however, only where
the purchase of insurance is genuinely separate from the underlying lease.
The provision in present § 226.15(c)(2) that only extensions of
leases for six months or less are not renegotiations has been eliminated.
Under the proposal, a lessor that enters into an agreement with a consumer
to extend the term of a lease (on a month-to-month or other basis) need not
make new disclosures, provided that no other terms are changed.
Paragraph (g)(3) is new. It requires lessors that extend, or per­
mit a consumer to extend, the duration of an open-end lease for more than
one month to recalculate the estimated value of the leased property in order
to reflect the actual lease term. The new estimated value need not be deter­
mined until the property is returned. In any case, however, the lessor must
use the same method of calculation originally used to determine the estimated
value of the leased property when recalculating that figure for purposes of
this paragraph and § 183(a) of the act. The Board particularly solicits
comment on this proposed change. The applicability of the three monthly
payment limitation when a consumer extends the lease has been unclear. The
Board believes that the limitation continues to apply, but proposes to permit
lessors to recalculate the value of the property based on the actual rather
than the anticipated lease term in such cases.

Section 226.16— Advertising.
This section incorporates the various parts of § 226.10 of the
current regulation that relate to the advertising of consumer leases.
(a) Generally available terms.
Proposed paragraph (a) restates the substance of § 226.10(a)(2) of
the current regulation, in somewhat simpler language.
(b) Advertisement of terms that require additional disclosures.
This paragraph, which is based on § 184(a) of the act, is sub­
stantially the same as § 226.10(g) of the current regulation. In addition,
it clarifies that lessors may use examples of typical consumer leases in
their advertisements, reflecting the position taken in Board Interpretation
§ 226.1001.



- 75 -

(c) Multiple-item leases— merchandise tags.
This paragraph is substantially the same as § 226.10(h) of the
current regulation.
(d) Catalogs and multiple-page advertisements.
Paragraph (d) restates the provisions of § 226.10(b) of the cur­
rent regulation as they apply to leasing advertisements, without significant
change. Paragraph (d)(2) incorporates the substance of Board Interpretation
§ 226.1002 into the regulation.

SUBPART S— MISCELLANEOUS

Subpart E contains general provisions which apply equally to openend credit, closed-end credit and leasing transactions. While most of the
five sections concern administrative matters, the topics covered vary, rang­
ing from state exemption procedures to Spanish language disclosures.

Section 226.17— Record retention.
Section 226.17 specifies the period of time for which disclosure
statements or other evidence of compliance must be retained. It has no
statutory counterpart, but is analogous to the present § 226.6(i). As under
the current regulation, records must be kept for at least two years, mea­
sured from the point when disclosures were required to be given. While the
Board believes that advertising has always been subject to this requirement
as well, a specific reference to advertisements has been added to clarify
this point. In the existing regulation, a special record retention rule
applies to creditors subject to the five federal agencies participating in
the Regulation Z Enforcement Guidelines (44 FR 1444, January 4, 1979). Under
the amended act, the enforcement policy reflected in the guidelines must now
be applied by all administrative agencies. Since it is uncertain how these
new statutory enforcement provisions will be implemented, the Board proposes
to eliminate this special rule. In its place, proposed § 226.17 recognizes
the authority of each administrative agency to extend the record retention
period beyond the minimum two-year requirement, as necessary to carry out
its enforcement responsibilities. The Board specifically requests comment
on this alternative to the approach in current § 226.6(i)(2).

Section 226.18— Spanish language disclosures.
Under § 226.18, a creditor or lessor operating in Puerto Rico may
provide either Spanish or English disclosures. As in present § 226.6(a),
however, a creditor or lessor must honor a request by a consumer for English
language disclosures. The last sentence of § 226.18(b) makes it clear that
advertisements are not subject to the rule regarding customers' requests for
disclosures in English.



- 76 -

Section 226.19— Effect on state lavs.
This section, which implements §§ 111(a), 171(a), and 186(a)
of the act, sets forth procedures for determining whether a state law is
inconsistent with or substantially similar to a requirement of the regula­
tion. Any person may apply to the Board for such a determination. Under
§ 226.19(a), a creditor or lessor is not permitted to comply with an inconsis­
tent state law. Under § 226.19(b), which implements § 111(a)(2), as amended,
a creditor is specifically authorized to bypass a requirement of Regulation
Z in favor of a state provision determined by the Board to be substantially
similar. The procedures proposed in this section have no counterpart in
the current regulation, and the Board invites comment on them.
The Board has refrained from setting forth specific standards for
determining inconsistency and substantial similarity in the belief that
each' request may present unique circumstances requiring an individual anal­
ysis. The Board invites comment, however, on the need for more specific
criteria for making these judgments, as well as on the criteria appropriate
to the decisions.

Section 226.20— State exemptions.
This section implements § 123 of the act. The substance of
§ 226.20 is similar to current 5 226.12, but it has been restructured for
added clarity. As under the current regulation, the standards for exemption
of state-regulated transactions are somewhat different for chapter 2 (credit
transactions), chapter 4 (credit billing), and chapter 5 (consumer leases)
of the act, reflecting the various statutory provisions. The procedures for
applying for an exemption are set forth in present Supplements II, IV, V,
and VI, which will be revised if necessary to reflect the regulation ulti­
mately adopted by the Board.

Section 226.21— Issuance of staff interpretations.
This section defines the types of interpretations issued by the
staff and provides procedures for their issuance. While this provision is
not substantially different from current § 226.1(d), the scope of interpre­
tations is somewhat modified. The prohibition against approving forms i3
extended to tools or methods for calculating required disclosures, such as
the annual percentage rate. However, forms and methods prescribed by govern­
ment agencies are not subject to this prohibition. Under amended § 113 of
the act, such agencies may be required to consult with the Board regarding
the Truth in Lending implications of their activities. In appropriate
cases, forms and tools generated by those agencies may be the subject of
interpretations specifically sanctioning their use. This does not represent
a significant departure from the current situation in which interpretations
have occasionally been issued regarding government forms and/or calculation
methods. "Government agency," as that term is used in proposed § 226.21(d),
includes state and federal entities, as well as certain quasigovemmental
organizations, such as those relating to home financing and student loans.



77 -

APPENDIX A
Appendix A includes model forms and clauses for use in open-end
and closed-end credit transactions. (Leasing forms are not included at this
time.) Amended § 105 of the act requires the Board to publish such forms
to facilitate compliance by creditors and to aid consumers in understanding
their transactions. Use of these forms and clauses is not mandatory; how­
ever, as provided in § 105(b), creditors who properly use them will be deemed
to be in compliance with the requirements of the regulation. Creditors may
delete inapplicable information and rearrange the format, provided the sub­
stance, clarity, and meaningful sequence of the disclosures are not affected.
Comments are solicited on all aspects of these forms and clauses,
including design, content, and usefulness. If additional forms and clauses
should be provided, suggestions will be welcome.
The model form for transactional disclosures, which appears as
Section (A)(7), is a model for both closed-end credit sales and loans.
Items not generally applicable to all types of transactions are marked by
asterisks, along with explanatory footnotes.
The phrases in parentheses are the descriptors required by the act.
As mandated by S 226.11(f)(3) and (4), the phrases accompanying "finance charge"
and "annual percentage rate" must be used. However, the exact wording of the
descriptors accompanying "amount financed," total of payments," and "total
sale price" need not be used by a creditor.
The phrases in brackets are given as alternatives and may be changed
to suit the specific terms of transaction. For instance, the form states
that the "total of payments" will be paid in [monthly] payments. This term
could be changed to correspond to whatever the scheduled period of payments
is. Another example is the disclosure of credit life insurance [for_______
years]. The term of the insurance need not be stated at all unless the term
is shorter than the term of the transaction, as provided in proposed
S 226.4(d)(l)(ii). The signed and dated acknowledgment at the end of the
form is also optional. Proposed § 226.11(c)(3) provides than an acknowledg­
ment of receipt may, but need not, be included in the disclosure statement.
Two disclosures marked by asterisks are necessary only in certain
types of transactions. The "total sale price" is required only for credit
sales, as the footnote explains. The other term marked by asterisks is the
statement of whether or not a subsequent purchaser may assume the obligation on
its original terms. As the footnote provides, this disclosure is required
only for residential mortgage transactions.
The form for alternate shopping disclosures, which appears as
Section A (9), differs from the others since it is not a model, but a sample.
Therefore, instead of being generally applicable to any transaction for which
alternate shopping disclosures are given, this form sets out the specific
terms and figures for a hypothetical credit sale transaction.




- 78 -

The notice of right to cancel, which appears as Section A (10), is
a model form for a closed-end credit transaction in which a security interest
in a dwelling is taken at the time the transaction i3 entered into. A some­
what different form would be necessary for transactions in which a security
interest is added to an existing obligation, 3ince that notice would have to
reflect the fact that the right of rescission applies only to the addition of
the security interest, and not to the existing obligation. Another form may
also be required for refinancings to reflect the fact that, in general, the
right of rescission, applies only to additional advances.
APPENDIX B
Appendix B contains an explanation of how the annual percentage
rate is computed for certain open-end credit plans involving application of
both a periodic rate and a transaction charge. It relates to proposed
§ 226.8(c)(2)(iii)(B). Examples of how the computation is done are included.

In consideration of the foregoing and pursuant to the authority
granted in § 105 of the Truth in Lending Act (15 U.S.C. 1604, as amended),
the Board proposes to issue a revised Regulation Z (12 C.F.R. Part 226) as
follows:




PART 226— TRUTH IN LENDING

SUBPART A— GENERAL
226.1

Authority, purpose, scope, organization,
circumvention or evasion.

226.2

Definitions and rules of construction.

226.3

Transactions exempted 'from the regulation.

226.4

Finance charge.

SUBPART B— OPEN-END CREDIT
226.5

Disclosures.

226.6

Credit card transactions; special requirements.

226.7

Billing error resolution.

226.8

Determination of annual percentage rate.

226.9

Right of rescission.

226.10 ' Advertising.

SUBPART C— CLOSED-END CREDIT
226.11

Disclosures.

226.12

Determination of annual percentage rate.

226.13

Right of rescission.

226.14

Advertising.

SUBPART D— CONSUMER LEASING
226.15

Disclosures.

226.16

Advertising




—

■

-

2-

SUBPART E— MISCELLANEOUS
226.17

Record retention.

226.18

Spanish language disclosures.

226.19

Effect on state laws.

226.20

State exemptions.

226.21

Issuance of staff interpretations

APPENDIX A— MODEL DISCLOSURE FORMS AND CLAUSES

APPENDIX B— ANNUAL PERCENTAGE RATE COMPUTATIONS




SUBPART A— GENERAL
Section 226.1— Authority, purpose, scope, organization,
circumvention or evasion.
(a) Authority. This regulation, known as Regulation Z, is issued
by the Board of Governors of the Federal Reserve System to implement the
federal Truth in Lending, Fair Credit Billing, and Consumer Leasing Acts,
which are contained in Title I of the Consumer Credit Protection Act, as
amended (Title 15, §§ 1601 through 1667 of the United States Code).
(b) Purpose. (1) The general purpose of this regulation is to
require disclosure of information about the cost and terms of consumer credit
and consumer leases to promote their informed use by consumers. The regula­
tion also gives a consumer the right to cancel certain credit transactions
that involve a lien on the consumer's principal residence, regulates certain
credit card practices, and provides a means for fair and timely resolution
of credit billing disputes.

(2)
This regulation is not intended to govern charges for consumer
credit or consumer leases, nor is its purpose to regulate trade practices
except to the extent that those practices are inconsistent with the require­
ments of the regulation.
(c) Scope. (1) In general and subject to the applicable defini­
tions in § 226.2 and the exemptions in S 226.3, the credit provisions of
this regulation (Subparts B and C) apply to each individual or business that
offers to extend credit (that is, the obligation will be payable on its face
or by agreement to the individual or business) if four conditions are met.
They are: first, the credit must be offered to consumers (that is, natural
persons, not businesses, government units, or organizations); second, the
offering of credit to consumers must be done regularly by the individual
or business; third, the credit must be subject to a finance charge or must
be repayable by agreement in more than four installments; and, fourth, the
credit must be primarily for personal, family, or household purposes. Note
that where a credit card is involved, however, certain provisions of the
regulation apply even if the credit is not subject to a finance charge or is
not repayable by agreement in more than four installments; see the defini­
tion of "creditor" in § 226.2(q). Also note that certain provisions apply
even if a credit card is used or expected to be used by an individual or
a business for business purposes; see the special requirements for credit
card transactions in $ 226.6.

(2)
Subject to the applicable definitions in § 226.2 and the exemp
tions in § 226.3, the leasing provisions of this regulation (Subpart D) gen­
erally apply to each individual or business that offers to lease or arranges
for the lease of property if five conditions are met:
first, the leases must
be offered to or arranged for consumers; second, the offering or arranging of
personal property leases to consumers must be done regularly by the individual
or business; third, the leases must be of personal property; fourth, the lease
term must be for more than four months; and fifth, the leases must be primar­
ily for personal, family, or household purposes.




2

(d)
Organization. (1) The regulation i3 divided into five subparts in order to enhance its ease of use by grouping together provisions
relating to general matters, open-end credit, closed-end credit, consumer
leasing, and miscellaneous rules. Thus, for each type of transaction— openend credit, closed-end credit, consumer lease— a person generally need
consult only one self-contained subpart of the regulation to determine the
applicable rules, referring only as necessary to the definitions and procedural
rules.
(2) Subpart A contains general information. It sets forth the
basis, purpose, scope, and organization of the regulation, the definitions
of basic terms used in the regulation, the transactions that are exempted
from coverage, and the method of determining the finance charge for con­
sumer credit obligations.
(3) Subpart B contains the rules relating to open-end credit.
Those provisions explain what initial and periodic disclosures are required,
what special rules apply to credit card transactions, what procedures must
be followed for resolving billing errors, how to determine the annual per­
centage rate, what rules govern the three-day cooling-off period applicable
to certain mortgage transactions (a procedure called rescission), and what
rules apply to advertising.
(4) Subpart C covers closed-end credit disclosures, annual per­
centage rate calculations, rescission requirements, and advertising rules.
(5)
tising rules.

Subpart D contains the consumer leasing disclosure and adver­

(6) Subpart E collects the miscellaneous rules regarding record
retention, Spanish language disclosure in Puerto Rico, inconsistent state
law requirements, criteria for obtaining an exemption based upon a similar
state law, and procedures for seeking a staff interpretation.
(7) Following Subpart E are two appendices— one containing model
disclosure forms and language for open-end and closed-end credit, and the
other containing rules for computing an annual percentage rate in certain
open-end credit plans.
(e)
Circumvention or evasion. Any person subject to the require­
ments of this regulation shall not take any action for the purpose of cir­
cumventing or evading those requirements.

Section 226.2— Definitions and rules of construction.
For the purposes of this regulation, the following definitions and
rules of construction apply:
(a)
"Advertisement" means a message in any medium that is designed
to promote, directly or indirectly, any credit or lease transaction. The term




- 3 -

does not include the alternate shopping disclosures for closed-end credit
permitted by § 226.11(h) of Subpart C.
(b) ’’Arrange for a lease" means regularly to offer a consumer
lease to be extended by another person if the person who offers to arrange
the lease receives compensation for that service or participates in preparing
the lease contract with knowledge of its terms.
(c) "Arranger of credit" means a person who regularly offers con­
sumer credit to be extended by another person if—
(1) A finance charge may be imposed for that credit, or the credit
is payable by agreement in more than four installments; and
(2)

The person extending the credit is not a creditor.

(d) "Billing cycle" or "cycle" means the interval between the days
or dates of regular periodic statements. These intervals shall be no longer
than a quarter of a year. They shall be equal and may be considered equal
unless the number of days in a cycle varies by more than four days.
(e)

"Board" means the Board of Governors of the Federal Reserve

System.
(f) "Business day" means a calendar day except Sunday and the
federal holidays of New Year's Day, Washington's Birthday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day,
and Christmas Day (as specified in Title 5, § 6103(a) of the United States
Code) .
(g) "Cardholder" means a person to whom a credit card is issued
for any purpose, including business or commercial, or a person who has agreed
with the card issuer to pay obligations arising from the issuance of a credit
card to another person.
(h) "Card issuer" means a person who issues a credit card or that
person's agent with respect to the card.
(i) "Cash price" means the price at which the creditor, in the
ordinary course of business, offers to sell for cash the property or service
that is the subject of the transaction. The term includes charges imposed
by the creditor equally on cash and credit customers. It may include the
price of optional accessories, services related to the sale (such as delivery,
installation, modification, and improvements), and service contracts. The
term does not include any finance charge.
(j) "Closed-end credit" means consumer credit other than open-end
credit as defined in paragraph (u) of this section.
(k) "Consumer" means a cardholder or a natural person to whom con­
sumer credit or a consumer lease is offered, and it includes a comaker,
endorser, guarantor, surety, or similar person who may be obligated to repay
the extension of credit or the lease obligation.




- 4 -

(l) "Consumer credit" means credit offered by a creditor to a con­
sumer primarily for personal, family, or household purposes.
9

(m) "Consumer lease" means an obligation in the form of a bailment
or lease for the use of personal property by a consumer primarily for personal,
family, or household purposes, for an original term of more than four months,
for a total lease obligation not exceeding $25,000, whether or not the consumer
has the option to purchase or otherwise become the owner of the property at
the end of the lease term.
(n) "Consummation" means the time that a consumer becomes obligated
on a credit or lease transaction or pays any nonrefundable fee, other than
a bona fide application fee.
(o) "Credit" means the right granted by a creditor to a consumer
to defer payment of debt or to incur debt and defer it3 payment.
(p) "Credit card" means any card, plate, coupon book, or other
device that may be used from time to time to obtain credit.
Cq)

"Creditor" means (1) A person

(1) Who regularly extends consumer credit that may be subject to a
finance charge or that is payable by agreement in more than four installments
and
(ii)
To whom the debt arising from the transaction is initially
payable on the face of the evidence of indebtedness or, if there is no evi­
dence of indebtedness, by agreement;
(2)

An arranger of credit;

(3)

A card issuer; or

(4) For the purposes of §§ 226.4(f) , 226.5(j) and 226.6(e) of Sub­
part B, a person who honors a credit card.
(r) "Credit sale" means a sale in which the seller is a creditor.
The term includes a bailment or lease (unless terminable without penalty at
any time by the consumer) under which the consumer
(1) Agrees to pay as compensation for use a sum substantially equi­
valent to, or in excess of, the aggregate value of the property and services
involved; and
(2) Will become or has the option to become, for no additional
consideration or for nominal consideration, the owner of the property upon
compliance with the agreement.
(s) "Dwelling" means a residential structure that contains one to
four units or a mobile home or trailer, whether or not attached to real pro­
perty. The term includes individual condominium or cooperative units.



- 5 -

(t)
"Lessor" means a person who regularly leases, offers Co lease,
or arranges for a lease.

(u) "Open-end credit" JL/ (l) Means consumer credit extended by a
creditor on an account under a plan in which
(1)

The creditor reasonably contemplates repeated transactions;

(ii) The consumer has the privilege of paying the balance in full
at any time, without penalty or additional charge imposed for payment in full;
(iii) A finance charge may be imposed by the creditor from time to
time on an outstanding unpaid balance; and

(iv) The amount of credit that may be extended to the consumer dur­
ing the term of the plan, up to any limit set by the creditor, is replenished
to the extent that the consumer repays any outstanding balance.
(2) For purposes of the requirements of §§ 226.5(b)(2), (3), (4),
and (6); 226.5(c)(1), (2), (3), (9), (10), (11); 226.7(e), (g), (h), (i),
and (j); 226.6(c), (d), and (e); and 226.7 of Subpart B, includes consumer
credit extended on an account under a plan that meets criteria (i), (ii), and
(iv) of paragraph (u)(l) of this section, whether or not a finance charge
may be imposed by the creditor.
(v) '*Periodic rate" means a percentage rate or the decimal equiva­
lent of finance charge that is or may be imposed by a creditor on a balance
for a day, week, month, or other subdivision of a year.
(w) "Person" means a natural person or an organization, including
a corporation, partnership, proprietorship, association, cooperative, estate,
trust, or government unit.
(x) "Personal property" means property that is not real property
under the law of the state in which it is located at the time it is offered
or made available for lease.
(y) "Realized value" means (1) The price received by the lessor
for the leased property at disposition;
(2)

The highest offer for disposition; or

(3) The fair market wholesale or retail value at the end of the
lease term if the use of wholesale or retail value is consistent with Che
estimated value made at consummation.

1/ The creditor of an open-end credit account may verify credit information
regarding the consumer from time to time without affecting the classifica­
tion of the account as open-end credit.




- 6 -

(z)
"Required deposit balance" means a deposit balance or invest­
ment that a consumer is required to make, maintain, or increase in a speci­
fied amount as a condition of the extension of credit. The term does not
include a deposit balance or investment that will earn interest or dividends
during the term of the obligation, or an escrow account for the payment of
taxes or insurance.
(aa) "Residential mortgage transaction" means a transaction in
which a mortgage, deed of trust, purchase money security interest arising
under an installment sales contract, or equivalent consensual security
interest is created or retained on the consumer's dwelling to finance the
acquisition or initial construction of that dwelling.
(bb) "Security interest" or "security" 2/ means an interest in pro­
perty that secures performance of a consumer credit or lease obligation and
that is recognized by and enforceable under state law.
(cc) "State" means any state, the District of Columbia, the Common­
wealth of Puerto Rico, and any territory or possession of the United States.
(dd) "Total lease obligation" means the sum of (1) The total of
all scheduled periodic lease payments, excluding any charge upon which a
lease charge is not assessed (such as an insurance premium paid directly to
the insurer or that is not financed by the lessor);
(2) Any nonrefundable payment made by the consumer at or prior to
delivery of the leased property for the purpose of reducing the amount that
will be amortized over the term of the lease; and
(3)
lease term.

The estimated value of the leased property at the end of the

(ee) "Value of the property at consummation" means the cost to
the lessor of the leased property, including, if applicable, any increase or
markup by the lessor prior to consummation.
(ff) Where appropriate, the singular form of a word is to be
construed to include the plural form and vice versa.
(gg) Where the words "obligation" and "transaction" are used in this
regulation, they refer to a consumer credit or a consumer lease obligation or

2/ The terms may include, for example, a security interest under the Uniform
Commercial Code, a real property mortgage or deed of trust, any other con­
sensual or confessed lien (whether or not recorded), a right of set-off
(whether provided by agreement or by operation of law) , a lien that may
arise by virtue of a confession of judgment or cognovit provision if the
consumer does not have the right to prior notice and opportunity to pre­
sent a defense, and any lien that may arise by operation of law.




- 7 -

transaction, depending upon the context. Where the words "credit" and "lease"
are used in this regulation, they mean "consumer credit" and "consumer lease,"
respectively, unless the context clearly indicates otherwise.
(hh) Unless defined in this regulation, the words used have the
meanings given to them, to the extent applicable, by state law or contract.
(ii)

Footnotes have the same legal effect as the text of the regula

tion.

Section 226.3— Transactions Exempted from the regulation.
This regulation does not apply to the following types of credit or
lease:
(a) Business, agricultural, or organizational credit. An extension
of credit primarily for a business, commercial, or agricultural 3/ purpose
or to a person other than a natural person, except with regard to the issu­
ance of credit cards and the liability for their unauthorized use as provided
in paragraphs (a) through (f) of § 226.6.
(b) Credit over $25,000 not secured by real property or a dwelling.
An extension of credit not secured by real property or a dwelling in which
the amount financed exceeds $25,000 or in which the transaction involves a
specific written commitment to extend credit in excess of $25,000.
(c) Public utility credit. An extension of credit involving public
utility services provided through pipe, wire, or other connected facilities,
or through radio transmission, if the charges for service, delayed payment,
or any discounts for prompt payment are filed with or regulated by any
government unit. The financing of durable goods or home improvements by
a public utility is not exempt.
(d) Securities or commodities credit. An extension of credit
for the purchase of securities or commodities where the credit is extended
by a broker-dealer registered with the Securities and Exchange Commission or
the Commodity Futures Trading Commission.

3J An agricultural purpose includes the planting, propagating, nurturing,
harvesting, catching, storing, exhibiting, marketing, transporting, process­
ing, or manufacturing of food, beverages (including alcoholic beverages),
flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a
natural person engaged in farming, fishing, or growing crops, flowers, trees,
livestock, poultry, bees, or wildlife. It also includes the acquisition of
real property (including real property with a dwelling), personal property,
and services, if the acquisition is used primarily in any of those activi­
ties.




- 8 -

(e)

Certain leases.

The following types of leases:

(1) A lease primarily for agricultural, business, or commercial
purposes, or to a person other than a natural person.
(2)

A lease of personal property incident to a lease of real prop­

erty if—
(i) The consumer has no liability for the value of the property at
the end of the lease except for abnormal wear and tear; and
(ii)

The lessee has no option to purchase the leased personal

property.
(3)

A lease of a safe deposit box or its substantial equivalent.

Section 226.4— Finance charge.
(a) Definition. The finance charge is the cost of consumer credit
expressed as a dollar amount. It includes any charge imposed directly or in­
directly by the creditor and payable directly or indirectly by the consumer
as an incident to, or as a condition of, the extension of credit. It does
not include any charge of a type payable in a comparable cash transaction
(such as a sales tax or license, title, or registration fee).
(b) Charges included in the finance charge. Unless specifically
excluded by paragraphs (c) through (f) of this section, the finance charge
includes the following types of charges:
(1) Interest, time price differential, and any amount payable
under an add-on, discount, or other system of additional charges.

ing any
account
account
account

(2) Service, transaction, activity, or carrying charge, includ­
charge imposed in connection with a checking or similar transaction
(for example, for issuance, payment, or handling of checks or for
maintenance) to the extent that it exceeds the charge for a similar
without a credit feature.
(3)

Points, loan fee, assumption fee, finder's fee, or similar

(4)

Appraisal, investigation, or credit report fee.

charge.

(5) Premiums 4/ for any guarantee or insurance protecting the credi­
tor against the consumer's default or other credit loss, including single
interest insurance.

4J The amount to be included in the finance charge is the premium for coverage
for the period of time that the creditor requires the insurance to be main­
tained .



- 9 -

(6) A charge imposed upon a creditor by another person for purchas­
ing or accepting a consumer's obligation that the consumer is required to pay
in cash, as an addition to the obligation or as a deduction from the proceeds
of the obligation.
(7) Premiums 5J for credit life, accident, health, or loss of income
insurance, written in connection with 6/ a credit transaction.
(8) Premiums 7/ for insurance against loss of, or damage to, pro­
perty or against liability arising out of the ownership or use of property,
written in connection with 8/ a credit transaction.
(9) A discount for the purpose of inducing payment other than by
use of credit.
(c) Charges excluded from the finance charge.
does not include the following types of charges:

The finance charge

(1) A charge for actual, unanticipated late payment, exceeding a
credit limit, delinquency, default, or similar occurrence.
(2) A charge imposed by a financial institution for paying a check
or similar instrument that overdraws or increases an overdraft in an account,
unless the payment of the instrument and the imposition of the charge were
previously agreed upon in writing.
(3)

A fee charged for membership in a credit card plan.

(4) In connection with a transaction secured by real property, if
they are bona fide and reasonable in amount:
(i) Fees for title examination, abstract of title, title insurance,
or property survey;
(ii) Fees for preparing a deed, mortgage, settlement statement, or
similar document;
(iii)

Notary, appraisal, or credit report fees; and

5/ See footnote 4.
6/ A policy of insurance owned by the consumer and assigned to or otherwise
made payable to the creditor to satisfy a requirement imposed by the credi­
tor is not insurance "written in connection with" a credit transaction if the
the policy was not purchased for use in connection with that credit extension.
77 See footnote 4.
8/ See footnote 6.




10

(iv)
Amounts required to be paid into escrow or trustee accounts
that would not otherwise be included in the finance charge.
(d) Insurance. (1) Premiums for credit life, accident, health,
or loss of income insurance may be excluded from the finance charge if the
following three conditions are met:
(1) The insurance coverage is not required by the creditor, and
this fact is disclosed.
(ii) The premium 9/ for the initial term of insurance coverage is
disclosed. If the term of insurance is less than the term of the transac­
tion, the term of insurance shall be disclosed. If the premium disclosed
may increase, that fact also shall be stated.
(iii)
ing a desire for
this provision.
of them may sign

The consumer signs an affirmative written statement indicat­
the insurance after receiving the disclosures specified in
If there is more than one consumer to be insured, any one
the statement.

(2) Premiums for insurance against loss of, or damage to, the
property securing the obligation, or against liability arising out of the
ownership or use of that property 10/ may be excluded from the finance charge
if the following two conditions are met:
(i)
The insurance coverage may be obtained from a person of the
consumer'3 choice, 11/ and this fact is disclosed.
Cii) If coverage may be obtained from or through the creditor, the
premium 12/ for the initial term of insurance coverage is disclosed. If the
term of insurance is less than the term of the transaction,, the term of insur­
ance shall be disclosed. If the premium disclosed may increase, that fact
also shall be stated.
(e) Itemized charges. If itemized and disclosed, the following
charges may be excluded from the finance charge:

9/

For an open-end credit plan where the premium is computed on the outstanding balance, the unit cost of the premium may be used if the period is
stated.

10/ This includes single interest insurance that functions like dual interest
insurance if the insurer waives all right of subrogation against the con­
sumer .
11/ A creditor's right to refuse to accept an insurer offered by the consumer,
for reasonable cause, does not require inclusion of the premium in the
finance charge.
12/ See footnote 9.




- 11 -

(1) Fees prescribed by law that actually are or will be paid to
public officials for determining the existence of or for perfecting, releas­
ing, or satisfying a security interest.
(2) Premiums for insurance in lieu of perfecting a security
interest to the extent that the premium does not exceed the fees described
in paragraph (e)(1) of this section that otherwise would be payable.
(f)
Discounts. A discount for the purpose of inducing payment
for a purchase by cash, check, or similar means rather than by use of an
open-end credit card account (whether or not a credit card is physically
used) may be excluded from the finance charge 13/ if the following three
conditions are met:
(1) The discount does not exceed 5 percent 14/ of the regular
price 15/ of the property or service.
(2) The discount is available to all prospective purchasers,
whether or not they are cardholders, and this fact is clearly and conspic­
uously disclosed in the seller's place of business. 16/
(3) If an advertisement or telephone communication by which the
creditor invites or accepts purchase orders states that consumers are allowed
to pay for property or services by use of a credit card or its underlying
account, the availability of the discount shall be clearly and conspicuously
stated either in the advertisement or cotnminication or before the transaction
has been completed by use of the credit card or its underlying account. If

13/ A discount that is not a finance charge under this paragraph shall not
be considered a finance charge or other charge for credit under any state
law relating to usury, disclosure of information in connection with credit
extensions, or charges permissible in connection with the extension or use
of credit.
14/ If the discount is greater than 5 percent, the total amount of the
discount shall be a finance charge.
15/ "Regular price" means (1) the tagged or posted price; or (2) the price
charged for the property or service where payment is made by use of an
open-end credit card account if either (i) no price is tagged or posted,
or (ii) two prices are tagged or posted, one of which is charged where
payment is made by use of an open-end credit card account and the other
where payment is made by use of cash, check, or similar means. For the
purpose of this definition, payment by check, draft, or similar instrument
that may result in the debiting of a cardholder's open-end account shall
not be considered payment made by use of that account.
16/ The availability of the discount may be limited on the basis of some other
distinction such as certain types of property or services, certain outlets,
or cash payments only, if the limitations are clearly and conspicuously
disclosed.




12

a price other than the regular price is disclosed in an advertisement or *
communication, the fact that that price is not available to credit card
purchasers also shall be disclosed.

(g)
Prohibited offsets. Interest, dividends, or other income
received or to be received by the consumer on deposits or on investments
shall not be deducted from the finance charge.

SUBPART B-— OPEN-END CREDIT

Section 226.5— Disclosures.
(a) General requirements. (1) Who must make disclosures to whom,
(i) If the plan involves only one creditor, that creditor shall make the
disclosures required by this section. Except as provided in paragraph (j)
of this section, if the plan involves more than one creditor, only one cred­
itor must make all the disclosures.
(ii)
The disclosures shall be made to the consumer. If there is
more than one consumer, the disclosures may be made to any one of the consum­
ers who is primarily liable on the obligation. Where the right of rescission
under § 226.9 is applicable, however, the disclosures shall be made to each
person who has the right to rescind.
(2)
What disclosures must be made. A creditor must give the
initial disclosures required under paragraph (b) and the periodic statement
disclosures required under paragraph (c). A creditor must also follow the
procedures described in f 226.7 if a consumer asserts an error under that
section.
(3) Time and form; general, (i) The disclosures required by
this subpart shall be made clearly and conspicuously in writing in a form
that the consumer may keep. The disclosures shall be made at the time, in
the format, and in the terminology required by the applicable paragraphs
of this subpart. Appropriate identifying language may accompany required
terminology. (For example, the rate applied to a balance on a daily basis
may be described as the "daily periodic rate"; payments on a loan account
may be described as "loan payments.") Pluralization of required terminology
is permitted.
(ii)
When the words "finance charge" and "annual percentage rate"
are required to be disclosed together with a corresponding amount or percent­
age rate, those words shall be more conspicuous (for example, by use of capi­
talization, asterisks, bolder type, underlining, or a contrasting color)
than any other required terminology. This rule does not apply to paragraph
(c)(4) of this section and to § 226.10.
(4) Initial disclosures; time and form, (i) The creditor shall
furnish the initial disclosures required by paragraph (b) of this section to
the consumer before the first transaction is made under the plan.



13 -

(ii)
These disclosures must be made together but can be made on
one or more pages of an integrated document. The document may contain other
material (such as the agreement, explanations, disclosures required by state
law or promotional material) as long as the additional material does not
contradict or detract attention from the required disclosures.
(5)
Periodic statements; time and form, (i) The disclosures
required to be on or with a periodic statement should be made together;
however, a periodic statement can consist of one or more pages. Additional
material appearing on or with any periodic statement shall not contradict
or detract attention from the required disclosures.
(ii) A periodic statement containing the disclosures required by
paragraph (c) of this section shall be mailed or delivered by the creditor
to the consumer at least quarterly for each cycle at the end of which the
account has a debit or credit balance of more than $1 or on which a finance
charge has been imposed. No periodic statement need be sent to any consumer
whose account the creditor deems to be uncollectible. A creditor'3 following
its standard procedures for uncollectible accounts shall be evidence that the
creditor has deemed the account uncollectible.
(iii) The creditor shall mail or deliver the periodic statement
at least 14 days prior to any date or the end of any time period required to
be disclosed by paragraph (c)(ll) of this section in order for the consumer
to avoid the imposition of any finance or other charges. If the creditor
fails to meet this requirement, no finance or other charges may be collected
on the amount required to be paid to avoid the imposition of finance charges
as provided in paragraph (c)(ll) of this section. This time limitation shall
not apply if the creditor has been prevented, delayed, or hindered in meeting
this requirement by an act of God, war, civil disorder, natural disaster, or
strike.
(6) Basis of disclosures and use of estimates, (i) The creditor
shall base the disclosures on the information known to it at the time disclo­
sures are made. The disclosures shall be based on the assumption that the
consumer will comply with the terms of the agreement. The disclosures shall
reflect the terms as actually agreed upon even if they differ from the written
obligation (for example, a creditor-employer that offers a preferential
employee rate cannot furnish the employee with a preprinted disclosure form
reflecting the non-employee rate.)
(ii)
If any information necessary to make an accurate disclosure
is unknown to the creditor, it shall make the disclosure based on the best
information reasonably available to it and shall state clearly that the dis­
closure is an estimate.
(7) Effect of subsequent events, (i) If a disclosure is rendered
inaccurate as a result of an event that occurs after delivery of the disclo­
sures, the resulting inaccuracy is not a violation of this regulation.




14 -

(ii) If a disclosure is later rendered inaccurate, new disclosures
may be required. The conditions for new disclosures are set forth in para­
graph (i) of this section (Change in terms).
(iii) Whenever a term change renders a disclosure form inaccurate,
an insert reflecting the new term may be used with the outdated disclosure
form until the form supply is exhausted.
(b)
Opening new account; initial disclosure statement. The cred­
itor shall disclose to the consumer, in accordance with the timing and format
requirements of paragraph (a) of thi3 section and in terminology consistent
with that in quotation marks in paragraph (c) of this section, each of the
following items, to the extent applicable:
(1)
Finance charge. The circumstances under which a finance
charge will be imposed and an explanation of the method of determining the
finance charge, as follows:
(i) A statement of when finance charges begin to accrue, including
an explanation of whether or not any time period exists within which any
credit extended may be repaid without incurring a finance charge. When
such a time period is provided, a creditor may, at its option and without
disclosure, refrain from imposing finance charges even though payment is
received after the time period's" termination. If no such time period is
provided, that fact shall be disclosed.
(ii) A disclosure of each periodic rate that may be used to com­
pute the finance charge, the range of balances to which it is applicable, 17/
and the corresponding annual percentage rate (determined by multiplying the
periodic rate by the number of periods in a year). If different periodic
rates apply to different types of transactions (such as, purchases and cash
advances), those periodic rates and their corresponding annual percentage
rates together with the types of transaction to which they apply, must be
disclosed.
(iii)
An explanation of the method used to determine the balance
on which the finance charge may be computed.18/ Where a balance was deter­
mined, for example, without first deducting all credits and payments made
during the billing cycle, that fact shall be disclosed. (See Appendix A for
model clauses.)

17/ A creditor is not required to adjust a range of balances disclosure to
reflect the balance below which only a minimum charge applies. (For
example, if a minimum charge is imposed on balances of less than $10,
the bottom limit of the range of balances may still be shown as $0).
18/ The explanation need not describe, however, the manner in which payments
and other credits are allocated (for example, the fact that payments are
applied first to finance charges, then to purchases, and then to cash
advances need not be disclosed).



15 -

(iv)
An explanation of how the amount of any finance charges will
be determined. 19/ This explanation shall indicate, for example, that the
periodic rate will be applied to the balance, and shall describe how any
other finance charges 20/ will be determined.
(2) Other charges. An identification of any charges 21/ other
than finance charges that may be imposed as part of the plan, together with
a disclosure of either the amounts of those charges or an explanation of how
the amounts of those charges will be determined.
(3) Security interests. Where a security interest is or will
be takenin goods charged tb the account, a statement of that fact; where a
security interest is or will be taken in property not charged to the account,
a statement of that fact and an identification, by item or type, of the prop­
erty that will serve as security.
(4) Minimum payment. The amount or method of computing the amount
of anyminimum
periodic payment required by the creditor to be made for a
particular interval, and an identification of that interval (for example, $50
per month; or 101 of the outstanding balance every two weeks).
(5) Statement of billing rights* A statement that is substantially
similar 22/ to the statement found in Appendix concerning a consumer's right
to withhold payments and to dispute transactions.

19/ If no finance charge i3 imposed when the outstanding balance is less than
a certain amount, no disclosure is required of that fact or of the balance
below which no finance charge will be imposed.
20/ Examples include: minimum, fixed, transaction, and activity charges;
required insurance; appraisal, investigation, or credit report fees; or
charges imposed in connection with a checking or similar account, such as
the issuance, payment or handling of checks, or for account maintenance,
to the extent they exceed the charges for a similar account without a
credit feature.
21/ Examples include: charges for late payment; for providing documentary
evidence of transactions requested under § 226.7 (Billing error resolu­
tion); for membership in an open-end credit plan; over-the-credit limit
charges; and taxes or fees imposed only as a result of credit extensions.
"Other charges" would not include, for example: premiums for voluntary
credit life or disability insurance, amounts payable by a consumer for
collection activity after default; or charges for documentary evidence
of transactions supplied for income tax records.
22/ For example, descriptive terms or names that are appropriate to the cred­
itor's program may be used ("the xyz credit union's monthly statement"
instead of "your bill"); inappropriate provisions may be deleted (para­
graph 7 may be deleted if no credit card is involved in the account); and
modifications may be made to conform with plain English state laws.




16

(c)
Periodic statements. The creditor shall, at least quarterly
and in accordance with the timing and format requirements of paragraph (a)
of this section, furnish the consumer with a periodic statement that dis­
closes to the consumer the following items, to the extent applicable:
(1) Previous balance. The outstanding account balance at the
beginning of the billing cycle, using the term "previous balance." If the
balance is a credit balance, that fact shall be disclosed. Where there
is more than one type of transaction (such as purchases and cash advances),
the creditor may show a previous balance for each type of transaction.
(2) Identification of transactions. An identification of each
credit extension in accordance with paragraph (d) of this section.
(3) Payments and credits. The amount and date of crediting any
payment or other credit (for example, a return, adjustment, or finance charge
rebate) during the billing cycle, using the term "payment" or "credit," as
applicable. The date need not be provided if a delay in crediting does not
result in the imposition of any finance or other charges.
(4) Periodic rates. Each periodic rate, using the term "periodic
rate," that may be used to compute the finance charge, the range of balances
to which it is applicable, 23/ and the corresponding annual percentage rate
(determined by multiplying the periodic rate by the number of periods in a
year). The words "corresponding annual percentage rate," "corresponding
nominal annual percentage rate," "nominal annual percentage rate," or "annual
percentage rate" may be used to describe the corresponding annual percentage
rate. If different periodic rates apply to different types of transactions
(such as, purchases and cash advances), those periodic rates and their
corresponding annual percentage rates, together with the types of transac­
tions to which they apply, must be disclosed.
(5) Other types of finance charges. The amount or method of com­
puting the amount of any other type of finance charge that may be imposed. 24/
(6) Balance on which finance charge computed. The dollar amount
of each balance on which a component of the finance charge was computed (for
example, a transaction charge or a periodic rate) for each type of transac­
tion that is subject to a different periodic rate (for example, 1 1/2Z per
month on purchases or 1Z per month on cash advances) reflected on the state­
ment and an explanation of how each balance was determined. 25/ Where a
balance was determined, for example, without first deducting all credits and
payments made during the billing cycle, that fact and the amounts of such
credits and payments shall be disclosed. (See Appendix A for model clauses.)

23/ See footnotes 17 and 19.
24/ See footnote 20.
25/ See footnote 18.




-

17

-

(7) Amount of finance charge. The amount of the finance charge
debited or added to the account during the billing cycle, using the term
"finance charge." 26/ The components of the finance charge shall be itemized
and identified to show the amounts due to the application of any periodic
rates and the amount of any other type of finance charge. Where there is
more than one periodic rate, the rates need not be separately itemized and
identified. Where there are other types of finance charges, each charge must
be individually itemized and identified.
(8) Annual percentage rate. When a finance charge is imposed dur­
ing the billing cycle, the annual percentage rate determined under S 226.8,
using the term "annual percentage rate." Where an annual percentage rate
cannot be determined under § 226.8(c)(2)(iii)(A) (for example, where a minimum
charge is imposed and the balance on which the finance charge is to be imposed
i3 zero), the creditor shall disclose that fact.
(9) Other charges. The amounts of any charges other than finance
charges (see footnote 21 for examples) debited to the account during the
billing cycle. These charges must be itemized and identified.
(10) Closing date of billing cycle; new balances. The closing
date of the billing cycle and the outstanding account balance on that date,
using the term "new balance." If the new balance is a credit balance, that
fact shall be disclosed. If the periodic statement reflects more than one
type of transaction, the creditor may show a new balance for each type of
transaction.
(11) Free-ride period. The date by which or the time period
within which the new balance must be paid in order to avoid the imposition
of finance charges. If only a portion of the new balance need be paid to
avoid a finance charge, that amount must be disclosed. The creditor may, at
its option and without disclosure, impose no finance charge when payment is
received after the specified date or time period.
(12) Address for notice of billing errors. The address to be
used for notice of billing errors, preceded by the caption "Send Inquiries
To" or similar language. Alternatively, the address may be provided on the
billing rights statement permitted by paragraph (e)(2) of this section.

26/ Creditors that do not debit or add on finance charges during a billing
cycle, but instead reflect the amount being allocated from each payment
to finance charges, need not disclose any finance charges that may have
accrued between the date of the last payment and the closing date under
paragraph (c)(10) of this section.




- 18 -

(d) Identification of transactions. The creditor shall identify
credit transactions on or with a periodic statement by furnishing the infor­
mation required by this section, as applicable. 27/

(1)
Sale credit. For each extension of credit involving the sale
of property or services, the following rules shall apply:
(i) Furnishing a copy of the credit document. Each extension of
sale credit for which an actual copy of the document (not a facsimile draft)
evidencing the credit transaction accompanies the first periodic statement
that reflects the transaction shall be identified by disclosing on or with
the periodic statement at least the following information: 28/
(A)

The amount of the transaction; and

(B) Either the date of the transaction or the date of debiting
the transaction to the consumer's account, whichever the creditor chooses.
(ii) Describing transaction if the creditor and seller are the
same person or related persons. 29/ If the creditor and the seller are the
same person or related persons, and if an actual copy of the document evi­
dencing the credit transaction does not accompany the periodic statement, the
transaction shall be identified by disclosing on or with the first periodic
statement that reflects the transaction at least the following:

27/ Note that under § 127(b)(2) of the act, failure to disclose the informa­
tion required by this paragraph shall not be deemed a failure to comply
with the act or the regulation if: (1) the creditor maintains procedures
reasonably adapted to procure and provide such information; and (2) the
creditor responds to and treats any inquiry for clarification or document
tation as a notice of a billing error, including correcting the account
in accordance with S 226.7(e)(1).
28/ The creditor complies with this requirement by disclosing the amount and
date of a transaction as supplied by the seller. This does not relieve
the creditor of its duty to investigate a notice of a billing error
under S 226.7(g).
29/ For purposes of this section, franchised or licensed sellers of a cred­
itor's product shall be considered related to the creditor. Sellers
that assign or sell open-end consumer sales accounts to a creditor or
arrange for credit under an open-end credit plan that allows the consumer
to use the credit only in transactions with that seller shall also be con­
sidered related to the creditor. A person is not related to the creditor,
however, simply because an agreement or contract exists under which the
person is authorized to honor the creditor's credit card, or even though
the person and the creditor have a corporate connection if that connection
is not obvious from the names used by the person and the creditor. Trans­
actions with third party sellers resulting from promotional material or
solicitations mailed by the creditor may, at the creditor's option, be
described as transactions in which the seller and the creditor are the
same or related persons.



19

(A)

The amount and date of the transaction; and

(B) A brief identification 30/ of the property or services pur­
chased. 31/ Alternatively, the creditor may disclose a number or symbol
that also appears on the document evidencing the transaction and given to
the consumer. The number or symbol must reasonably identify that transac­
tion with that creditor. If the creditor discloses a number or symbol and
the consumer submits a notice of a billing error regarding the transaction,
the creditor must comply with § 226.7, including correcting the account in
accordance with § 226.7(e)(1). The creditor must also furnish the consumer
with documentary evidence of the transaction, whether or not the consumer
requests it, free of charge and within the time period allowed for resolu­
tion under § 226.7.
(iii)
Description if the creditor and seller are not the same
person or related persons. If the creditor and seller are not the 3ame per­
son or related persons, and if an actual copy of the document evidencing the
credit transaction does not accompany the periodic statement, the transaction
shall be identified by disclosing on or with the first periodic statement
that reflects the transaction at least the following:
(A)

The amount and date of the transaction 32/;

(B)

The seller's name 33/; and

30/ Designations 3uch as "merchandise" or "miscellaneous" are insufficient,
but a reference to a department in a sales establishment that accurately
conveys the identification of the types of property or services available
in that department is sufficient. Identification may be made by a symbol
relating to an identification list printed on the statement.
31/ An identification of property or services may be replaced by the seller's
name and the location of the transaction where: (1) the creditor and the
seller are the same person; (2) the creditor's open-end plan has fewer
than 15,000 accounts; (3) the creditor provides all consumers with
point-of-sale transaction documentation; and (4) the creditor responds
to consumers' notices of billing errors about transactions in the manner
described in this paragraph. If all transactions with the seller occur
at one location, the seller's name and that location need not be repeated
on the periodic statement for each transaction.
32/ See footnote 19. Also, for mail order transactions, the debiting date
may be disclosed instead of the transaction date.
33/ Disclosure of a seller* s name as it appears on the document evidencing
the transaction (or a more complete spelling of the name if it is alpha­
betically abbreviated on the document evidencing the transaction) is
sufficient.




20 -

(C) The address where the transaction took place 34/ (city, and
state or foreign country, using understandable and generally accepted abbre­
viations if the creditor desires).

(2)
Nonsale credit. For nonsale credit (such as cash advance or
overdraft loans), the following rules shall apply:
(i) Furnishing a copy of the credit document. Each extension
of credit for which an actual copy of the document (not a facsimile draft)
evidencing the credit transaction accompanies the first periodic statement
reflecting the transaction shall be sufficiently identified if the document
contains:
(A)

The amount of the transaction; and

(B) Either the date of the transaction, the date of debiting the
transaction to the consumer's account, or the date placed on the document by
the consumer, if the consumer signed the document.
(ii) Description of the transaction. Each nonsale credit transac­
tion for which an actual copy of the document evidencing the transaction and
containing the information described in paragraph (d)(2)(i) of thi3 section
does not accompany the first periodic statement reflecting the transaction
shall be identified by at least the following:
(A) A characterization of the transaction as a cash advance, loan,
overdraft loan, or other appropriate designation (for example, any readily
identifiable trade name for the program);
(B)

The amount of the transaction; and

(C) The date of the transaction, 35/ or the date appearing on the
document evidencing the transaction, if the consumer signed the document.
Alternatively, the debiting date may be disclosed. If this alternative is

34/ The creditor may omit the address or provide any suitable designation
that assists the consumer in identifying the transaction when no meaning­
ful address is readily available because the transaction (1) took place
at a location that is not fixed (for example, aboard a public conveyance
such as an airplane, in which case the flight number, "flight from [point
of departure] to [destination]," or similar description is sufficient);
or (2) took place in the consumer's home (in which case "consumer's home"
or similar description is sufficient); or (3) was the result of a mail or
telephone order (in which case "telephone order," "mail order," or similar
description is sufficient).
35/ In cases in which an amount is debited to a consumer's open-end credit
account under an overdraft checking plan, the debiting date is considered
the transaction date for purposes of this paragraph.




- 21 -

followed, however, and the consumer submits a notice of a billing error
regarding the transaction, the creditor must comply with § 226.7, including
correcting the account in accordance with § 226.7(e)(1). The creditor must
also furnish the consumer with documentary evidence of the transaction,
whether or not the consumer requests it, free of charge and within the reso­
lution time period under S 226.7.
(3) Transactions not billed in full. A transaction that is
billed in precomputed instalments on more than one periodic statement 36/
rather than billed in full on any single statement shall be identified by
disclosing, on the first periodic statement on which any portion of the
transaction is billed, the full amount of the transaction, and the date on
which the transaction took place. Identifying disclosures other than the
amount and date shall be made in accordance with the applicable provisions
of this section.
(4) Unavailable information. If information required by para­
graphs (d)(1) through (3) of this section is unavailable to the creditor
despite the maintenance of procedures reasonably adapted to obtain such
information, the following rules shall apply:
(i) If the required date i3 unknown, the debiting date shall be
substituted (except that the debiting date need not be provided if an actual
copy of the document evidencing the transaction is provided with the periodic
statement);
(ii) The creditor shall disclose as much of the other required
information as is available; and
(iii) If the consumer submits a notice of a billing error
regarding the transaction, the creditor must comply with § 226.7, including
correcting the account in accordance with § 226.7(e)(1). The creditor must
also furnish the consumer with documentary evidence of the transaction,
whether or not the consumer requests it, free of charge and within the
resolution period under 5 226.7.
(5)

Foreign transactions.

If a transaction does not occur in

(i)

The creditor may disclose the transaction^ debiting date; and

a state:

(ii) The provisions of paragraph (d)(4) of this section shall
apply whether or not the creditor maintains procedures reasonably adapted

36/ For example, for a $120 purchase, a creditor may agree to bill a consumer
$40 a month for three months. Since there is only one "transaction” for
the identification purposes of § 226.5(d), this paragraph requires that
full identifying information must appear on or with the first periodic
statement reflecting the $120 transaction. There are no specific iden­
tification requirements for the subsequent $40 debits.




22

to obtain the information otherwise required by paragraph (d) of this
section.
(e) Routine furnishing of billing rights statement. (1) Annual
statement. The creditor shall mail or deliver during at least one billing
cycle per calendar year the billing rights statement required by paragraph
(b)(5) of this section at intervals of not less than six months or no more
than 18 months to each consumer entitled to receive a periodic statement
under paragraph (a)(5)(ii) of this section for that billing cycle.
(2) Alternative summary statement. As an alternative to the
requirements of paragraph (e)(l) of this section, the creditor may mail or
deliver, on or with each periodic statement, a statement that is substan­
tially similar 37/ to that found in Appendix A. If it is made on the peri­
odic statement, it need not appear on a portion of the periodic statement
that the consumer may keep.
(f) Disclosures for supplemental credit devices. If a creditor
of an open-end credit plan, more than 30 days after mailing or delivering
the initial disclosures required under paragraph (b) of this section, mails
or delivers to a consumer already participating in the plan any credit device,
other than a credit card, for use with the consumer's account, 38/ that is
unsolicited or whose finance charge terms differ from those previously dis­
closed the device shall be accompanied by the disclosures required by para­
graph (b)(1) of this section. -If the disclosures required by this paragraph
appear with any other disclosures or material, the required disclosures
must be highlighted.
(g) Prompt crediting of payments. Regardless of the date on
which a payment is posted to a consumer's account, it shall be credited to
the consumer's account as of the date it is received by the creditor 39/ and
no finance or other charge shall be imposed when payment is received on or
before the time indicated by the creditor to avoid imposition of these
charges, provided that:

37/ See footnote 22.
38/ Examples of a credit device for purposes of this paragraph are a blank
check, payee-designated check, blank draft or order, or authorization
form for issuance of a check. This paragraph does not apply to checks
used in conjunction with a checking account, even though such checks may
also activate a cash advance under an open-end credit plan.
39/ If payroll or another similar type of deduction is authorized in order
to make the minimum periodic payment on an open-end credit account and
the deduction is held in a share, escrow, or similar account until 3 uch
time as the periodic payment amount is withdrawn and applied by the cred­
itor to the open-end credit account, the payment may be credited as of
the date it is withdrawn from the share, escrow, or similar account if
the deductions (1) are not a condition of the extension of credit, and
(2) are held in an account subject to withdrawal by the consumer.



- 23

(1) If a creditor fails to post a payment in time to avoid the
imposition of finance or other charges, the creditor shall adjust the con­
sumer' s account so that the charges imposed are credited to the consumer's
account during the next billing cycle.
(2) The creditor may specify on the periodic statement or on
accompanying material that the consumer need not be able to keep reasonable
requirements relating to the form, amount, manner, location, and time for
receipt of payment; however,
(i) If no particular hour of the day is specified as the time by
which payment must be received in order to be credited to the consumer's
account as of that date, payments received before the close of business on
any particular day must be credited as of that date;
(ii) If no location is specified for receipt of payment, then pay­
ment at any location where the creditor conducts business shall be credited
as of the date the payment is received; and
(iii) If no particular manner of payment is specified, then pay­
ment by check, cash, money order, bank draft, or other similar instrument in
properly negotiable form is proper manner of payment.
(3) If a creditor receives a payment that does not conform to one
of the requirements the creditor has specified under this paragraph, the pay­
ment must be credited as soon as possible but no later than five business
days from the date of receipt.
(4) If the creditor accepts payment at locations other than those
specified under paragraph (g)(2) of this section, and if the possibility
of delay is clearly disclosed to the consumer on the periodic statement or
on material accompanying the statement, the consumer's account shall be cred­
ited as soon as possible but no later than five days from the date of receipt.
The possibility of delay need not be stated on a portion of the periodic
statement that the consumer may keep.
(5) If a delay in crediting a payment does not result in the impo­
sition of any finance or other charges for the billing cycle in which the pay­
ment is received or a later billing cycle, the payment need not be credited as
of the date of receipt but in any case must be credited as soon as possible.
(h) Treatment of credit balances. (1) Whenever a creditor receives
a payment or other credit that exceeds by more than $1 the new balance (as
defined in paragraph (c)(10)) to which the payment or other credit is to be
applied, the creditor shall:
(i) Credit the consumer's account with an amount equal to the
new balance and, as soon as possible but no later than five business days
from receipt of the payment or other credit, refund the excess amount; or
(ii)
Credit the consumer's account with the total amount of the
payment or other credit. If the consumer requests in writing a refund of
any credit balance of $1 or more, the creditor shall refund any such credit



- 24 -

balance as soon as possible but no later than five business days from receipt
of the consumer'3 request.
(2)
The creditor shall make a good faith effort to refund to the
consumer by cash, check, or money order any part of the amount of the credit
balance remaining in the account for more than 3ix months, but no further
action is required in any case where the consumer's current location is not
known by the creditor and cannot be traced through the consumer's last known
address or telephone number.
(1) Change in terms. (1) Whenever any term required to be dis­
closed under paragraph (b) of this section is changed, a written notice of
the change shall be mailed or delivered to all consumers whose accounts may
be affected by the change at least 15 days prior to the effective date of
the change. No notice is required when the change involves late payment
charges, charges for documentary evidence or over-the-limit charges. No
notice is required when there is a change in the collateral requirements.
(2) No disclosure is necessary under this section if the change
is a reduction in the minimum periodic payment, in any component of the
finance charge or in any charge other than the finance charge, or if the
change is the suspension of future credit privileges or the termination of
an account or plan*
(3) Whenever open-end credit is converted to closed-end credit
or closed-end credit is converted to open-end credit under the terms of a
written agreement signed by the consumer, the creditor shall provide the
disclosures required by § 226.11(f)(2), (3) and (4) and § 226.5(b) respec­
tively. Where either an individual open-end credit account or an entire
open-end credit plan is terminated but no written agreement converting a
consumer's account to a closed-end loan is involved, the creditor shall
continue to provide the periodic statements required by § 226.5(c) and to
follow the error resolution procedures of § 226.7.
(4) A change in terms resulting directly or indirectly from the
consumer's default or delinquency does not require any notice under this
section unless the periodic rate or other finance charge is increased in
which case the creditor shall notify the consumer of the change in writing
but shall not be required to comply with the timing requirements of paragraph
(1) of this section.
(5)

An agreement approved by a court does not require any disclosures.

(j)
Finance charge imposed at the time of transaction. (1) Any
person honoring a consumer's credit card, other than the creditor of the openend credit account, who imposes a finance charge not excepted by S 226.4(f)
(Discounts for payment in cash) shall, at the time of honoring a consumer' 3
credit card, make the disclosures required under § 226.11(f)(2), (3) and (4).
The annual percentage rate to be disclosed shall be determined by dividing
the finance charge by the amount financed and multiplying the quotient
(expressed as a percentage) by 12.




- 25

(2)
The creditor of the open-end credit account, if other than
the person honoring the consumer's credit card, shall have no responsibility
for disclosures required by paragraph (j)(l) of this section and shall not
separately consider any charge imposed under paragraph (j)(l) of thi3 section
for purposes of the disclosure requirements of paragraphs (b) and (c) of thi3
section.

Section 226.6— Credit card transactions; special requirements
(a) Issuance of credit cards. Regardless of the purpose for which
a credit card is to be used, including business or commercial use, no credit
card shall be issued to any person except:
(1) In response to an,oral or written request or application by
that person; 40/ or
(2) As a renewal of, or in substitution for, an accepted credit
card, 41/ regardless of whether the card is issued by the same or a successor
card issuer or whether the card has credit or other features the same as or
different from the accepted credit card; provided, however, that each accepted
card is replaced by no more than one renewal or substitute card. A card will
not be considered to be issued in renewal of or in substitution for another
card if it is not honored by any of the persons who honored the original card.
(See also paragraph (h)(1) of this section.)
(b) Liability of cardholder for unauthorized use. 42/ (1) Limita­
tion on amount of liability. The liability of a cardholder for unauthorized
use 43/ of a credit card shall not exceed the lesser of $50 or the amount of
money, property, labor, or services obtained by the unauthorized use before
notification to the card issuer under paragraph (b)(3) of this section.

40/ The card issuer may send more than one credit card to a person if the
person so requests, and may imprint on a card(s) a name other than that
of the person to whom the cards are sent, provided that the cards are
sent only to the person making the request.
41/ For purposes of this section, "accepted credit card" means any credit card
that the cardholder has requested or applied for and received, or has
signed, used, or authorized another person to use to obtain credit. Any
credit card issued as a renewal or substitute in accordance with this
paragraph becomes an accepted credit card when received by the cardholder.
42/ See 5 133(b) of the act for rules concerning burdens of proof in actions
to enforce liability for use of credit cards.
43/ "Unauthorized use" means the use of a credit card by a person, other than
the cardholder, who does not have actual, implied, or apparent authority
for 3uch use, and from which the cardholder receives no benefit.




- 26 -

(2) Conditions of liability of cardholder. A cardholder shall be
liable for unauthorized use of a credit card only if:
(i)

The credit card is an accepted credit card;

(ii) The card issuer has provided, on the credit card or within two
years preceding the unauthorized use, adequate notice 44/ of the cardholder's
maximum potential liability. The notice shall state that the cardholder'3
liability shall not exceed $50 (or any lesser amount); that the cardholder
may give oral or written notification of loss, theft, or possible unauthorized
use; and the telephone number and address of the person or office to receive
the notification. It may include any additional information not inconsistent
with the provisions of this section;
(iii) The card issuer has disclosed to the cardholder, on or with
the periodic statement that immediately precedes the unauthorized use, the
telephone number and address of the person or office to be notified of loss,
theft, or possible unauthorized use; and
(iv)
The card issuer has provided a means (such as by signature,
photograph, fingerprint, or electronic or mechanical confirmation) to iden­
tify the person to whom the credit card was issued.
(3) Notification to card issuer. Notification to a card issuer
is given when such steps have been taken as may be reasonably necessary to
provide the card issuer with pertinent information about the loss, theft, or
possible unauthorized use of a credit card, regardless of whether any par­
ticular officer, employee, or agent of the card issuer does, in fact, receive
the information. Notification may be given, at the cardholder's option, in
person, by telephone, or in writing. Notification in writing is considered
given at the time of receipt or, whether or not received, at the expiration
of the time ordinarily required for transmission, whichever is earlier.
(4) Effect of other applicable law or agreement. If applicable
state law or an agreement between a cardholder and the card issuer imposes
lesser liability than that provided in this paragraph, the cardholder's
liability shall not exceed the lesser liability imposed under that law or
agreement.
(5) Business use of credit cards. If 10 or more credit cards
are issued by one card issuer for use by the employees of an organization,
nothing in this section prohibits the card issuer and the organization from
agreeing to liability for unauthorized use without regard to the provisions
of this section. However, liability for unauthorized use may be imposed on
any employee of the organization only in accordance with this section.

44/ "Adequate notice" means a printed notice to a cardholder that sets forth
clearly the pertinent fact3 so that the cardholder may reasonably be
expected to have noticed it and understood its meaning. (See Appendix A
for model notice.)



- 27 -

(c)
Right of cardholder to assert claims or defenses against card
i3 suer. (1) Limitations. When a person who provides property or services
fails to resolve satisfactorily a dispute as to property or services pur­
chased with a credit card in a consumer credit transaction, the cardholder
may assert against the card issuer all claims (other than tort claims) and
defenses arising out of the transaction and relating to the failure to
resolve, and may withhold payment up to the amount of credit outstanding for
the property or services that gave rise to the dispute and any finance or
other charges imposed on that amount, if:
(1) The cardholder has made a good faith attempt to obtain satis­
factory resolution of the dispute relating to the transaction from the person
honoring the credit card;
(ii) The amount of credit extended to obtain the property or.ser­
vices that result in the assertion of the claim or defense by the cardholder
exceeds $50; and
(iii) The transaction that gave rise to the assertion of the
claim or defense by the cardholder occurred in the same state as the card­
holder' s current designated address or, if not within the same state, within
100 miles from that address.
(2) Exceptions. The limitations, stated in paragraphs (c)(l)(ii)
and (iii) of this section shall not apply when the person honoring the credit
card:
(i)
(ii)

Is the same person as the card issuer;
Is controlled by the card issuer directly or indirectly;

(iii) Is under the direct or indirect control of a third person
that also directly or indirectly controls the card issuer;
(iv)
(v)

Controls the card issuer directly or indirectly;
Is a franchised dealer in the card issuer's products or ser-

vices; or
(vi) Has obtained the order for the transaction through a mail
solicitation made by or participated in by the card issuer.
Simply honoring or indicating that a person honors a particular
credit card is not any of the relationships described in paragraphs (i)
through (vi).
(3) Maximum amount of claims or defenses; determining credit out­
standing . The amount of the claim or defense that the cardholder may assert
may not exceed the amount of credit outstanding for the disputed transaction
at the time the cardholder first notifies the card issuer or the person hon­
oring the credit card of the existence of the claim or defense. To determine




.

- 28 -

the amount of credit outstanding for purposes of this section, payments and
other credits shall be applied in the following order:
(1)
(ii)
(iii)

Late charges in the order of entry to the account;
Finance charges in the order of entry to the account; and
Any other debits in the order of entry to the account.

When more than one item is included in a single extension of credit, credits
are to be distributed pro rata according to prices and applicable taxes.
(4) Types of transactions excluded. This paragraph does not
apply to the use of a credit card to obtain a cash advance unrelated to any
specific credit sale item, nor to the use of a check guarantee card in con­
nection with a check.
(5) Adverse credit reports prohibited. If, in accordance with
this paragraph, the cardholder withholds payment of the amount of credit out­
standing for the disputed transaction, and if the card issuer knows or has
reason to know that the claim or defense exists, the card issuer shall not
report that amount as delinquent until the dispute is settled or judgment is
rendered. Nothing in this paragraph prohibits a creditor from reporting the
disputed amount or account as being in dispute.
(d) Offsets by card issuer prohibited. (1) A card issuer may
not take any action, whether before or after termination of credit card
privileges, to offset a cardholder's indebtedness arising from a consumer
credit transaction under the relevant credit card plan against funds of the
cardholder held on deposit with the card issuer.
(2) This paragraph does not alter or affect the right of a card
issuer acting under state or federal law to obtain or enforce a security
interest in, or to attach or otherwise levy upon, funds of a cardholder held
on deposit with the card issuer if the same procedure is constitutionally
available to creditors generally.
(3) This paragraph does not prohibit the cardholder and the card
issuer from agreeing in writing to a plan under which the card issuer may
periodically deduct all or a portion of the cardholder's credit card debt
from a deposit account with the card issuer (subject to the limitations in
§ 226.7(d)(5)).
(4)

Any waiver of the provisions of this paragraph is prohibited

and void.
(e) Prompt notification of returns and crediting of refunds.
(1) When any creditor other than the card issuer accepts the return of prop­
erty or forgives a debt for services that is to be reflected as a credit to




-

the consumer’s open-end
possible but in no case
is accepted or the debt
issuer through the card

29

credit card account, that creditor shall, as soon as
later than seven business days from the date the return
is forgiven, transmit a credit statement to the card
issuer's normal channels for credit statements.

(2) Upon receipt of a credit statement, the card issuer shall
credit the consumer's account with the amount of the refund as soon as possi­
ble but in no case later than three business days from receipt of the statement.
(3) If a creditor other than a card issuer routinely gives cash
refunds to cash customers, the creditor must also give credit or cash refunds
to credit card customers, unless it is disclosed at the time the transaction
is consummated that credit or cash refunds for returns are not given. Noth­
ing in this section 3hall be construed to require refunds for returns nor to
prohibit refunds in kind.
(f) Prohibited acts of card issuers.
contract or otherwise:

No card issuer may, by

(1) Prohibit any person who honors a credit card from offering
discounts of the type described in § 226.4(f) to all consumers to induce them
to pay by cash, check, or similar means rather than by use of a credit card
or its underlying account for the purchase of property or services; or
(2) Require any person who honors the card issuer's credit card
to open or maintain any account or obtain any other service not essential to
the operation of the credit card plan from the card issuer, its subsidiary,
agent, or any other person, as a condition of participation in a credit card
plan. This paragraph does not prohibit requiring maintenance of an account
for clearing purposes where essential to the operation of the credit card
plan and where no service charges or minimum balance requirements are imposed.
(g) Prohibition of surcharges. No creditor in any 3ale transac­
tion may impose a surcharge. 45/ This paragraph 3hall cease to be effective
on February 27, 1981.

(1)

(h) Relation to Electronic Fund Transfer Act and regulations.
Issuance, (i) The act and this regulation govern:
(A)

Issuance of credit cards;

45/ "Surcharge" means any amount added at the point of sale to the regular
price (as defined in footnote 15) as a condition or consequence of payment
being made by use of an open-end credit card account. For the purposes
of this definition, payment by check, draft, or other negotiable instru­
ment, or by electronic fund transfer, that may result in the debiting of
a cardholder's open-end account is not considered payment made by use of
that account.




-

30

-

(B) Addition of a credit feature to an accepted access device, as
defined in 12 CFR 205.2(a), whether done when the accepted access device is
renewed, or otherwise; and
(C) Issuance of credit cards that are also access devices, as
defined in 12 CFR 205.2(a), except as provided in paragraph (h)(1)(ii)(C) of
this section.
(ii) The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.)
and 12 CFR Part 205 (Regulation El), which restrict the unsolicited issuance
of access devices, govern:
(A)

Issuance of access devices;

(B) Addition to an accepted credit card of the capability to
initiate electronic fund transfers, whether done when the accepted credit
card is renewed, or otherwise; and
(C) Issuance of access devices that permit credit extensions only
under a preexisting agreement to extend credit when the consumer's account
is overdrawn or to maintain a specified minimum balance in the consumer's
account.
(2) Liability, (i) The act and this regulation govern a consumer's
liability for unauthorized use of a credit card that is also an access device
but that does not involve an electronic fund transfer.
(ii) The Electronic Fund Transfer Act and Regulation E govern a
consumer's liability for an unauthorized electronic fund transfer that:
(A)

Is initiated by use of an access device that is also a credit

card; or
(B) Involves an extension of credit under an agreement to extend
credit when the consumer's account is overdrawn or to maintain a specified
minimum balance in the consumer's account.
(3) Other rules. Paragraphs (c) through (g) of this section, and
the corresponding provisions of the act, apply to the use of credit cards
that are also access devices to the extent appropriate under the terms of
those paragraphs.

Section 226.7— Billing error resolution.
(a) Definition of billing error.
the term "billing error'* means:
(1)

For purposes of this section,

An extension of credit that was not made to the consumer;

(2) An extension of credit that results from unauthorized use
(as defined in footnote 43 to § 226.6);




~

31

-

(3) An extension of credit not identified on or with the periodic
statement in accordance with Che requirements of § 226.5(c)(2) and § 226.5(d);
(4) An extension of credit for property or services not accepted
by the consumer or the consumer's designee, or not delivered to the consumer
or the consumer's designee as agreed; 46/
(5) The creditor's failure to credit properly a consumer's payment
or other credit to the account;
(6) A computational or similar error of an accounting nature made
by the creditor relating to a credit extension;
(7) A consumer's request for any documentation required by § 226.5,
or for additional information or clarification concerning an extension of
credit. This includes any request for documentation, information, or clari­
fication in order to assert an error within the meaning of paragraphs (a)(1)
through (6) of this section. 47/ It does not include a request for duplicate
copies of documentation or other information that is made only for tax or
other recordkeeping purposes.
(b)
Notice of billing error.
written notice 48/ from the consumer that

A notice of a billing error is a

(1)
Is received by the creditor at the address disclosed under
§ 226.5(c)(12) no later than 60 days after the creditor
(i) Transmitted a periodic statement on which the alleged error is
first reflected; or
• (ii) Transmitted additional information, clarification, or docu­
mentation described in paragraph (a)(7) of this section that was initially
requested in accordance with paragraph (b)(1)(i) of this section;

46/ This includes delivery of property or services different from that described
in any agreement, delivery of the wrong quantity, late delivery, or
delivery to the wrong location; but does not include any dispute relating
to the quality of property or services.
47/ With regard to the type of error described in this paragraph, compliance
with this section is achieved by transmitting the requested information,
clarification, or documentation within the time limits set forth in para­
graph (c)(2) of this section.
48/ The creditor may require that the written notice not be made on the pay­
ment medium or other material accompanying the periodic statement if the
creditor 30 stipulates in the billing rights statement required by
S 226.5(b)(5) and § 226.5(e)(2).




- 32 -

(2) Enables Che creditor Co identify the consumer'3 name and
account number; and
(3) Except for errors described in paragraph (a)(7) of this sec­
tion, indicates the consumer's belief, and the reasons for that belief, that
an error exists in the consumer's account or is reflected on documentation
required by § 226.5(c) and indicates to the extent possible the type, the
date, and the amount of the error.
(c)
Time for resolution; general procedures.
receives notice of a billing error, the creditor 3hall:

After the creditor

(1) Not later than 30 days after receiving the notice, mail or
deliver written acknowledgment of receipt to the consumer's address, unless
the appropriate actions required by paragraph (e) of this section are taken
within the 30-day period; and
(2) Resolve the dispute not later than the end of the second
complete billing cycle, but in no event later than 90 days from the date
the creditor receives notice of a billing error, by following the applicable
steps in paragraph (e) of this section. A creditor may make a temporary
correction of the consumer's account pending investigation as long as the
dispute is permanently resolved within the time limits set forth in this
paragraph.
(d)
Rules pending resolution. Until the dispute i3 resolved
under paragraph (e) of this section, the following rules apply:
(1) Consumer's right to withhold disputed amount. The consumer
may withhold that portion of any required payment that the consumer believes
is related to the amount in dispute. 49/ When the disputed amount is only a
part of the total amount of an item or bill, the consumer remains obligated
to pay the undisputed portion. The creditor may collect any minimum periodic
payment and finance or other charges on the undisputed portion.
(2) Creditor's handling of disputed amount.
tion prohibits a creditor from:

Nothing in this sec­

(i) Mailing or delivering a periodic statement that reflects a
disputed amount (which includes finance or other charges related to the disputed
amount), as long as the creditor indicates that payment of the disputed amount
is not required pending the creditor's compliance with this section; or
(ii) Deducting any disputed amount from the maximum amount of
credit available to the consumer.

49/ The amount in dispute is the amount of the transaction or charge being
questioned by the consumer, even though the inquiry itself might not concern
a dollar figure, but rather might concern some other descrip­
tion of the transaction, such as the date or the seller's name.




- 33

(3) Action to collect disputed amount. The creditor shall resolve
the dispute before taking any action to collect any portion of the amount
indicated by the consumer a3 being a billing error or any finance or other
charges on the disputed amount. If, despite the establishment by the creditor
of practices reasonably adapted to ensure compliance with this paragraph,
the creditor or its agent, within two business days after receiving a notice
of a billing error, inadvertently takes action to collect, that action will
not be considered a violation of this paragraph, as long as the creditor
ceases any further collection activity and, as soon as possible, takes any
action necessary to correct the collection action.
(4) Adverse credit reports prohibited, (i) After receiving
notice of a billing error, the creditor may not directly or indirectly make,
or threaten to make, an adverse report to any person regarding the consumer's
credit standing, including reporting the disputed amount or account as in
dispute, because the consumer failed to pay either the amount specified as a
billing error or any finance or other charges imposed on this amount. (This
restriction does not prohibit a creditor from reporting the disputed amount
or account as being in dispute or from making an adverse report on some
other aspect of the consumer's account unrelated to the dispute.) If, des­
pite maintenance of procedures reasonably adapted to ensure compliance
with this paragraph, the creditor or its agent, within two business days
after receiving a notice of a billing error, inadvertently takes action pro­
hibited by this paragraph, that action will not be considered a violation of
this paragraph as long as the creditor notifies as soon as possible all
credit bureaus 50/ and, to the extent possible, all other creditors, to
which a report was made, that the disputed amount is not delinquent.
(ii) If a notice of a billing error is received by the creditor
after the creditor has reported to a credit bureau that a disputed amount is
delinquent, the creditor shall, within one billing cycle after receiving the
notice, notify each such credit bureau in writing that the amount in dispute
is not delinquent. For purposes of this paragraph, "in writing" includes
transmission by computer communication.
(5) Automatic debit of disputed amounts, (i) In the case of
credit card plans where the cardholder has agreed to permit the card issuer
to pay periodically the cardholder's indebtedness by deducting the appro­
priate amount of the cardholder'a deposit account held by the card issuer,
if the card issuer receives notice of a billing error within 16 days from
the date of mailing or delivery of the periodic statement on which the sus­
pected billing error first appears, the card issuer shall:
(A) Prevent the automatic debiting of any disputed amount if
receipt of the notice precedes the automatic debiting of the cardholder's
account, or

50/ For purposes of thi3 section, a credit bureau is any person in the
business of collecting and disseminating information relating to the
creditworthiness of borrowers.




- 34 -

(B) As soon as possible, but in no case more than two business
days after receipt of the notice, restore to the cardholder's deposit account
any portion of the disputed amount that was previously deducted, if receipt
of the notice follows the automatic debiting of the cardholder's account for
any disputed amount.
(ii)
Nothing in paragraphs (d)(5)(i)(A) and (B) of this section
shall limit the cardholder's right to dispute an amount believed to be in
error within 60 days of the mailing or delivery of the statement on which
the billing error first appears, as otherwise provided in this section.
(6)
Acceleration of debt; closing of accounts. A creditor may
not, prior to complying with the resolution procedures of paragraphs (c),
(d), (e), and (f) of this section, accelerate the consumer's entire debt or
restrict or close an account about which the consumer has provided notice of
a billing error solely because of the consumer's refusal or failure to pay
the amount indicated to be in error.
(e) Procedures after creditor determines that a billing error
occurred. If the creditor determines that a billing error occurred, it
shall as soon as possible but no later than the time limits set forth in
paragraph (c)(2) of this section:
(1) Correct the error including crediting the consumer's account
with any finance or other charges imposed as a result of the error; and
(2) Mail or deliver a notice of the corrections to the consumer.
This requirement may be satisfied by a notice on a periodic statement that
is mailed within the time limits in paragraph (c)(2) of this section and
that clearly identifies the correction to the consumer's account.
(f) Procedures after creditor determines no billing error occurred.
If, after conducting a reasonable investigation, the creditor determines
that no billing error occurred or that an error occurred in a different manner
or amount from that described by the consumer, the creditor shall as soon as
possible but no later than the time limits set forth in paragraph (c)(2) of
this section:
(1) Mail or deliver an explanation to the consumer, setting forth
the reasons for the creditor's belief that the consumer's assertion of a
billing error was incorrect in whole or in part;
(2) Furnish copies of documentary evidence of the consumer's
indebtedness, if the consumer so requests; and
(3) Where a differing error occurred, if applicable, correct
the error including crediting the consumer's account with any finance or
other charges imposed as a result of the differing error.
(g) Special investigation rules. (1) If the consumer submits a
notice of a billing error involving the delivery of property or services, a
creditor shall not deny the assertion unless it determines, after having




- 35 -

conducted a reasonable investigation, that the property or services were
delivered or otherwise sent as agreed and provides the consumer with a
written explanation of its determination.
(2)
If the consumer asserts in a notice of billing error that
information appearing on a periodic statement is incorrect because the
person honoring the card has made an incorrect report to the card issuer,
the card issuer shall not deny the assertion unless it determines, after
having conducted a reasonable investigation, that the information was correct
and provides the consumer with a written explanation of its determination.
(h)
Creditor’s rights and duties after resolution. If, after
resolving the error under paragraphs (e), (f) and (g) of this section, the
creditor determines that the consumer still owes all or part of the disputed
amount, the creditor:
(1) Shall promptly notify the consumer in writing of that portion
of the disputed amount that the consumer owes and when it is due. In those
cases where the creditor has determined that a billing error occurred, if
the creditor allows a free-ride period for payment of undisputed transactions
of the same type, the creditor shall allow the same period or 10 days (which­
ever is longer) after delivering the notification for the consumer to pay the
amount before imposing any additional finance or other charges on the disputed
amount.
(2) May report as delinquent any disputed amount (including any
finance or other charges imposed on that amount), providing the amount re­
mains unpaid after the creditor has:
(i) Complied with all of the requirements of this section and
(ii) Allowed the greater of 10 days or any free-ride period that
the creditor customarily or by agreement permits for the consumer to pay.
(3) May not report to any third party that the disputed amount is
delinquent (or that the account is delinquent because of the disputed amount)
if, within the time allowed for payment set forth in paragraph (h)(2) of this
section, the creditor receives a further notice from the consumer that any *
portion of a billing error resolved under this section is still in dispute,
unless the creditor also:
(i) Reports that the amount or account is in dispute;
(ii) Mails or delivers to the consumer at the same time the report
is made, a written notice of the name and address of each party to whom the
creditor is reporting information concerning the disputed amount or account;
and
(iii) Promptly reports in writing to these third parties the subse­
quent resolution of the reported delinquency. For purposes of this paragraph,
"in writing" includes transmission by computer communication.




i

(1) Withdrawal of billing error notice- The creditor need not
comply with the requirements of paragraphs (c) through (h) of this section if
the consumer discovers that no error occurred and voluntarily withdraws the
notice of a billing error.
(j) Reassertion of error. A creditor that has fully complied
with the requirements of this section has no further responsibilities under
this section if the consumer subsequently reasserts the same error, regardless
of the manner in which it is reasserted. This paragraph does not preclude
the assertion of an error as defined in paragraphs (a)(1) through (6) of
this section following the assertion of an error as described in paragraph
(a)(7) of this section regarding the same transaction.
(k) Forfeiture penalty. (1) Any creditor that fails to comply
with the requirements of this section forfeits any right to collect from the
consumer the amount indicated by the consumer to be a billing error, whether
or not the amount is in fact in error, and any finance or other charge imposed
on this amount, provided that the amount forfeited shall not exceed $50 for
each asserted billing error. Where the creditor loses the right to collect
the amount from the consumer for failure to follow the requirements of this
section, if the consumer nevertheless pays or has paid the amount to the
creditor, the creditor must either credit the amount to the consumer's
account or refund the amount to the consumer. In no case shall a creditor
forfeit any amount for an error in a total figure or subtotal figure reflected
on a statement that is caused solely by an error in another item that is the
subject of a dispute, nor shall a creditor suffer any forfeiture more than
once for any item or transaction that may appear on a periodic statement.
(2) Nothing in this subsection shall be construed to limit a con­
sumer's right to recover under § 130 of the act.
(l) Exceptions to the general rule. This section does not apply to
closed-end credit, whether or not a periodic statement is mailed or delivered,
unless it is consumer credit extended on an account by use of a credit card.
(m ) Relation to Electronic Fund Transfer Act and regulations.
Where an extension of credit is incident to an electronic fund transfer,
under an agreement between a consumer and a financial institution to extend
credit when the consumer's account is overdrawn or to maintain a specified
minimum balance in the consumer's account, the creditor shall comply with
the requirements of 12 CFR 205.11 governing error resolution rather than
those of paragraphs (a), (b) and (c) of this section.

Section 226.8— Determination of annual percentage rate.
(a)
General rule. The annual percentage rate is a measure of the
cost of credit, expressed as a yearly rate. An annual percentage rate shall
be considered accurate if it is not more than l/8th of 1 percentage point
above or below the annual percentage rate determined in accordance with this
section.




- 37

(b) Annual percentage rate for initial disclosures and for adver­
tising purposes. Where one or more periodic rates may be used to compute
the finance charge, the annual percentage rate to be disclosed for purposes
of § 226 .5(b)(1)(ii) before opening an account and for advertising purposes
under § 226.10 shall be computed by multiplying each periodic rate by the
number of periods in a year.
(c) Annual percentage rate for periodic statements. (1) The annual
percentage rate to be disclosed for purposes of § 226.5(c)(4) shall be computed
by multiplying each periodic rate by the number of periods in a year.
(2)
The annual percentage rate to be disclosed for purposes of
§ 226.5(c)(7) shall be determined as follows:
(i) Where the finance charge is determined solely by applying one
or more periodic rates, the annual percentage rate shall be determined, at
the creditor's option, either:
(A)

By multiplying each periodic rate by the number of periods in

a year; or
(B) By dividing the total finance charge for the billing cycle by
the sum of the balances to which the periodic rates were applied and multi­
plying the quotient (expressed as a percentage) by the number of billing
cycles in a year.
(ii) Where the creditor imposes all periodic finance charges in
amounts based on specified ranges or brackets of balances, the periodic rate
3 hall be determined by dividing the amount of the finance charge for the
period by the amount of the median balance within the range or bracket of
balances to which it is applicable, and the annual percentage rate shall be
determined by multiplying that periodic rate (expressed as a percentage) by
the number of periods in a year. If, however, the annual percentage rate
determined on the median balance understates the annual percentage rate
determined on the lowest balance in that range or bracket by more than 8 per­
cent of the rate on the lowest balance, then the annual percentage rate for
that range or bracket shall be computed upon any balance lower than the
median balance within that range so that any understatement will not exceed
8 per cent of the rate on the lowest balance within that range or bracket of
balances. Nothing in this paragraph prevents a creditor who uses ranges or
brackets from also exercising the options referred to in paragraph (c)(2)(i)
of this section.
(iii)
(A) Except as provided in paragraphs (c)(2)(iii)(B) and
(c)(2)(iii)(C) of this section, where the finance charge imposed during the
billing cycle includes a minimum, fixed, or other charge not due to the
application of a periodic rate, the annual percentage rate shall be determined
by dividing the total finance charge for the billing cycle by the amount of
the balance(s) to which applicable 51/ and multiplying the quotient (expressed
as a percentage) by the number of billing cycles in a year.

51/ If there is no balance to which the finance charge is applicable, an annual
percentage rate cannot be determined under this section. See § 226.5(c)(8)
for disclosure requirement.




- 38

(B) Where Che finance charge imposed during the billing cycle
includes a charge relating to a specific transaction, the annual percentage
rate 3hall be determined by dividing the total finance charge imposed during
the billing cycle by the total of all balances and other amounts on which a
finance charge was imposed during the billing cycle without duplication and
multiplying the quotient (expressed as a percentage) by the number of bill­
ing cycles in a year, 52/ except that the annual percentage rate 3hall not
be less than the largest rate determined by multiplying each periodic rate
imposed during the billing cycle by the number of periods in a year.
(C) Where the finance charge imposed during the billing cycle
includes a minimum, fixed, or other charge not due to the application of a
periodic rate and the total finance charge imposed during the billing cycle
does not exceed 50 cents for a monthly or longer billing cycle, or the pro
rata part of 50 cent3 for a billing cycle shorter than monthly, the annual
percentage rate may be determined, at the creditor's option, by multiplying
each applicable periodic rate by the number of periods in a year, notwith­
standing the provisions of paragraphs (c)(2)(iii)(A) and (B) of this
section. 53/
(d)
Calculations where daily periodic rate applied. In any
open-end credit account to which the provisions of paragraphs (c)(2)(i)(B)
or (c)(2)(iii)(A) of this section apply where all or a portion of the finance
charge is determined by the application of one or more daily periodic rates,
the annual percentage rate may be determined (1) by dividing the total finance
charge by the average of daily balances and multiplying the quotient by the
number of billing cycles in a year, or alternatively (2) by dividing the
total finance charge by the 3um of the daily balances and multiplying the
quotient by 365.

Section 226.9— Right of rescission.
(a) Consumer's right to rescind. (1) In an open-end credit plan
where a security interest is retained or acquired in property used as the
consumer's principal dwelling, except for exemptions described in paragraph
(f) of this section, the consumer whose ownership interest is subject to the
security interest shall have the right to rescind
(i)
(ii)

Each transaction made under the plan; or, alternatively,
As follows: 54/

52/ See Appendix B regarding determining the denominator of the fraction
under this paragraph.
53/ See footnote 51.
54/ The limitations on the consumer's right to rescind under this section
shall cease to be effective three years after the effective date of the
Truth in Lending Simplification and Reform Act. Upon expiration, the
consumer shall have the right to rescind each advance under open-end
plans secured by the consumer's principal dwelling.



- 39

(A)

The plan when the plan is opened;

(B) A security interest when added to secure an existing openend credit plan.
(C)

The increase when the credit limit on the plan is increased.

(2) To exercise the right to rescind, the consumer shall give the
creditor written notice of the rescission by mail, telegram, or other means
of communication. Notice is considered given when mailed, when filed for
telegraphic transmission, or, if sent otherwise, when delivered to the cred­
itor's designated place of business.
\

(3) The consumer may exercise the right to rescind until midnight
of the third business day following the later of either:
(i) The occurrence described in paragraph (a)(1) of this section
which gave rise to the right of rescission, or
(ii) Delivery of the notice required by paragraph (b) of this
section together with a copy of the material disclosures 55/ required by
§ 226.5(b).
(4) If the required notice and material disclosures are not
delivered in the manner specified in paragraph (a)(3) of this section, the
right to rescind 3hall expire the earlier of three years after the occur­
rence giving rise to the right of rescission or the date of transfer of the
property. If an administrative proceeding as described in § 125(f) of the
Act is instituted, the right to rescind may expire one year following the
conclusion of the proceeding, or the later of judicial review or period
of review of that proceeding.
(b)
Notice of right to rescind. In any occurrence described in
paragraph (a)(1) of this section, a creditor shall clearly and conspicuously
disclose on a separate statement (see Appendix A for model notices):
(1) That a security interest is retained or acquired in property
used as the consumer's principal dwelling;
(2) That the consumer has the right to rescind as described in
paragraph (a)(1) of this section;
(3) How the right may be exercised, with a form for that purpose,
designating the address of the creditor's place of business where the form
may be sent; and

55/ For purposes of this
required disclosures
and the balance upon
percentage rate, and




section, the term "material disclosures" means the
of the method of determining the finance charge
which a finance charge will be imposed, the annual
the minimum payment requirements.

- 40 -

(4)

The effects of rescission.

(c) Delay of creditor's performance. Unless a consumer waives
the right of rescission under paragraph (e) of this section, no money shall
be disbursed other than in escrow, no services shall be performed, and no
materials shall be delivered until after the rescission period has expired
and the creditor is reasonably satisfied that the consumer has not rescinded.
(d) Effects of rescission. A consumer who rescinds shall not be
liable for any amounts, including any finance charge, and the security
interest giving rise to the right of rescission shall be void. Within 20
days after receipt of a notice of rescission, the creditor shall return any
money or property given to any party by the consumer (including any downpay­
ment or other payments) and shall take any action necessary to reflect the
termination of the security interest. If the creditor has delivered any
money or property, the consumer may retain possession of it until the per­
formance of the creditor's obligations under this paragraph. The consumer
shall at that time offer to return the money or property; if return of the
property in kind would be impracticable or inequitable, the consumer shall
offer its reasonable value. At the consumer's option, the offer may be made
at the location of the property or at the consumer's residence. If the
creditor does not take possession of the money or property within 20 days
after the consumer's offer to return it, the consumer may keep it without
further obligation. These procedures may be modified by court order.
(e) Consumer's waiver of right to rescind. If a consumer deter­
mines that, because of a financial emergency, a delay of three business days
in the creditor's performance would endanger the welfare, health, or safety
of natural persons or risk damage to property that the consumer owns or for
which the consumer is responsible, the consumer may modify or waive the right
to rescind by giving the creditor a personal, written statement, dated and
signed by all consumers entitled to rescind. The statement must describe the
emergency and must modify or waive the right to rescind. The use of printed
forms is prohibited.
(f)

Exemptions.

(1)

A residential mortgage transaction.

(2)
the creditor.

The right to rescind does not apply to:

An open-end credit plan in which a state or federal agency is

(3) Subordination of a security interest, whether or not the openend credit plan in which the security interest was originally created was
exempt from the right of rescission.

Section 226.10— Advertising.
(a)
Generally available terms; accuracy of advertising.
an advertisement for open-end credit states specific credit terms, it shall
state only those terms that the creditor generally arranges or offers.




(1)

If

- 41 -

(2)
No advertisement for open-end credit shall contain information
that is inaccurate or misleading or that otherwise misrepresents the credit
offered.
(b) Advertisement of terms that require additional disclosures.
If any of the terms required to be disclosed under § 226.5(b)is set forth
in or otherwise determinable from an advertisement, that advertisement shall
also clearly and conspicuously set forth any minimum, fixed, transaction,
activity or similar charge which could be imposed, and any periodic rate which
could be applied expressed as a corresponding annual percentage rate as
determined under § 226.8(b).
(c) Catalogs and multiple-page advertisements. (1) If a catalog
or other multiple-page advertisement gives information in a table or schedule
of credit terms in sufficient detail to permit determination of the disclo­
sures required by paragraph (b) of this section, it shall be considered a
single advertisement if:
(i)

The table or schedule is clearly and conspicuously set forth;

and
(ii)
Any statement of credit terms, other than the cash price,
appearing anywhere else in the catalog or advertisement clearly refers to
the page on which the table or schedule begins.
(2)
A catalog or multiple-page advertisement complies with this
paragraph if the table or schedule of terms includes all appropriate disclo­
sures for a representative scale of amounts up to the level of the more
commonly sold higher-priced property or services offered.
(d)
Use of annual percentage rate in oral disclosures. In an
oral response to an inquiry by a consumer about the cost of open-end credit,
only the corresponding annual percentage rate, as determined under § 226.8(b),
shall be stated, except that if the corresponding annual percentage rate is
stated, the periodic rate may also be stated.

SUBPART C— CLOSED-END CREDIT

Section 226.11— Disclosures.
(a)
Who must make disclosures to whom. (1) If a transaction
involves only one creditor, that creditor shall make the disclosures required
by this section. If a transaction involves more than one creditor, only one
creditor shall make all of the disclosures.
(2)
The disclosures shall be made to the consumer. If there is
more than one consumer, the disclosures may be made to any one of the con­
sumers who is primarily liable on the obligation. If a transaction i3
rescindable under § 226.13, however, the disclosures shall be made to each
consumer who has the right to rescind.




- 42 -

(b) What disclosures must be made. (1) The creditor initially
may make either the transactional disclosures under paragraph (f) or the
alternate shopping disclosures under paragraph (h) of this section. For a
residential mortgage transaction described in paragraph (g) , however, the
creditor shall make transactional disclosures in accordance with paragraphs
(f) and (g) of this section.
(2)
If the disclosures made are later rendered inaccurate, new
disclosures may be required. The conditions for new disclosures are set
forth in paragraph (e) of this section.
(c) Timing and form of disclosures. (1) Transactional disclo­
sures shall be made before consummation of the transaction. In certain
residential mortgage transactions, however, special timing requirements are
set forth in paragraph (g) of this section. In certain transactions involving
mail or telephone orders or a series of sales, the timing of the disclosures
may be delayed in accordance with paragraphs (k) and (1) of this section.
(2) Alternate shopping disclosures shall be made at the time the
consumer applies to the creditor for credit or as soon after application as
reasonably possible, but never later than consummation.
(3) The disclosures shall be made clearly and conspicuously in
writing in a form that the consumer may keep, either on the credit,contract
or on a separate document. Except for the disclosure of the creditor’s
identity under paragraph (f)(1) or (h)(2)(i) and any itemization of the
amount financed under paragraph (f)(2)(ii) of this section, the disclosures
shall be grouped together beginning on the front of the document and shall
be segregated from everything else. The disclosures may include an acknowledg­
ment of receipt, but shall not contain any other information not directly
related to the disclosures required under this section.
(4) Where the words ’’annual percentage rate” and "finance charge”
are required to be disclosed together with a corresponding amount or percent­
age rate, those words shall be more conspicuous than any other disclosure.
Information relating to the creditor’s identity is not governed by this
rule.
(d)
Basis of disclosures and use of estimates. (1) Except for
the alternate shopping disclosures, the creditor shall base the disclosures
on the information known to it at the time disclosures are made. The disclo­
sures shall be based on the assumption that the consumer will comply with the
terms of the agreement. The disclosures shall reflect the repayment arrange­
ment actually agreed upon (even if it differs from the written obligation),
unless it involves payroll deductions that may be terminated voluntarily by
the consumer without any adverse consequence, and the consumer thereafter
may pay according to the terms of the written obligation.
(2)
If any information necessary to make an accurate disclosure
is unknown to the creditor, it shall make the disclosure based on the best




-

43

information reasonably available to it and shall state clearly that the
disclosure is an estimate.
v

(3) The creditor may disregard the effects of the following in
making calculations and disclosures:
(i)

The fact that payments must be collected in whole cents.

(ii) The fact that dates of scheduled payments and advances must
be changed because the scheduled date falls on a Saturday, Sunday, or holiday.
(iii)
(iv)

The fact that months have different numbers of days.
The occurrence of leap year.

(4)
(i) The creditor may disregard an irregular final payment or
portion of a final payment that results from an irregular first period with­
in the limits described below and may treat the irregular first period as if
it were regular:
(A) For transactions in which the term is less than one year, a
firstperiod not more than 6 days shorter or 13 days longer than a regular
period.
(B) For transactions in which the term
less than ten years, a first period not more than
longer than a regular period.

is at least one year and
11 days shorter or 21 days

(C) For transactions in which the term is at least ten years, a
first period shorter than or not more than 32 days longer than a regular
period.
(ii)
For purposes of paragraph (d)(4)(i) of this section, the
"first period” is the period from the date on which the finance charge begins
to be earned to the date of the first payment; the ’’term” is the period from
the date on which the finance charge begins to be earned to the date of the
final payment; and the "regular period" is the most common interval between
payments in the transaction. In transactions involving regular periods
that are monthly, semi-monthly, or multiples of a month, the length of the
irregular and regular periods may be calculated on the basis of either the
actual number of elapsed days or an assumed 30—day month. In other trans­
actions, the length of the periods shall be based on the actual number of
days.
(5)
If an obligation is payable on demand, the creditor 3hall
make the disclosures based on an assumed maturity of one year. If, however,
there is an alternate maturity date or principal reduction agreement, the
disclosures shall be based on that feature.
*




- 44 -

(6)
A single obligation shall not be disclosed as two or more
transactions; two or more obligations shall not be disclosed as a single
transaction. A credit sale transaction where the downpayment is financed
separately may be treated as two transactions.
(e) Effect of subsequent events. (1) If a disclosure is rendered
inaccurate as a result of an event that occurs after delivery of the disclo­
sures, the resulting inaccuracy is not a violation of this regulation.
(2) If the event occurs prior to consummation and transactional
disclosures were made, the creditor shall disclose the changed term before
consummation. In certain residential mortgage transactions, an entire new
set of transactional disclosures may be required, as described in paragraph
(g) of this section.
(3) If the event occurs prior to consummation and alternate shop­
ping disclosures were made, the determination of whether new transactional
disclosures are required i3 governed by paragraph (h)(3) of this section.
(4) If the event occurs after consummation, the determination of
whether new disclosures are required is governed by paragraph (i) of this
section.
(f) Transactional disclosures. For each transaction, the credi­
tor shall disclose the items in paragraphs (f)(1) through (f)(16) of this
section, to the extent applicable. 56/ The disclosure of each item shall
include a brief identification and the amount where applicable.
(1)

The identity of the creditor making the disclosures.

(2)
(i) The "amount financed," using that term, accompanied by a
descriptive explanation such as "the amount of credit provided to you or on
your behalf," which shall be computed by:
(A) Taking the principal amount of the loan or the cash price
less downpayment (which includes any trade-in);
(B) Adding any amounts that are not part of the finance charge
or of the amount described in (i)(A) above and that are financed by the con­
sumer, including the cost of any items excluded from the finance charge under
§ 226.4; and
(G) Deducting any prepaid finance charge (any finance charge paid
before or at consummation or withheld from the proceeds of the credit).

56/ In some instances, certain disclosures are not required.
(f)(17) of this section.




See paragraph

- 45 -

(ii) A statement that the consumer has the right to receive a
written itemization of the amount financed shall accompany the disclosure
of the amount financed. The statement shall include spaces to be initialed
by the consumer to indicate whether or not a written itemization is desired.
If the consumer indicates a desire for the itemization, the creditor shall:
(A) Disclose by identity and amount, as applicable, the cash
price, cash downpayment, trade-in, prepaid finance charge as defined in
paragraph (f)(2)(i)(C) of this section, amount paid to the consumer, amount
credited to the consumer's account with the creditor, and each amount paid
to another person by the creditor on the consumer's behalf;
(B) Provide the itemization at the same time that the other
disclosures required by this paragraph are made or as soon thereafter as
practicable; and
(C) Furnish the itemization separately from the disclosures that
are grouped together and segregated in accordance with paragraph (c)(3) of
this section.
(3) The "finance charge," accompanied by the descriptive explana­
tion "the dollar amount the credit will cost you," using those terms.
(4) The "annual percentage rate," accompanied by the descriptive
explanation "the cost of your credit as a yearly rate," using those terms.
(5) If the annual percentage rate may increase, 57/ the following
three additional disclosures:
(i) The conditions under which the annual percentage rate may
increase (including identification of any index to which the rate is tied).
(ii) The limitations, 58/ if any, on the increase (which may be
expressed as a percentage rate other than an annual percentage rate).
(iii) The manner in which any increase would occur (such as an
increase in the amount or number of payments).

57/ This provision does not apply to any rate increase due to delinquency
(including late payment), default, assumption, or transfer of collateral.
58/ This need not include limitations prescribed under state usury or rate
ceiling laws.




- 46 -

(6) The number, amounts, 59/ and timing of payments scheduled to
repay the obligation.
(7) The "total of payments," 60/ using that term, accompanied by
a descriptive explanation such as "the amount you will pay when you make all
payments as scheduled."
(8) If the obligation is payable on demand, that fact shall be
disclosed. If the disclosures are based on an assumed maturity of one year
as provided in paragraph (d)(5) of this section, that assumption also shall
be disclosed.
(9) In a credit sale, the "total sale price," using that term,
accompanied by a descriptive explanation that includes the amount of any
downpayment such as "the total price of your purchase on credit, including
your downpayment of $
» ." The total sale price is the sum of the cash
price, the items described in paragraph (f)(2)(i)(B), and the finance charge
disclosed under paragraph (f)(3) of this section.
(10) (i) If the obligation involves a precomputed finance charge,
a statement indicating whether or not the consumer is entitled to a rebate of
any finance charge upon refinancing or prepayment in full of the obligation,
pursuant to acceleration or otherwise.
(11) If the obligation involves a finance charge computed from
time to time by application of a rate to the unpaid principal balance, a
statement indicating if a penalty will be imposed in those same circumstances.
(iii)

Both statements, if appropriate.

(11) Any dollar or percentage charge that may be imposed before
maturity on account of a late payment, other than a deferral or extension
charge.
(12) The fact that the creditor has or will acquire a security
interest in either the property purchased as part of the transaction, or

59/ If the amount of any payment in a series is not more than 5 percent
larger than the smallest payment in that series, the creditor may treat
all payments in the series as equal by disclosing the largest payment
amount, labeled as an estimate. This rule governs only the disclosure of
payment amounts; it does not affect the disclosure, of the finance charge
under paragraph (f)(3) of this section or the determination of the annual
percentage rate under § 226.12.
60/ If the rule in footnote 59 is used, the total of payments shall reflect
the payment amounts disclosed and shall be labeled as an estimate.




- 47 -

other property identified by item or type. If the security interest relates
to after-acquired property, that fact also shall be disclosed.
(13) The disclosure required by § 226.4(d) in order to exclude
certain insurance premiums from the finance charge.
(14) The disclosure required by § 226.4(e) in order to exclude
certain charges from the finance charge.
(15) A statement that the consumer should refer to the appro­
priate contract document for any information it provides about nonpayment,
default, the right to accelerate the maturity of the obligation, and prepay­
ment rebates and penalties.
(16) In a residential mortgage transaction, a statement whether
or not a subsequent purchaser or assignee of the consumer may assume the
obligation on its original terms.
(17)

In the following transactions, certain disclosures are not

required:
(1) For any transaction involving an interim credit extension
under a student credit guarantee program, the creditor need not disclose the
finance charge under paragraph (f)(3), the schedule of payments under para­
graph (f)(6), the total of payments under paragraph (f)(7), or the total sale
price under paragraph (f)(9) of this section. Before the final obligation
or repayment schedule is agreed upon, the creditor shall make all applicable
disclosures, except for the total sale price and downpayment under paragraph
(f)(9) of thi3 section.
(ii) For any transaction involving a finance charge of $5 or less
on an amount financed of $75 or less, or a finance charge of $7.50 or less
on an amount financed of more than $75, the creditor need not disclose the
annual percentage rate under paragraph (f)(4) of this section.
(iii) For any transaction involving a single payment, the cred­
itor need not disclose the total of payments under paragraph (f)(7) of this
section.
(g)
Special rule for certain residential mortgage transactions.
(1) In a residential mortgage transaction subject to the Real Estate Settle­
ment Procedures Act (Title 12, $$ 2601 through 2617 of the United States
Code), the transactional disclosures required under paragraph (f) of this
section shall be made before consummation or shall be delivered or placed in
the mail not later than three business days after the creditor receives the
consumer's written application, whichever is earlier. The creditor shall
make good faith estimates of the required disclosures.
(2) If the annual percentage rate in the consummated transaction
is more than 1/8th of 1 percentage point above or below the annual percent­
age rate disclosed under paragraph (f)(4) of this section, a complete set of
transactional disclosures shall be made not later than consummation or set­
tlement .



1

- 43 -

(h) Alternate shopping disclosures. (1) Subject to the require­
ments of this paragraph, the creditor may make the disclosures listed in
paragraph (h)(2) instead of the transactional disclosures described in para­
graph (f) of this section. In addition to making these disclosures to the
consumer, the creditor shall make copies of the disclosures readily available
to the public during normal business hours at each place of business open to
the public where it accepts applications for closed-end credit.
(2)
The creditor shall disclose the items in paragraphs (h)(2)(i)
through (h)(2)(xiii), to the extent applicable. 61/ The disclosure of each
item shall include a brief identification and the amount where applicable.
The creditor shall base its disclosures on representative amounts and terms
of credit that it customarily offers.
(i)

The identity of the creditor making the disclosures.

(ii) The "amount financed," using that term, accompanied by a
descriptive explanation such as "the amount of credit provided to you or
on your behalf," as well as a statement that the consumer has the right to
receive a written itemization of the amount financed before consummation if
it is requested in writing. The amount financed shall be computed by:
(A) Taking the principal amount of the loan or the cash price less
downpayment (which includes any trade-in);
(B) Adding any amounts that are not part of the finance charge or
of the amount described in (A) above and that are financed by the consumer,
including the cost of any items excluded from the finance charge under
§ 226.4; and
(C) Deducting any prepaid finance charge (any finance charge to be
paid before or at consummation or withheld from the proceeds of the credit).
(iii) The "finance charge," accompanied by the descriptive expla­
nation "the dollar amount the credit will cost you," using those terms. In
addition, the creditor shall state whether any portion of the finance charge
is expected to be paid before or at consummation.
(iv) The "annual percentage rate," accompanied by the descriptive
explanation "the cost of your credit as a yearly rate," using those terms.
(v) If the annual percentage rate may increase, 62/ the following
three additional disclosures:

61/ In some instances, certain disclosures are not necessary.
(h)(2)(xiv) of this section.

See paragraph

62/ This provision shall not apply to any rate increase due to delinquency
(including late payment), default, assumption, or transfer of collateral.




- 49 -

(A) The conditions under which the annual percentage rate may
increase (including identification of any index to which the rate is tied).

(B) The limitations, 63/ if any, on the increase (which may be
expressed as a percentage rate other than an annual percentage rate).
(C) The manner in which any increase would occur (such as an
increase in the amount or number of payments).
(vi) The number, amounts, 64/ and timing of payments scheduled to
repay the obligation.
(vii) The "total of payments," 65/ using that term, accompanied by
a descriptive explanation such as "the amount you will pay when you make all
payments as sche4uled."
(viii) If the obligation is payable on demand, that fact 3hall be
disclosed. If the disclosures are based on an assumed maturity of one year
as provided in paragraph (d)(5) of thi3 section, that assumption shall also
be disclosed.
(ix) In a credit sale, a statement that the "total sale price,"
using that term, equals the total of payments plus any downpayment and
trade-in.
(x)(A) If the obligation involves a precomputed finance charge, a
statement indicating whether or not the consumer is entitled to a rebate of
any finance charge upon refinancing or prepayment in full of the obligation,
pursuant to acceleration or otherwise.
(B) If the obligation involves a finance charge computed from time
to time by application of a rate to the unpaid principal balance, a statement
indicating if a penalty will be imposed in those same circumstances.
(C)

Both statements, if appropriate.

63/ This need not include limitations prescribed under state usury or rate
ceiling laws.
64/ If the amount of any payment in a series is not more than 5 percent
larger than the smallest payment in that series, the creditor may treat
all payments in the series as equal by disclosing the largest payment
amount, labeled as an estimate. This rule governs only the disclosure of
payment amounts; it does not affect the disclosure of the finance charge
under paragraph (h)(2)(iii) of this section or the determination of the
annual percentage rate under § 226.12.
65/ If the rule in footnote 64 is used, the total of payments shall reflect
the payment amounts disclosed and shall be labeled as an estimate.




- 50 -

(xi) Any dollar or percentage charge that may be imposed before
maturity on account of a late payment, other than a deferral or extension
charge.

(xii) The fact that the creditor will acquire a security interest
in either the property to be purchased as part of the transaction, or other
property identified by item or type. If the security interest will relate
to after-acquired property, that fact shall be disclosed.
(xiii) A statement that the consumer should refer to the appro­
priate contract document for any information it provides about nonpayment,
default, the right to accelerate the maturity of the obligation, and prepay­
ment rebates and penalties.
(xiv)

In the following transactions, certain disclosures are not

required:
(A) For any transaction involving an interim credit extension
under a student credit guarantee program, the creditor need not disclose the
finance charge under paragraph (h)(2)(iii), the schedule of payments under
paragraph (h)(2)(vi), the total of payments under paragraph (h)(2)(vii), or
the total sale price under paragraph (h)(2)(ix) of this section. Before the
final obligation or repayment schedule is agreed upon, the creditor shall
make all applicable transactional disclosures.
(B) For any transaction involving a finance charge of $5 or less
on an amount financed of $75 or less, or a finance charge of $7.50 or less
on an amount financed of more than $75, the creditor need not disclose the
annual percentage rate under paragraph (h)(2)(iv) of this section.
(C) For any transaction involving a single payment, the creditor
need not disclose the total of payments under paragraph (h)(2)(vii) of this
section.
(3)
Unless each of the following conditions is met, the creditor
shall make the transactional disclosures required by paragraph (f) of this
section before consummation:
(i) The actual amount financed is within ten percent of the dis­
closed amount financed.
(ii) The actual annual percentage rate is within 1/8 of 1 percent
above or below the disclosed annual percentage rate.
(iii) The actual number and timing of payments are the same as
the disclosed number and timing of the payments, disregarding any irregular
first payment period.
(iv) The provisions of § 226.4(d) are complied with if credit
life, accident, health, or loss of income insurance or property insurance is
written in connection with the transaction and the premiums are excluded from
the finance charge.




- 51 -

(v)
A written itemization of the actual amount financed is
provided to the customer, if a request in writing has been made. Such an
itemization shall disclose by identity and amount, as applicable, the cash
price, cash downpayment, trade-in, prepaid finance charge as defined in
paragraph (h)(2)(ii)(C) of this section, amount paid to the consumer, amount
credited to the consumer's account with the creditor, and each amount paid
to another person by the creditor on the consumer's behalf.
(1) Refinancing— new disclosures. (1) Except as provided in
this paragraph, a refinancing occurs when the creditor and the consumer
agree to change the terms of an existing obligation previously disclosed
under this section. A refinancing is a new transaction requiring new trans­
actional disclosures under paragraph (f) of this section. The creditor shall
include in the new finance charge any unearned portion of the old finance
charge that is not credited to the existing obligation.
(2) The following changes in the terms of an* existing obligation
need not be treated as a refinancing:
(i) A reduction in the annual percentage rate with a corresponding
reduction in payment amounts, number of payments, or length of maturity.
(ii)

A deferral or extension of one payment or a portion of one

payment.
(iii) A change in collateral requirements, 66/ late payment
charges, or prepayment provisions.
(iv)

An agreement approved by a court.

(v) A renewal of a single payment obligation that meets the condi­
tions set forth in paragraph (i)(3) of this section.
(vi) An increase in the amount of an existing transaction that
meets the conditions set forth in paragraph (i)(4) of this section.
(vii) A change in the number, amounts, or timing of scheduled pay­
ments as a result of the consumer's default or delinquency, unless the annual
percentage rate is increased or the new amount financed exceeds the unpaid
balance plus earned finance charge and premiums for continuation of insurance
of the types described in § 226.4(d).
(3)
A renewal of a single payment obligation need not be treated
as a refinancing if the following four conditions are met:

66/ The consumer may have the right under § 226.13, to rescind the addition
of a security interest in the consumer's principal dwelling.




1

- 52 -

(i)
All disclosures required by this subpart were made for the
original transaction or a previous refinancing.
(ii) The new amount financed does not exceed the sum of the
unpaid balance plus any earned finance charge and premiums for continuation
of insurance of the types described in § 226.4(d).
(iii) The disclosed annual percentage rate is not increased.
(iv) The term of the renewal period does not exceed the disclosed
term by more than four days.
(4)
An increase in the amount of an existing obligation need not
be treated as a refinancing if it results from any of the following three
occurrences:
*
(i)
Reimbursement of the creditor for expenses incurred in
performing the consumer1s obligation to protect or preserve the collateral
(such as maintaining insurance or paying taxes). No new disclosures are
required whether the expense is incurred at the consumer's request or upon
the consumer's failure to perform an obligation and whether or not an addi­
tional finance charge is assessed as a result of the increase.
(ii)
The purchase of property or services under an agreement that
provides for the addition of subsequent sales to an outstanding balance, if
the creditor has complied with the series of sales requirements of paragraph
(1) of this section.
(iii) The addition or renewal of optional insurance purchased by
the consumer after consummation of the existing transaction. If the initial
premium advance is secured by the consumer's principal dwelling, the insur­
ance transaction may be rescindable under § 226.13.
(j) Assumptions— new disclosures. An assumption occurs if the
creditor agrees with a subsequent consumer to accept that consumer as an
obligor on an existing obligation with another consumer. The creditor shall
make new transactional disclosures under paragraph (f) of this section based
on the remaining obligation to the subsequent consumer before the assumption
occurs.
(k) Mail or telephone orders— delay in disclosures. (1) A cred­
itor that receives a purchase order or a request for an extension of credit
by mail, telephone, or any other written or electronic communication without
personal solicitation may make the transactional disclosures under paragraph
(f) of this section no later than the date the first payment is due if the
following information describing representative amounts or ranges of credit
is made available in written form to the consumer or to the public generally
in advance of the actual purchase order or request:(
)
i




(i)

The cash price or the principal amount of the loan.

- 53 -

(ii)

The total sale price.

(iii) Any minimum downpayment.
(iv)

The finance charge.

(v)

The annual percentage rate.

(vi)

The number, amounts, and timing of payments.

(vii) The total of payments.

(2)
If the information specified in paragraph (k)(l) is not avail­
able in the prescribed manner, transactional disclosures under paragraph (f)
of this section shall be made before consummation of the transaction. If
the transaction is subject to rescission, see § 226.13.
(1)
Series of sales— delay in disclosures. (1) If a credit sale
is one of a series made under an agreement providing that subsequent sales
are added to an outstanding balance, the transactional disclosures under
paragraph (f) of this section may be made no later than the date the first
payment for the current sale is due if the following two conditions are met:
(i) The consumer has aproved in writing the annual percentage
rate or rates, the range of balances to which they apply, if appropriate,
and the method of treating any unearned finance charge.
(ii) The creditor retains no security interest in any property
for which it has received payments equal to the cash price and any finance
charge attributable to the sale of that property. For the purpose of this
provision, in the case of items purchased on different dates, the first pur­
chased shall be deemed the first paid for; in the case of items purchased on
the same date, the lowest priced shall be deemed the first paid for.
(2)
In the absence of an agreement that meets the conditions of
paragraph (1)(1), the addition of a sale to an existing balance is a refinanc
ing under paragraph (i) of this section.
(m)
Multiple advance transactions; series of single payment
obligations. (1) If a series of advances may be made under an agreement to
extend credit up to a certain amount, the series shall be considered a single
transaction.
(2)
A credit extension involving a series of single payment
obligations executed contemporaneously shall be considered a single trans
action.

Section 226.12— Determination of annual percentage rate.
(a)
General rule. The annual percentage rate is a measure of
the cost of credit, expressed as a yearly rate, which relates the amount and




- 54 -

timing of value received by the consumer to the amount and timing of pay­
ments made. The annual percentage rate shall be determined in accordance
with either the actuarial method or the United States Rule method and shall
be considered accurate if it is not more than 1/8 of 1 percentage point above
or below the annual percentage rate determined in accordance with whichever
method is used. Explanations, equations, and instructions for determining
the annual percentage rate in accordance with the actuarial method are set
forth in Supplement I of this regulation (§ 226.40).
(b) Computation tools. (1) The Regulation Z Annual Percentage
Rate Tables produced by the Board may be used to determine the annual per­
centage rate, and any rate determined from those tables in accordance with
the accompanying instructions complies with the requirements of this section.
Volume I of the tables applies to single advance transactions involving up
to 480 monthly payments or 104 weekly payments. It may be used for regular
transactions and for transactions with any of the following irregularities:
an irregular first period, an irregular first payment, and an irregular final
payment. Volume II applies to transactions involving multiple advances and
any type of payment or period irregularity.
(2)
Creditors may use any other computation tool in determining
the annual percentage rate if the annual percentage rate so determined equals
the annual percentage rate determined in accordance with Supplement I, within
the degree of accuracy set forth in paragraph (a) of this section.
(c) Single add-on rate transactions. If a single add-on rate is
applied to all transactions with maturities up to 60 months and if all pay­
ments are equal in amount and period, a single annual percentage rate may be
disclosed for all those transactions if it is the highest annual percentage
rate for any such transaction.
(d) Certain transactions involving ranges of balances. For pur­
poses of disclosing the annual percentage rate referred to in §§ 226.11(k)(l)
(v)(Mail or telephone orders— delay in disclosures) and 226.11(1)(1)(i) (Ser­
ies of sales— delay in disclosures), if the same finance charge i3 imposed
on all balances within a specified range of balances, the annual percentage
rate computed for the median balance may be disclosed for all the balances.
However, if the annual percentage rate computed for the median balance under­
states the annual percentage rate computed for the lowest balance by more
than 8 percent of the latter rate, the annual percentage rate shall be com­
puted on whatever lower balance will produce an annual percentage rate that
does not result in an understatement of more than 8 percent of the rate
determined on the lowest balance.
(e) Payment schedule irregularities. (1) In determining and dis­
closing the annual percentage rate, a creditor may disregard an irregularity
in the first period that falls within the limits described below and any
payment schedule irregularity that results from the irregular first period:
(i)
For transactions in which the term is less than 1 year, a
first period not more than 6 days shorter or 13 days longer than a regular
period.




- 55

(ii) For transactions in which the term is at least 1 year and
less than 10 years, a first period not more than 11 days shorter or 21 days
longer than a regular period.
(iii) For transactions in which the terra is at least 10 years,
a first period shorter than or not more than 32 days longer than a regular
period.
(2)
For purposes of paragraph (e)(1) of this section, the "first
period" is the period from the date on which the finance charge begins to be
earned to the date of the first payment; the "term" is the period from the
date on which the finance charge begins to be earned to the date of the
final payment; and the "regular period" is the most common interval between
payments in the transaction. In transactions involving regular periods
that are monthly, semimonthly, or multiples of a month, the length of the
irregular and regular periods may be calculated on the basis of either the
actual number of elapsed days or an assumed 30-day month. In all other
transactions, the length of the periods shall be based on the actual number
of elapsed days.

Section 226.13— Right of rescission.
(a)
Consumers right to rescind. (1) In a transaction where a
security interest is retained or acquired in property used as a consumer's
principal dwelling, each consumer whose ownership interest is subject to the
security interest shall have the right to rescind the transaction, 67/ except
for the transactions described in paragraph (f) of this section.
(2) To exercise the right to rescind, the consumer shall give the
creditor written notice of the rescission by mail, telegram, or other means
of communication. Notice is considered given when mailed, when filed for
telegraphic transmission, or, if sent otherwise, when delivered to the
creditor'3 designated place of business.
(3) The consumer may exercise the right to rescind until mid­
night of the third business day following the later of either consummation
or delivery of the notice required by paragraph (b) of this section and all

67/ For purposes of this section, a "transaction" includes the addition to an
existing obligation of a security interest in property used as a consumer's
principal dwelling. The right of rescission applies, however, only to the
addition of the security interest and does not apply to the existing obli­
gation.




>

- 56

other material disclosures. 68/ If the required notice and material disclo­
sures are not delivered, the right to rescind shall expire the earlier of
three years after the date of consummation or the date of the transfer of the
property. The rescission period shall be extended by one year in accordance
with § 125(f) of the Truth in Lending Act (Title 15, § 1635(f) of the United
States Code) if an administrative proceeding is instituted.
(b) Notice of right to rescind. In a rescindable transaction, a
creditor shall clearly and conspicuously disclose on a separate document—
(1) That a security interest is being retained or acquired in
property used as the consumer's principal dwelling;
(2)

That the consumer has the right to rescind the transaction;

(3) How the right may be exercised, with a form for that purpose,
designating the address of the creditor’s place of business where the form
may be sent; and
(4)
this section.

The effects of rescission as described in paragraph (d) of

(c) Delay of creditor’s performance. Unless a consumer waives
the right of rescission under paragraph (e) of this section, no money shall
be disbursed other than in escrow, no services shall be performed, and no
materials shall be delivered until after the rescission period has expired
and the creditor is reasonably satisfied that the consumer has not rescinded
the transaction.
(d) Effects of rescission. A consumer who rescinds a transac­
tion shall not be liable for any amount, including any finance charge; and
the security interest giving rise to the right of rescission becomes void.
Within 20 days after receipt of a notice of rescission, the creditor shall
return any money or property given to any party by the consumer (including
any downpayment or other payment) and shall take any action necessary to
reflect the termination of the security interest. If the creditor has
delivered any money or property, the consumer may retain possession of it
until the performance of the creditor's obligations under this paragraph.
Upon performance of those obligations, the consumer shall offer to return
the money or property; if return of the property in kind would be impracti­
cable or inequitable, the consumer shall offer its reasonable value. At the
consumer's option, the offer may be made at the location of the property or
at the consumer's residence. If the creditor does not take possession of
the money or property within 20 days after the consumer's offer to return

68/ The term "material disclosures" means the required disclosure of the annual
percentage rate, the finance charge, the amount financed, the total of pay­
ments, and the number, amount and timing of payments scheduled to repay the
obligation.




- 57 -

it, the consumer may keep it without further obligation.
may be modified by court order.

These procedures

(e) Consumer's waiver of right to rescind. If a consumer deter­
mines that, because of a financial emergency, a delay of three business days
in the creditor's performance would endanger the welfare, health, or safety
of natural persons or risk damage to property that the consumer owns or for
which the consumer is responsible, the consumer may modify or waive the right
to rescind by giving the creditor a personal, written statement, dated and
signed by all consumers entitled to rescind. The statement must describe the
emergency and must modify or waive the right to rescind. The use of printed
forms is prohibited.
(f) Exempt transactions.
the following:
(1)

The right to rescind does not apply to

A residential mortgage transaction.

(2) A refinancing or consolidation by the same creditor of an
existing extension of credit already secured by property used as the consum­
er's principal dwelling if the new amount financed does not exceed the amount
of the unpaid principal balance plus any earned unpaid financed charge on
the existing debt.
If the new amount financed exceeds the unpaid principal
balance plus any earned unpaid finance charge on the existing debt, the
right of rescission applies only to that excess and not to the existing debt
and its related security interest.
(3)

A transaction in which a federal or state agency is the cred­

itor.
(4)
single payment
§ 226.11(m) if
other material

An advance in a series of advances or one in a series of
obligations that is treated as a single transaction under
the notice required by paragraph (b) of this section and all
disclosures have been given previously to the consumer.

(5) Subordination of a security interest, whether or not the
transaction in which the security interest was originally created was exempt
from the right of rescission.

Section 226.14— Advertising.
(a) Generally available terms; accuracy of advertising. (1) If
an advertisement for consumer credit states specific credit terms, it shall
state only those terms that the creditor generally arranges or offers.
(2)
No advertisement for consumer credit shall contain informa­
tion that is inaccurate or misleading or that otherwise misrepresents the
credit offered.
(b) Advertisement of rate of finance charge. If an advertise­
ment states a rate of finance charge, it shall state the rate as an "annual




- 58

percentage rate," using that term. 69/ If the annual percentage rate may be
increased after consummation, the advertisement shall state that fact. The
advertisement shall not state any other rate, except that a simple annual
rate or periodic rate that is applied to an unpaid balance may be stated in
conjunction with, but not more conspicuously than, the annual percentage
rate.
(c) Advertisement of terms that trigger additional disclosures.
(1) If any of the following terms is set forth in, or otherwise determinable
from, an advertisement, that advertisement shall meet the requirements of
paragraph (c)(2) of this section:
(1)
The amount or percentage of any downpayment or that no downpayment is required.
(ii)

The number of payments or period of repayment.

(iii) The amount of any payment.
(iv)

The amount of the finance charge.

(v)

That there is no charge for credit.

(2) An advertisement stating any of the terras in paragraph (c)(1)
of this section also shall state the following terms, 70/ as applicable:
(i)
(ii)

The amount of the downpayment or that no downpayment is required.
The number, amounts, and timing of payments.

(iii) The "annual percentage rate," using that term, and, if the
rate may be increased after consummation, that fact.
(d) Transactions involving a dwelling. In an advertisement for
credit secured by a dwelling, where any series of payments varies because
of the inclusion of mortgage insurance premiums, a creditor may comply with
paragraph (c)(2)(ii) of this section by stating the number and timing of
payments, the amounts of the largest and smallest of those payments, and the
fact that other payments will vary between those amounts.
(e) Catalogs and multiple-page advertisements. (1) If a catalog
or other multiple-page advertisement gives information in a table or schedule

69/ The phrase "the cost of your credit as a yearly rate" may, but need not,
accompany that term.
70/ One or more examples of typical extensions of credit and any provisions
available under § 226.11 may be used in complying with this requirement.




- 59

of credit terms in sufficient detail to permit determination of the disclo­
sures required by this section, it shall be considered a single advertise­
ment if
(1)

The table or schedule is clearly set forth; and

(ii) Any statement of credit terms, other than the cash price,
appearing anywhere else in the catalog or advertisement clearly refers to
the page on which the table or schedule begins.
(2) A catalog or multiple-page advertisement complies with para­
graph (c)(2) of this section if the table or schedule of terms includes all
appropriate disclosures for a representative scale of amounts up to the
level of the more commonly sold higher-priced property or services offered.
(f)
Use of annual percentage rate in oral disclosures.
oral response to an inquiry by a consumer about the cost of credit, the
creditor shall state as a rate of finance charge only those rates permitted
under paragraph (b) of this section.

In an

SUBPART D— CONSUMER LEASING

Section 226.15— Disclosures.
(a) Who must make disclosures to whom. (1) If a lease involves
only one lessor, that lessor shall make the disclosures required by this
section. If a lease involves more than one lessor, only one lessor involved
in the lease shall make all the disclosures.
(2)
The disclosures shall be made to the consumer; if there i3
more than one, they may be made to any one of the consumers who is primarily
liable under the lease.
(b) Timing and form of disclosures. (1)
the disclosures before consummation of the lease.

The lessor shall make

(2)
The disclosures shall be made clearly and accurately on a
dated written statement that the consumer may keep, either on the lease
contract document or separately. The disclosures shall be grouped together
beginning on the front of the document and shall be segregated from other
matters, except that, in any multiple-item lease, the description of the
leased property required by paragraph (e)(3) of this section may be provided
on a separate statement to which the disclosure statement refers. The document
may, but need not, include an acknowledgement of receipt.
(c) Basis of disclosures and use of estimates. (1) The lessor
shall base the disclosures on the information known to it at the time disclo­
sures are made. All disclosures shall be based on the assumption that the
consumer will comply with the terms of the lease contract.




- 60 -

(2) If any information necessary to make an accurate disclosure
is unknown to the lessor, it shall make the disclosure based on the best
information reasonably available to it and shall state clearly that the
disclosure is an estimate, except that a lessor may understate the estimated
value of the leased property at the end of the lease term when computing the
total lease obligation as required by paragraph (f)(3)(i) of this section,
if any excess of realized value over estimated value will be given to the
consumer at the end of the lease term.
(3) In making calculations and disclosures the lessor need not
take into account the effects of the following:
(i)

The fact that payments must be collected in whole cents;

(ii) The fact that dates of scheduled lease payments may be
changed if the date falls on a Saturday, Sunday, or holiday;
(iii) The fact that months have different numbers of days; and
(iv)

The occurrence of leap year.

(d) Effect of subsequent events. If a disclosure is rendered
inaccurate as a result of an event that occurs after delivery of the disclo­
sures, the resulting inaccuracy is not a violation of this regulation. If
the event occurs prior to consummation, the lessor shall disclose the changed
terms before consummation. If the event occurs after consummation, the
determination of whether new disclosures are required is made under paragraph
(g) of this section.
(e) Content of disclosures. For each consumer lease, the follow­
ing items, to the extent applicable, shall be disclosed:
(1)

The identity of the consumer.

(2)

The identity of the lessor making the disclosures.

(3) A brief description of the leased property, sufficient to
identify it to the consumer.4
(4) A brief description of every payment made or to be made by
the consumer either at or prior to delivery of the leased property, and
the total amount of all such payments.




-SI­
CS) The number, amounts, and timing of periodic lease payments,
and the total amount of such payments. 71/
(6) The total amount of charges payable by the consumer during the
lease term for official fees, registration, certificate of title, licenses,
or taxes, other than charges disclosed under paragraphs (e)(4) and (e)(5) of
this section.
(7) All charges, other than those disclosed under paragraphs
(e)(4), (e)(5), or (e)(6) of this section, that are payable by the consumer
to the lessor but not included in the periodic lease payments, individually
itemized, and the total of such charges.
(8) A brief description of the types and amounts of insurance
required or paid for by, or obtained from, the lessor, other than insurance
procured by the lessor for its own benefit. If the insurance is obtained
from or paid for by the lessor, this description shall include the cost to
the consumer.
(9) A statement identifying any express warranties or guarantees
made by the lessor or manufacturer that are available to the consumer with
respect to the leased property.
(10) A statement identifying the party responsible for maintaining
or servicing the leased property and a brief description of the responsibil­
ity. If a maintenance or service contract is provided or paid for by the
lessor, a brief description of that contract shall also be disclosed.
(11) A statement of reasonable standards for wear and use, if the
lessor sets such standards.
(12) If the lessor has taken or will obtain a security interest
in connection with the lease (other than a security deposit disclosed under
paragraph (e)(4) of this section), a statement of that fact, including a
brief description of the property to which it relates. If the security inter­
est relates to after-acquired property, that fact shall also be disclosed.
(13) The amount or method of determining the amount of any pen­
alty or other charge, other than a deferral or extension charge, for default,
delinquency, excessive wear or use, or late payments.
(14) A statement of whether or not the consumer has the option to
purchase the leased property and, if so, at what times and at what prices or
the method of determining the prices.

71/ If the amount of any payment in a series is not more than 5 percent larger
than the smallest payment in that series, the lessor may treat all payments
in the series as equal by disclosing the largest payment amount, labeled
as an estimate. If this rule is used, the total of payments shall reflect
the payment amounts disclosed and shall also be labeled as an estimate.



- 62 -

(15)
A statement of the conditions under which the consumer or the
lessor may terminate the lease prior to the end of the lease term and the
amount or method of determining the amount of any penalty or other charge
for early termination.
(f)
Special disclosures concerning the consumer's liability on
termination of a lease. For any consumer lease in which the consumer's lia­
bility at early termination is affected by the realized value of the leased
property, or at the end of the lease is based on the estimated value of the
leased property, the following items shall be disclosed, as applicable, in
addition to the disclosures under paragraph (e) of this section:
(1) A statement of how the consumer's liability at early termina­
tion is affected by the realized value of the leased property, or that the
consumer shall be liable for the difference between the estimated value of
the leased property and its realized value at the end of the lease term.
(2) A statement that the consumer may obtain, at the consumer's
expense, a professional appraisal of the value which could be realized at
sale of the leased property, and whether the appraisal will be based on the
wholesale or retail value of the leased property. The statement shall indi­
cate that the appraisal must be made by an independant third party agreed
to by the consumer and the lessor, and that such an appraisal is final and
binding on both parties if obtained within a reasonable time after early
termination or the end of the lease term.
(3) Where the consumer's liability at the end of the lease term
is based on the estimated value of the leased property:
(i) The value of the property at consummation of the lease, the
itemized total lease obligation, and the difference between them;
(ii)

A statement that

(A) The estimated value of the leased property is presumed to be
unreasonable and not in good faith to the extent that it exceeds the realized
value by more than three times the average lease payment allocable to a
monthly period, and that the lessor cannot collect the excess except by
rebutting this presumption of unreasonableness in a successful court action
in which it pays the consumer's attorney's fees, and
(B) These rules concerning the presumption and attorney's fees
do not apply to the extent that the excess of estimated value over realized
value is due to unreasonable wear or use, or to excessive use.
(iii) A statement that the requirements of paragraph (f)(3)(ii)
of this section do not preclude the right of a willing consumer to enter into
any mutually agreeable final adjustment regarding excess liability, provided
such agreement is reached after the end of the lease term.




- 63 -

(g) Renegotiations— new disclosures. (1) Except as provided
in this paragraph, a renegotiation occurs when the lessor and the consumer
agree to change any of the terms of an existing consumer lease that were
previously disclosed under paragraphs (e) or (f) of this section. A renego­
tiation is a new lease requiring new disclosures.
(2) The following changes in terms of an existing consumer lease
need not be treated as a renegotiation:
(i) In a multiple-item lease, the return of one or more leased
items or the addition of one or more new items, if the average lease payment
allocable to a monthly period is not changed by more than 25 percent;
(ii) A deferral of one periodic lease payment or a portion of a
periodic lease payment;
(iii)
The addition or renewal of optional insurance purchased by
the consumer after consummation of the existing transaction, if the appro­
priate disclosures are provided for the insurance transaction itself; or
(iv)
An extension of the lease term on a month-to-month or other
basis with no other changed terms.
(3) A lessor that extends, or permits a consumer to extend, the
duration of a consumer lease for more than one month shall, for the purposes
of § 183(a) of the act, recalculate the estimated value of the leased pro­
perty to reflect the actual lease term.

Section 226.16— Advertising.

(a) Generally available terms. If an advertisement states spe­
cific consumer lease terms, it shall state only those terms that the lessor
generally arranges or offers.
(b) Advertisement of terms that require additional disclosures.
Except as provided in paragraph (c) of this section, if an advertisement
states the amount of any payment, the number of required payments, or whether
or not any payment i3 required to be made at consummation of the lease, it
shall also state, at its option by using one or more examples of typical
consumer leases, these terms:
(1)

That the transaction advertised is a lease.

(2) The total amount of any payment required to be made at or
prior to delivery of the leased property, or that no such payment is required.3
(3) The number, amounts, and timing of periodic lease payments and
the total of 3uch payments.




- 64 -

(4) Whether or not the consumer has the option to purchase the
leased property, and if so at what times, and at what prices or the method
of determining the prices.
(5) A statement of the amount or method of determining the amount
of any liabilities the lease imposes on the consumer at the end of the lease
term, including a statement that the consumer shall be liable for any differ­
ence between the estimated value of the property and its realized value at
the end of the lease term, if such liability exists.
(c) Multiple-item leases; merchandise tags. A merchandise tag for
an item normally included in a multiple-item lease need not comply with para­
graph (b) of this section if it clearly refers to a sign or display, promin­
ently posted in the lessor's showroom, that contains a table or schedule of
the items required to be disclosed under paragraph (b) of this section.
(d) Catalogs and multiple-page advertisements. (1) If a catalog
or other multiple-page advertisement gives information in a table or schedule
of lease terms in sufficient detail to permit determination of the disclosures
required by this section, it shall be considered a single advertisement, pro­
vided :
(1)

The table or schedule is clearly set forth;

(ii) Any statement of lease terms appearing anywhere else in the
catalog or advertisement clearly refers to the page on which the table or
schedule begins.
(2) A catalog or multiple-page advertisement complies with para­
graph (b) of this section if the table or schedule of terms includes all
appropriate disclosures for a representative scale of amounts up to the level
of the more commonly leased higher priced property offered.

SUBPART E— MISCELLANEOUS

Section 226.17— Record retention.

(a)
General rule. A creditor or lessor shall retain evidence of
compliance with the requirements of this regulation, including information
sufficient to reconstruct the required disclosures, for a period of not less
than two years after the date the disclosures are required to be made or an
advertisement is first used. The administrative agencies responsible for
enforcing the regulation may require creditors and lessors under their juris­
diction to retain records for a longer period where necessary in carrying out
their enforcement responsibilities under § 108 of the Truth in Lending Act
(Title 15, § 1607 of the United States Code).




- 65 -

(b) Recordkeeping methods. Evidence of compliance under this
section may be retained by use of microfilm, microfiche, or any other method
designed to reproduce business records accurately.
(c) Inspection of records. A creditor or lessor shall permit the
agency responsible for enforcing this regulation with respect to that cred­
itor or lessor to inspect its records for compliance.

Section 226.18— Spanish language disclosures.

(a) General rule. All required disclosures under this regulation
shall be made in the English language except in the Commonwealth of Puerto
Rico, where disclosures may be made, at the creditor’s option, in the Spanish
language.
(b) Consumer request; advertising. If Spanish disclosures are
made under paragraph (a) of this section, English disclosures shall be pro­
vided upon the consumer's request, either in substitution for the Spanish
disclosures or as additional information, except that this requirement shall
not apply to advertisements of credit or lease transactions subject to this
regulation.

Section 226.19— Effect on state laws.

(a) Inconsistent disclosure requirements. A state law that is
inconsistent with this regulation is preempted to the extent of the incon­
sistency. In the case of paragraphs (b)(5), (c)(12), (e), (g), and
(h) of S 226.5 (open-end credit disclosures), paragraphs (c) through (f) of
§ 226.6 (credit card transactions), § 226.7 (billing error resolution), and
Subpart Q (leasing), a state law is not inconsistent if it is more protective
of consumers. A creditor or lessor shall not make any disclosure using a
term or form determined by the Board to be inconsistent. A creditor, lessor,
state, or other interested party may request the Board to determine whether
a state law is inconsistent.
(b) Equivalent disclosure requirements. If the Board determines
that a disclosure required by state law, other than a disclosure relating to
the finance charge or annual percentage rate, is substantially the same in
meaning as a disclosure required under the credit provisions of this regula­
tion (Subparts B and C) , creditors in that state may make the state law disclo­
sure in lieu of the disclosure required by this regulation. A creditor,
state, or other interested party may request the Board to determine whether
a state-required disclosure is substantially the same in meaning as a disclo­
sure required by this regulation.
(c) Request for determination. (1) A request for a determination
that a state law is inconsistent with or substantially the same in meaning
as a requirement of this regulation shall be in writing and addressed to the
Secretary, Board of Governors of the Federal Reserve System, Washington, D.C.
20551.



- 66 -

(2) A request for determination shall include each of the follow­
ing items, to the extent applicable:
(i) The full text of the state statute, regulation, or other docu­
ment containing the provision that is the subject of the request.
(ii) Any other statute, regulation, or judicial or administrative
opinion that implements, interprets or applies the relevant provision.
(iii) A comparison of the state law provision with the correspond­
ing provision of this regulation, including a full discussion of the basis
for the requesting party’s belief that the state provision is either incon­
sistent or substantially the same; and
(iv) Any other information that the requesting party believes may
assist the Board in its determination.
(3)
(i) Any request for determination will be published, with an
opportunity for public comment, in the Federal Register, unless the Board
determines that the time required for prior notice and opportunity for com­
ment would be contrary to the public interest and publishes its reasons for
that determination.
H
(ii) Subject to the Board's rules regarding availability of
information (Title 12, Part 261 of the Code of Federal Regulations), all
requests made under this section, including any documents and other material
submitted in support of the requests, will be made available for public
inspection and copying.

Section 226.20— State exemptions.

(a) General rule. Any state may apply to the Board to exempt any
class of transactions within the state from the requirements of Chapter 2
(Credit Transactions), Chapter 4 (Credit Billing), or Chapter 5 (Consumer
Leases) of the Truth in Lending Act and the corresponding provisions of the
regulation. The Board will grant an exemption if it determines that
(1) The state law is substantially similar to the requirements of
the act and regulation or, in the case of Chapters 4 or 5, the consumer is
afforded greater protection under state law than under the federal act and
regulation; and
(2)

There is adequate provision for enforcement.

(b) Procedures. (1) The procedures under which a state may
apply for an exemption under paragraph (a) of this section are set forth as
follows
(i)
Disclosure and rescission requirements (§§ 121-131 of
Chapter 2), Supplement II;




- 67 -

(ii) Issuance of unsolicited credit cards and liability for
unauthorized use (§§ 132-133 of Chapter 2), Supplement IV;
(iii) Fair credit billing requirements (§§ 161-171 of Chapter 4),
Supplement V; and
(iv)
Supplement VI.

Consumer leasing requirements (S§ 181-186 of Chapter 5),

(2) Supplements II through VI may be obtained from any Federal
Reserve Bank or from the Board in Washington, D.C. 20551.
(c) Civil liability. (1) No exemptions granted under this sec­
tion shall extend to the civil liability provisions of §§ 130 and 131 of the
Truth in Lending Act (Title 15, §§ 1640 and 1641 of the United States Code).
(2) After an exemption has been granted, the disclosure require­
ments under the applicable state law (except any additional requirements not
imposed by this regulation) shall constitute the disclosure requirements of
federal law, and information required under that state law (except additional
requirements not imposed by this regulation) shall constitute the information
required under Chapters 2, 4 and 5 of the act for the purposes of § 130(a)
of the Truth in Lending Act.
(d) Exemptions granted. Supplement III to Regulation Z sets
forth the exemptions granted by the Board to particular classes of credit
transactions within states.

Section 226.21— Issuance of staff interpretations.
(a) Official staff interpretations. Each official in the Board's
Division of Consumer and Community Affairs is authorized, in that official's
discretion, to issue an official staff interpretation of this regulation. In
accordance with § 130(f) of the Truth in Lending Act (Title 15, S 1640(f) of
the United States Code), a creditor or lessor who acts in conformity with an
official staff interpretation, whether the creditor or lessor actually knows
of the interpretation or not, shall not be held liable in any court or adminis­
trative proceeding for its action.
(b) Procedure for issuance of official staff interpretations. (1)
A request for an official staff interpretation shall be in writing and
addressed to the Director, Division of Consumer and Community Affairs, Board
of Governors of the Federal Reserve System, Washington, D.C. 20551. The
request shall contain a complete statement of all relevant facts concerning
the issue, including copies of all pertinent documents.
(2) If, in the opinion of an authorized official, issuance of an
official staff interpretation is appropriate, it will be published in the
Federal Register to become effective 30 days after the publication date.




- 68 -

If a request for public comment is received and granted, the effective
date will be suspended. The interpretation will then be republished in the
Federal Register and the public given an opportunity to comment. An official
staff interpretation issued after opportunity for public comment shall become
effective upon republication in the Federal Register.
(3)
A request for public comment on an official staff interpre­
tation shall be in writing and addressed to the Director, Division of Consumer
and Community Affairs, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551, and postmarked or received by an authorized official
within 30 days of the interpretation's publication in the Federal Register.
The request shall contain a statement setting forth the reasons why the
person making the request believes that public comment would be appropriate.
(c) Unofficial staff interpretations. (1) If, in the judgment of
the authorized officials, an official staff interpretation should not be
issued, an unofficial staff interpretation may be issued. Although an
unofficial staff interpretation does not provide the formal protection afforded
under the law as mentioned in paragraph (a) of this section, it represents
the view of the staff which has been empowered by the Board to express
opinions on the requirements of the regulation.
(2)
A request for an unofficial staff interpretation should be
in writing and addressed to the Director, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, Washington, D.C.
20551. The request should include all information and documents which, in
the view of the requesting party, may be relevant to the interpretation.
(d) Scope of interpretations. No official or unofficial staff
interpretation will be issued approving creditors' or lessors' forms, state­
ments, calculation tools, or methods. This restriction need not apply to
forms, statements, tools, or methods whose use is required or sanctioned by a
government agency. 72/

72/ For purposes of this paragraph, "government agency" includes any depart­
ment or agency of the United States, of a state or of a political sub­
division. The term also includes quasi-governmental entities such as the
Government National Mortgage Corporation.




- 69 -

APPENDIX A— MODEL DISCLOSURE FORMS AND CLAUSES

SECTION A(l)— DISCLOSURES REGARDING BALANCE COMPUTATION
METHODS (§8 226.5(b)(1)(iii) and 226.5(c)(6))

(a)

Adjusted balance method

The balance to which the periodic rate is applied in calculating
the finance charges is the total amount you owe us at the end of one billing
period [excluding any part of that amount that represents a finance charge] ,
less all payments and credits we receive before the end of the next billing
period.

(b)

Previous balance method

The balance to which the periodic rate is applied in calculating
the finance charges is the total amount you owe us at the end of each billing
period [excluding any portion of that amount that represents a finance charge].

(c)

Average daily balance method (excluding current transactions)

The balance to which the periodic rate i3 applied in calculating
the finance charges is the sum of the actual amounts owing each day of the
billing period, not including transactions first charged to your account
during the period [and not including any portion of the actual amount that
is a finance charge], divided by the total number of days in the billing
period.

(d)

Average daily balance method (including current transactions)

The balance to which the periodic rate is applied in calculating
the finance charges is the 3um of the actual amounts owing each day of the
billing period, including transactions first charged to your account during
the period [but not including any portion of the actual amount that is a
finance charge], divided by the total number of days in the billing period.

SECTION A(2)— STATEMENT REGARDING BILLING ERROR*
1
RIGHTS (S 226.5(b)(5))

IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR BILL
1.
Send your question in writing [at the creditor's option:
a separate sheet] to the address listed on your bill after the words: "Send
Inquiries To:" or similar wording.
[Alternate: Write to us at (insert
address)]. Write to us as soon as possible but, in any case, early enough
so that your letter reaches us within 60 days after the bill was mailed to
you. You can telephone, but doing so will not preserve your rights.




on

- 70 -

*

Indicate your name and account number.

*

Describe the error and explain, if you can, why you
believe it is an error. If you need more information,
describe the item you are not sure about.

*

Indicate the dollar amount involved in the suspected error.

If you have a savings or checking account with us, and have autho­
rized automatic payment of credit card bills from your account, you can stop
or reverse payment on any amount you think is wrong. However, your letter
must reach us within 16 days after the bill was sent to you. We still must
investigate your inquiry even if you do not meet this 16-day deadline.
2. We must acknowledge your letter within 30 days, unless we have
corrected the error by then. Otherwise, within 90 days we must either cor­
rect the error or explain why we believe the bill was correct.
3. After we have received your letter, we cannot try to collect
any amount you are disputing, or report you to a credit bureau as delinquent.
However, we can continue to bill you for the amount you are disputing, includ­
ing any finance charges that would normally be imposed, and can apply any
disputed amount that you have not paid against your credit limit. You remain
obligated to pay the parts of your bill not in dispute.
4. If we determine that we made a mistake on your bill, you will
not have to pay any finance charges on any disputed amount. If we haven’t
made a mistake, you may have to pay finance charges on any amount in dispute,
and you will have to make up any missed required payments on the disputed
amount. In either case we will send you a statement of the amount you owe,
and when it is due.
5. If you fail to pay the amount that we conclude is owing, we
may report you as delinquent to credit bureaus and other creditors. However,
if our explanation does not satisfy you and you write to us within ten days
telling us that you still refuse to pay, we must tell those credit bureaus
and other creditors of your dispute and tell you specifically which credit
bureaus and other creditors we have contacted. Once the matter has been set­
tled between us, we must inform those to whom we reported you as delinquent.
6. If we don't follow these rules, we can’t collect the first $50
of the disputed amount including finance charges, even if your bill was cor­
rect.

SPECIAL RULE FOR CREDIT CARDS
If you have a problem with the quality of property or services
purchased with a credit card, you may have the right not to pay the remain­
ing amount due on them, if you first try in good faith to correct the problem
with the merchant. There are two limitations on this right:




- 71 -

a.

You must have made the purchase in your home State
or, if not within your home State, within 100 miles
of your current mailing address; and

b.

The purchase price must have been more than $50.

These limitations do not apply, however, if we own or operate the
merchant, or if we mailed you the advertisement for the property or services.

SECTION A(3)— ALTERNATIVE BILLING RIGHTS STATEMENT (§ 226.5(e)(2))*
1

IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR BILL
1. Send your question in writing [at the creditor’s option:
on a separate sheet] to the address listed on your bill after the words:
"Send Inquiries To:" or similar wording. [Alternate: Write your question
to us at: (insert address.)] Write to us as soon as possible but, in any
case, early enough so that your letter reaches us within 60 days after the
bill was mailed to you. You can telephone, but doing so will not preserve
your rights.
*

Indicate your name and account number.

*

Describe the error and explain, if you can, why you
believe it is an error. If you need more informar
tion, describe the item you are not sure about.

*

Indicate the dollar amount of the suspected error.

If you have a savings or checking account with us, and have autho­
rized automatic payment of credit card bills from your account, you can stop
or reverse payment on any amount you think is wrong. However, your letter
must reach us within 16 days after the bill was sent to you.
You remain obligated to pay the parts of your bill not in dispute.
However, you do not have to pay any amount in dispute while we are resolving
the dispute, nor can we report disputed amounts as delinquent or take any
action to collect those amounts.
If you have a problem with the quality of property or services pur­
chased with a credit card, you do not have to pay the remaining amount due on
them as long as you first try in good faith to resolve the problem with the
merchant. The purchase must have occurred in your home State or within 100
miles of your mailing address and the purchase price must have been more than
$50 (these two conditions do not apply if we own or operate the merchant, or
if we mailed you the advertisement for the property or services).
This is a summary of your rights; a full statement of your rights
and our responsibilities under the Federal Fair Credit Billing Act will be
sent to you if you request it, and in response to a billing error notice.




- 72 -

SECTION A(4)— NOTICE REGARDING LIABILITY FOR
UNAUTHORIZED USE (§ 226.6(b)(2))

You may be liable for the unauthorized use of your credit card
[or other term that describes the credit device]. You will not be liable
for unauthorized use that occurs after you notify [name of card issuer or
its designee] at [address and telephone number] orally or in writing of loss,
theft, or possible unauthorized use. In any case, your liability shall not
exceed [insert $50 or any lesser amount under other applicable law or under
any agreement with the cardholder.]
SECTION A(5)— NOTICE OF RIGHT TO RESCIND
(§ 226.9(a)(1)(i))
NOTICE OF RIGHT TO CANCEL
You have entered into a transaction that may result in a security
interest in your home. You have a legal right under federal law to cancel
this transaction, without cost, within three business days from whichever of
the following three events occurs last:
(1)

the date the transaction was entered into, which was_________

(2)

the date you received your initial Truth in Lending disclosures.

(3)

the date you received this notice of your right to cancel.

If you decide to cancel this transaction, you may do so by notifying
us, in writing, at __________ (creditor's name and business address)__________ ._
You may use any written statement that is signed and dated to cancel this
transaction, or you may use this notice by dating and signing below. If you
use this notice, you may want to make a copy for yourself since it contains
important about your rights and it is proof of when you cancelled.
If you cancel by mail or telegram, the notice must be sent no later
than midnight of the third business day after the latest of the three events
listed above. If you use any other means to cancel, it must be delivered to
the above address no later than that time.
If you cancel the transaction, the security interest is also
cancelled. Within 20 days of receiving your notice, we must take the steps
necessary to reflect the fact that the security interest in your home has
been cancelled and we must return to you any money or property you have given
to us or to anyone else in connection with this transaction. If we have
given you any money or property, you may keep it until we have performed our
obligations. You must then offer to return the money or property; if return
of the property itself is impractical or unfair, you must offer its reasonable
value. At your option, you may make the offer at your home or at the location
of the property. If we do not take possession of the money or property within
20 days of your offer, you may keep it without further obligation.I

I HEREBY CANCEL THIS TRANSACTION.



(consumer's signature)

(date)

- 73 -

SECTION A(6)— NOTICE OF RIGHT TO RESCIND (§ 226.9(a)(1)(ii)(A))

NOTICE OF RIGHT TO CANCEL
You have agreed with us to establish an open-end credit account
that is secured by your home. You have the right under federal law to cancel
this account, without cost, within three business days from whichever of the
following three events occurs last:
(1)

the date the account was opened, which as ____________ .

(2)

the date you received your initial Truth in Lending disclosures.

(3)

the date you received this notice of your right to cancel.

You may cancel the account by notifying us, in writing, at
____ (creditor's name and business address)
You may use any written state­
ment that is signed and dated to cancel this account, or you may use this
notice by signing and dating below. If you use this notice, you may want to
make a copy for yourself since it contains important about your rights, and
it is proof of when you cancelled.
If you cancel by mail or telegram, the notice must be sent no
later than midnight of the third business day after the latest of the three
events listed above. If you use any other means to cancel, it must be delivered
to the above address no later than that time.
If you cancel thi3 account, the security interest is also cancelled.
Within 20 days of receiving your notice, we must take the steps necessary to
reflect the
fact that the security interest in your home has been cancelled
and we must
return to you any money or property you have given to use or to
anyone else
in connection with this account. If we have given you any money
or property, you may keep it until we have performed our
obligations. You
must then offer to return the money or property; if return of the property
itself i 3 impractical or unfair, you must offer it3 reasonable value. At you
option, you may make the offer at your home or at the location of the property.
If we do not take possession of the money or property within 20 days of your
offer, you may keep it without further obligation.I

I HEREBY CANCEL THIS ACCOUNT.




(consumer's signature)

(date)

- 74 -

SECTION A(7)— MODEL FORM FOR TRANSACTIONAL DISCLOSURES
(§ 226.11(f))

(Name of Creditor)
(Address)

FINANCE CHARGE (the dollar amount the credit will cost you)

$

z

ANNUAL PERCENTAGE RATE (the cost of your credit as a yearly rate)
Amount Financed (the amount of credit provided to you or on your behalf)

$

You have the right to receive a written itemization of the Amount Financed
at this time. Please initial the appropriate space.
____

Yes, I want a written itemization.

____

No, I do not want a written itemization.

Total of Payments (the amount you will pay when you make all payments as
scheduled)
$
The total of payments will be paid i n ______ [monthly] payments of $_________
starting o n __________ and due on the _________ day of each [month] .
* Total Sale Price (the total cost of your purchase on credit, including
your downpayment of $________ )^

$

Insurance
Credit life and disability insurance is not required to obtain credit, and it
will not be provided unless you sign and agree to pay the additional cost.
The cost for such insurance is :
Credit Life [for_____ years]

$________

Credit Disability [for ____ years]

$________

______ I want credit life insurance
______ I want credit disability insurance

(signature)
Property insurance may be provided by anyone you choose.
us, the cost will be $_______ .]

[If you get the insurance from

Late Charge
You will be charged [$_______ ] [_____ 1 of the payment] if a payment is
not received within _____ days of its due date.
Security

We are taking a security interest in [the goods being purchased.]
(other property)




- 75

Prepayment
If you pay off early, [you are [not] entitled to a refund of some of
the finance charge.]
[you will pay a penalty.]
See your contract documents for additional information about nonpayment, default, our
right to accelerate your debt, and prepayment rebates and penalties.
**

A subsequent purchaser or assignee may [not] assume this obligation on its original terms.
[I have received a copy of this statement.]

[______________________________________ 1
(name)

*This disclosure is required only for credit sales.
and loans are identical.

[__________________________ ]
(date)

Otherwise, disclosures for sales

**This disclosure is required only for residential mortgage transactions.

SECTION A(8) — ITEMIZATION OF AMOUNT FINANCED (§ 226.11(f)(2)(ii))
Itemization of Amount Financed of $

___

Cash price '

$

Cash downpayment

$

Trade-in

$

Prepaid finance charge

$

Amount paid to you

$

Amount credited to your [account] [loan] with us

$

Amounts paid to others on your behalf

$




$
$

$

-

76

-

SECTION A(9)— SAMPLE FORM FOR ALTERNATE SHOPPING DISCLOSURES (8 226.11(h))
XYZ AUTO
New Car Financing
15% ANNUAL PERCENTAGE RATE (the cost of your credit expressed as a yearly rate)
Loan Term
in months)

Amount Financed*

36

$5000
6000
7000

48

5000
6000
7000

Monthly Payment
Amount
$

173.33
207.99
242.66

139.15
166.98
194.82

Total of
Payments**

FINANCE CHARGE (the dollar
amount the credit will cos

$

$

6239.76
7487.71
8735.66

6679.38
8015.26
9351.13

1239.76
1487.71
1735.66

1679.38
2015.26
2351.13

*The amount financed is the amount of credit provided to you or on your behalf, figured by taking the cash price
of the car, subtracting the downpayment (including any trade-in) and any finance charge you must pay at the time
of purchase, and adding other items you wish to finance, such as insurance.
You have the right to receive a written itemization of the amount financed before your purchase is completed, if
you request it in writing.
**The total of payments is the amount you will pay when you make all payments as scheduled. The total of pay­
ments pi us your downpayment and trade-in equals the total sale price of your car bought on credit.
Your new car will serve as security for repayment.
If any payment is more than 10 days late, you will have to pay a late charge of $5.
If you pay off early, you will be entitled to a refund of some of the finance charge.
For more information on the effects of early payment, default, nonpayment and our right to accelerate your debt,
see the installment sales agreement.




- 77

SECTION A(10)— NOTICE OF RIGHT TO RESCIND (§ 226.13(b))

NOTICE OF RIGHT TO CANCEL

You have entered into a transaction that may result in a security interest
in your home. You have a legal right under federal law to cancel this trans­
action, without cost, within three business days from whichever of the follow­
ing three events occurs last:
(1) the date the transaction was entered into, which was ______________ .
(2) the date you received your Truth in Lending disclosures.
(3) the date you received this notice of your right to cancel.

If you decide to cancel this transaction, you may do so by notifying us,
in writing, at ____________ (Creditor's name and business address)_____________
You may use any written statement that is signed and dated to cancel this
transaction, or you may use this notice by dating and signing below. If you
use this notice, you may want to make a copy since it contains important
information about your rights and it i3 proof of when you cancelled.
If you cancel by mail or telegram, the notice must be sent no later than
midnight of the third business day after the latest of the three events listed
above. If you use any other means to cancel, it must be delivered to the
above address no later than that time.
If you cancel the transaction, the security interest is also cancelled.
Within 20 days of receiving of your notice, we must take the steps necessary
to reflect the fact that the security interest in your home has been cancelled
and we must return to you any money or property you have given to us or to
anyone else in connection with this transaction. If we have given you any
money or property, you may keep it until we have performed our obligations.
You must then offer to return the money or property; if return of the property
itself is impractical or unfair, you must offer its reasonable value. At
your option, you may make the offer at your home or at the location of the
property. If we do not take possession of the money or property within 20
days of your offer, you may keep it without further obligation.I

I HEREBY CANCEL THIS TRANSACTION.




(consumer's signature)

(date)

- 78

SECTION A ( I D — DISCLOSURES REGARDING VARIABLE RATES (§ 226.11(f)(5))

The annual percentage rate may increase during the term of this transaction
under the following conditions:
[An increase in the prime interest rate of this lender]
[Your deposit accounts fail to maintain a balance of _______________ ]
[You terminate your employment with ________________________________ ]
An increase is limited in the following manner:
[The rate will not increase above ____________ Z]
[The maximum increase at one time will be __________ Z ]
Any increase will take the form of:
[Higher payment amounts]
[More payments of the same amount]
[A larger amount due at maturity]

SECTION A(12)— DISCLOSURES REGARDING DEMAND
OBLIGATIONS (§ 226.11(f)(8))
This obligation is payable on demand.
[All disclosures are based on an assumed maturity of one year.]




- 79 -

APPENDIX B— ANNUAL PERCENTAGE RATE COMPUTATIONS (§ 226 .8(c)(2)(iii)(B))

In determining the denominator of the fraction under § 226.8
(c)(2)(iii)(B), no amount will be used more than once when adding the sum
of the balances */ to which periodic rates apply to the sum of the amounts
financed to which specific transaction charges apply. In every case the
full amount of transactions to which specific transaction charges apply
shall be included in the denominator. Other balances or parts of balances
shall be included according to the manner of determining the balance to
which a periodic rate is applied, as illustrated in the following examples
of accounts on monthly billing cycles:
1.

Previous balance— none.

A specific transaction of $100 occurs on first day of the billing
cycle. The average daily balance is $100. A specific transaction charge of
3% is applicable to the specific transaction. The periodic rate is 1 1/2%
applicable to the average daily balance. The numerator is the amount of the
finance charge, which is $4.50. The denominator is the amount of the trans­
action (which is $100), plus the amount by which the balance to which the
periodic rate applies exceeds the amount of specific transactions (such
excess in this case is 0), totaling $100.
The annual percentage rate is the quotient (which is 4 1/2%) multi­
plied by 12 (the number of months in a year), i.e., 54%.
2.

Previous balance— $100.

A specific transaction of $100 occurs at midpoint of the billing
cycle. The average daily balance is $150. A specific transaction charge of
3% is applicable to the specific transaction. The periodic rate is 1 1/2%
applicable to the average daily balance. The numerator is the amount of
finance charge which is $5.25. The denominator is the amount of the trans­
action (which is $100), plus the amount by which the balance to which the
periodic rate applies exceeds the amounts of specific transactions (such
excess in this case is $50), totaling $150.
As explained in example 1, the annual percentage rate is 3 1/2% x
12 =* 42%.
3.
If, in example 2, the periodic rate applies only to the previ­
ous balance, the numerator is $4.50 and the denominator is $200 (the amount
of the transaction, $100, plus the balance to which only the periodic rate
is applicable, the $100 previous balance). As explained in example 1, the
annual percentage rate is 2 1/4% x 12 a 27%.

*/ Where a portion of the finance charge is determined by application of one
or more daily periodic rates, the phrase M3um of the balances" shall also
mean the "average of daily balances."




- 80 -

4. If, in example 2, the periodic rate applies only to an adjusted
balance (previous balance less payments and credits) and the customer made a
payment of $50 at midpoint of billing cycle, the numerator is $3.75 and the
denominator is $150 (the amount of the transaction, $100, plus the balance
to which the periodic rate is applicable, the $50 adjusted balance). As
explained in example 1, the annual percentage rate is 2 1/2% x 12 3 30%.
5.

Previous balance— $100.

A specific transaction (check) of $100 occurs at the midpoint of
the billing cycle. The average daily balance is $150. The specific trans­
action charge is $.25 per check. The periodic rate is 1 1/2% applied to the
average daily balance. The numerator is the amount of the finance charge,
which is $2.50 and includes the $.25 check charge and the $2.25 resulting
from the application of the periodic rate. The denominator is the full
amount of the specific transaction (which is $100) plus the amount by which
the average daily balance exceeds the amount of the specific transaction
(which in this case is $50), totaling $150. As explained in example 1, the
annual percentage rate would be 1 2/3% x 12 53 20%.

6.

Previous balance— none.

A specific transaction of $100 occurs at the midpoint of the billing
cycle. The average daily balance is $50. The specific transaction charge is
3% of the transaction amount of $3.00. The periodic rate is 1 1/2% per month
applied to the average daily balance. The numerator is the amount of the
finance charge, which is $3.75, including the $3.00 transaction charge and
$.75 resulting from application of the periodic rate. The denominator is the
full amount of the specific transaction ($100) plus the amount by which the
balance to which the periodic rate is applied exceeds the amount of the trans­
action ($0). Note that in this situation, where the transaction amount
exceeds the balance, the resulting number is considered to be zero rather
than a negative number (50 - 100 53 -50). The denominator is thus $100. The
resulting annual percentage rate is 3 3/4% x 12 53 45%.
By order of the Board of

Governors, April 28, 1980.
_____ (signed) Griffth L. Garwood_____
Griffith L. Garwood
Deputy Secretary of the Board

[SEAL]




COMPOSITE OF THE TRUTH IN LENDING ACT AND THE TRUTH
IN LENDING SIMPLIFICATION AND REFORM ACT*

TITLE I— CONSUMER CREDIT COST
DISCLOSURE
[15 U.S.C. § 1601 etseq.]
Chapter

1.
2.
3.
4.
5.

Section

G eneral Provisions .............................
Credit Transactions .............................
Credit A dvertising ...............................
C redit B i l u n g .......................................
Consumer Leases .................................

101
121
141
161
181

CHAPTER 1— GENERAL PROVISIONS
Sec.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.

Short title.
Findings and declaration of purpose.
Definitions and rules of construction.
Exempted transactions.
Regulations.
Determination of finance charge.
Determination of annual percentage rate.
Administrative enforcement
Views or other agencies.
[Repealed.]
Effect on other laws.
Criminal liability for willful and knowing
violation.

0 rf^
rTJT"^rCTTtn’llWVWuW?ffVatTN| Lif JtvWtll IIIvn inr ucv
I

k ljj

in m

a m

m

a n f n l a

(T

C U

*MSr>
113. Effect on governmen ta l m w n n
114. Reports by Board and Attorney General.
445?—Ltebilrty o f «*aigm»«9gU L [Repealed^

§ 101. Short title
This title may be cited as the Truth in Lending
Act.
5

102. Findings and declaration of purpose
fa) The Congress finds that economic stabiiiza-

* Composite version of the Truth in Lending Act (15 U.S.C.
§ 1601 et sea.) (in roman), as amended by the Truth in
Lending Simplification and Reform Act, Pub. L. No. 96-221,
Title VI (March 31, 1980) (in italic). Language amended or
deleted by Pub. L. No. 96-221 is included but scored with
dashed lines.



§ 102

tion would be enhanced and the competition
among the various financial institutions and other
firms engaged in the extension of consumer credit
would be strengthened by the informed use of
credit. The informed use of credit results from an
awareness of the cost thereof by consumers. It is
the purpose of this title to assure a meaningful
disclosure of credit terms so that the consumer
will be able to compare more readily the various
credit terms available to him and avoid the unin­
formed use of credit, and to protect the con­
sumer against inaccurate and unfair credit billing
and credit card practices.
** (b) The Congress also finds that there has
been a recent trend toward leasing automobiles
and other durable goods for consumer use as an
alternative to instalment credit sales and that these
leases have been offered without adequate cost
disclosures. It is the purpose of this title to assure
a meaningful disclosure o f the terms o f leases of
personal property for personal, family, or house­
hold purposes so as to enable the lessee to com­
pare more readily the various lease terms available
to him, limit balloon payments in consumer leas­
ing, enable comparison o f lease terms with credit
terms where appropriate, and to assure meaning­
ful and accurate disclosures of lease terms in
advertisements.
§ 103. Definitions and rules of construction
(a) The definitions and rules of construction
set forth in this section are applicable for the
purposes o f this title.
(b) The term “Board” refers to the Board of
Governors of the Federal Reserve System.
(c) The term ‘‘organization'’ means a corpora­
tion, government or governmental subdivision or
agency, trust, estate, partnership, cooperative, or
association.
(d) The term “person” means a natural per­
son or an organization.
(e) The term “credit” means the right granted
by a creditor to a debtor to defer payment of
debt or to incur debt and defer its paym ent
a * M+t The* town Sereditne* #e*ers-eoly-4o «red—
ltars-a4>o.jeeulariy a ttend i or
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in" uiuiv ^wuu■*--'i£a >i «»

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payment
a-ftoewcs—ehwge-is-ar m ay-he -re­
quired; whether hw connexion wi*h» loans,-sales
property -nr services, -nr ■nthcrwwc.
The term ‘cred ito r ' refers only to a
person who both (1) regularly extends, w hether in connection
w ith loans, sales o f property or services, or otherw ise, consum er
credit which is payable by agreem ent in more than four in sta ll­
m ents or for w hich the paym ent o f a finance charge is or m ay
be required; and (2) is the person to whom the debt arisin g from
the consum er credit transaction is in itia lly payable on the face
o f the evidence o f indebtedness or, i f there is no such evidence



2

§ 103.
o f indebtedness, by agreem ent N otw ith stan din g the previous
sentence , a person who regu larly arranges for the extension o f
consum er credit, w hich is payable in more than four in sta ll­
m ents or fo r which the paym ent o f a finance charge is or m ay
be required, from persons who are not creditors is a creditor,
an d in the case o f an o p e n end credit plan in volvin g a credit
card, the card issuer an a any person who honors the credit card
an d offers a discou n t w hich is a fin an ce charge are creditors.
For the
purposes of the requirements imposed under
chapter 4 and sections
W W W * . 1 2 7 (b )(1 ). 12 7 ( b ) ( 2 ) , 1 2 7 (b )(3 ),
+S7'f& K & r
of chapter 2 of this
title, the term “creditor" shall also include card
issuers whether or not the amount due is payable
by agreement in more than four installments or
the payment of a finance charge is or may be re­
quired, and the Board shall, by regulation, apply
these requirements to such card issuers, to the ex­
tent appropriate, even though the requirements
are by their terms applicable only to creditors
offering open end credit plans.

*1127(0X5),
\j27(bX 8), a n d 127(bX10)

“opedrt aeic” refers- >e

The term ‘cred it
s a le ’ refers to any sa le in w hich th e seller is a creditor.
The term includes any con­
tract in the form of a bailment or lease if the
bailee or lessee contracts to pay as compensation
for use a sum substantially equivalent to or in ex­
cess of the aggregate value of the property and
services involved and it is agreed that the bailee
or lessee will become, or for no other or a nomi­
nal consideration has the option to become, the
owner of the property upon full compliance with
his obligations under the contract.
(h)
The adjective “consumer”, used with ref­
erence to a credit transaction, characterizes the
transaction as one in which the party to whom
credit is offered or extended is a natural person,
and the money, property, or services which are
the subject of the transaction are primarily fo**____________
personal, f a m i l y , p u r | o r household
poses.

«-ptan-p#<eso#*ins-*fce towns af •emlifr-tmnewtt<m»»
which ■■way 4c ■made- thcrwmd*^- from time--**
time-***] uwrier-ohe towns— whiah a^oaacg
«harg»-may be computed-on' (he oirtotandtng-mw
ewd-hthaiwe^rrym-hnw-to *irrtc tfceretmdeft-




3

127(aXS127(aX7),

(i)
The term 4open end credit p la n ’ m eans a p la n under w hich
the creditor reasonably contem plates repeated transactions, which
prescribes the term s o f such transactions, an d which provides fo r a
finance charge which m ay be com puted from tim e to tim e on the
ou tstan din g unpaid balance. A credit plan which is an open end
credit p la n w ith in the m eaning o f the preceding sentence is an open
end credit plan even i f credit inform ation is verified from tim e to
tim e. ”

0 (j) The term "adequate notice”. as used in
section 133, means a printed notice to a card­
holder which sets forth the pertinent facts clearly
and conspicuously so that a person against whom
it is to operate could reasonably be expected to
have noticed it and understood its meaning. Such
notice may be given to a cardholder by printing
the notice on any credit card, or on each periodic
statement of account, issued to the cardholder, or
by any other means reasonably assuring the re­
ceipt thereof by the cardholder.
* (k) The term “credit card” means any card,
plate, coupon book or other credit device existing
for the purpose of obtaining money, property,
labor, or services on credit.
* ( l ) The term “accepted credit card” means
any credit card which the cardholder has re­
quested and received or has signed or has used,
or authorized another to use, for the purpose of
obtaining money, property, labor, or services on
credit.
* (m) The term “cardholder” means any per­
son to whom a credit card is issued or any per­
son who has agreed with the card issuer to pay
obligations arising from the issuance of a credit
card to another person.
* (n) The term “card issuer” means any per­
son who issues a credit card, or the agent of such
person with respect to such card.
* (o) The term “unauthorized use”, as used in
section 133, means a use of a credit card by a
person other than the cardholder who does not
have actual, implied, or apparent authority for
such use and from which the cardholder receives
no benefit.
** (p) The term “discount” as used in section
167 means a reduction made from the regular
price. The term “discount” as used in section 167
shall not mean a surcharge.
** (qi The term “surcharge” as used in section
103 and section 167 means any means of increas­
ing the regular price to a cardholder which is not
imposed upon customers paying by cash, check,
or similar means.
00* (r) The term “State” refers to any State, the
Commonwealth of Puerto Rico, the District of
Columbia, and any territory or possession of the
United States.




§ 10 3.
(s) The term ‘a g ricu ltu ra l pu rposes1 includes th e production, har­
vest, exh ibition , m arketing, tran sportation , processing, or m anufac­
ture o f ag ricu ltu ra l produ cts by a n a tu ra l person who cu ltivates,
p la n ts, propagates, or nurtures those a g ricu ltu ra l produ cts, in clud­
ing but not lim ite d to th e acqu isition o f farm lan d, real property
w ith a farm residence, a n d person al property an d services used, p r i­
m arily in farm ing.
(t) The term a g ricu ltu ra l p ro d u c ts’ in cludes agricu ltu ral, h orti­
cu ltu ral, viticu ltu ra l, a n d d a iry produ cts, livestock, w ild life, pou l­
try, bees, forest produ cts, fish a n d sh ellfish , an d an y produ cts there­
of, in clu din g processed a n d m anufactured products, an d an y an d
a ll produ cts raised o r produ ced on farm s an d an y processed o r m an­
ufactu red produ cts thereof.
(u) The term ‘m aterial disclosures * means the disclosure, as re­
quired by th is title, o f the annual percentage rate, the m ethod o f de­
term ining the finance charge an d the balance upon which a finance
charge w ill be imposed, the am ount o f the finance charge, the
am ount to be financed, the total o f paym ents, the num ber and
am ount o f paym ents, and the due dates or periods o f paym ents
scheduled to repay the indebtedness.
(v) The term ‘dw ellin g* means a residen tial structure or m obile
home which contains one to fou r fa m ily housing units, o r in d ivid ­
ual units o f condom inium s or cooperatives.
(w) The term ‘residen tial m ortgage transaction *means a transac­
tion in which a mortgage, deed o f trust, purchase money security in­
terest arising under an in stallm en t sales contract, or equivalent con­
sensual security interest is created or retained against the consum­
er’s dw ellin g to finance th e acquisition or in itia l construction o f
such dw elling.

Any reference to any requirement im­
posed under this title or any provision thereof
includes reference to the regulations of the Board
under this title or the provision thereof in ques­
tion.
(y )”* °° 'ttt'The disclosure o f an amount or percent­
age which is greater than the amount or percent­
age required to be disclosed under this title does
not in itself constitute a violation of this title.

9 104. Exempted transactions
This title does not apply to the following:
________ (1 ) Credit transactions involving extensions of_____________
pri/ntrily I credftjfor business^ -co«rw »e«»l purposes, or to
} , comm ercial, or agricu ltu ral
'
government or governmental agencies or instru­
mentalities, or to organizations.
(2 )
Transactions in securities or commodities
accounts by a broker-dealer registered with the
Securities and Exchange Commission.

Cwdifr transaetwnsF
if*

t

4w r>-fal waa»o-l •

/v«

•Swna«^e:t»e«ds
“(3) C redit transactions, oth er th an those in w hich a secu rity
in terest is or w ill be acqu ired in real property, or in personal
property used or expected to be used as th e p rin cip a l d w ellin g o f
the consum er, in w hich th e to ta l am ount fin an ced exceeds
$35,000.




5

§ 104.
(4 )
Transactions under public utility tariffs, if
the Board determines that a State regulatory body
regulates the charges for the public utility serv­
ices involved, the charges for delayed payment,
and any discount allowed for early payment.
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ag«aw44uralifMrpoBao in 'Which the tet*f»a«reunt-*e be»

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§ 105. Regulations
( i ) The Board shall prescribe regulations to carry
out the purposes of this title. These regulations
may contain such classifications, differentiations,
or other provisions, and may provide for such
adjustments and exceptions for any class of trans­
actions, as in the judgment of the Board are nec­
essary or proper to effectuate the purposes of this
title, to prevent circumvention or evasion thereof,
or to facilitate compliance therewith.

(b)
The B oard sh a ll pu blish m odel disclosure form s an d clauses
fo r common transactions to fa c ilita te com pliance w ith the disclosure
requirem ents o f th is title arid to a id the Sorrower or lessee in under­
stan din g the transaction by u tilizin g readily understandable lane to sim p lify the technical nature o f the disclosures. In devisin g
form s, the B oard sh a ll consider the use by creditors or lessors
o f d a ta processing or sim ila r autom ated equ ipm en t N oth in g in th is
title m ay be construed to require a creditor or lessor to use any such
m odel form or clause prescribed by the B oard under th is section. A
creditor or lessor sh all be deem ed to be in com pliance w ith the d is­
closure provisions o f th is title w ith respect to other than num erical
disclosures i f the creditor or lessor (1) uses any appropriate m odel
form or clause as pu blish ed by th e Board, or (2) uses any such
m odel form or clause and changes it by (A) deletin g any inform ation
which is not required by th is title, or (B) rearranging the form at, i f
in m aking such deletion or rearranging the form at, the creditor or
lessor does not affect the substance, clarity, or m eaningful sequence
o f the disclosure.
“(c) M odel disclosure form s an d clauses sh a ll be adopted by the
B oard a fter notice d u ly given in the F ederal R egister and an oppor­
tu n ity fo r pu blic com m ent in accordance w ith section 553 o f title 5,
U nitea S tates Code.
“(d) A n y regulation o f the Board, or any am endm ent or interpre­
tation thereof, requiring any disclosure w hich differs from the d is­
closures previously required by th is chapter, ch apter 4, or chapter 5,
or by any regulation o f the B oard prom ulgated thereunder sh a ll
have an effective date o f th a t October 1 which follow s by a t least six
m onths the d ate o f prom ulgation, except th a t the B oard m ay a t its
discretion take interim action by regulation, am endm ent, or inter­
pretation to lengthen the period o f tim e p erm itted fo r creditors or
lessors to a d ju st th eir form s to accom m odate new requirem ents or
shorten the length o f tim e fo r creditors or lessors to m ake such ad ­
ju stm en ts when it m akes a specific fin d in g th a t such action is nec­
essary to com ply w ith the fin din gs o f a court or to preven t un fair or
deceptive disclosure practices. N otw ith stan din g the previous sen­
tence, any creditor or lessor m ay com ply w ith any such new ly pro­
m ulgated disclosure requirem ents p rio r to the effective d ate o f the
requirem ents

»




6

§ 106
§ 106. Determination of finance charge
(a) Except as otherwise provided in this sec­
tion. the amount of the finance charge in connec­
tion with any consumer credit transaction shall
be determined as the sum of ail charges, payable
directly or indirectly by the person to whom the
credit is extended, and imposed directly or indi­
rectly by the creditor as an incident to the exten­
sion of cred it/ «w#iu4**g -iwy -•**•
fetiew iay

The finance charge doet not include chargee o f a
type payable in a com parable cash transaction. Exam ples o f chargee
which are included in the finance charge include any o f the follow ­
ing types o f charges which are applicable>,.

•




(1 ) Interest, time price differential, and any
amount payable under a point, discount, or other
system of additional charges.
(2 ) Service or carrying charge.
(3 ) Loan fee, finder’s fee, or similar charge.
(4 ) Fee for an investigation or credit report.
(5 ) Premium or other charge for any guarantee or insurance protecting the creditor against
the obligor’s default or other credit loss.
(b) Charges or premiums for credit life, acci­
dent, or health insurance written in connection
with any consumer credit transaction shall be in­
cluded in the finance charge unless
f l ) the coverage of the debtor by the insur­
ance is not a factor in the approval by the credi­
tor of the extension of credit, and this fact is
clearly disclosed in writing to the person applying
for or obtaining the extension of credit; and
(2 ) in order to obtain the insurance in connec­
tion with the extension of credit, the person to
whom the credit is extended must give specific
affirmative written indication of his desire to do so
after written disclosure to him of the cost thereof.
(c) Charges or premiums for insurance, writ­
ten in connection with any consumer credit trans­
action, against loss of or damage to property or
against liability arising out of the ownership or
use of property, shall be included in the finance
charge unless a dear and spedfic statement in
writing is furnished by the creditor to the person
to whom the credit is extended, setting forth the
cost of the insurance if obtained from or through
the creditor, and stating that the person to whom
the credit is extended may choose the person
through which the insurance is to be obtained.
(d) If any of the following items is itemized
and disclosed in accordance with the regulations
of the Board in connection with any transaction,
then the creditor need not include that item in
the computation of the finance charge with re­
spect to that transaction:
(1 ) Fees and charges prescribed by law which
actually are or will be paid to public officials for
determining the existence of or for perfecting or
releasing or satisfying any security related to the
credit transaction.

7

§ 106
(2 ) The premium payable for any insurance
in lieu of perfecting any security interest other­
wise required by the creditor in connection with
the transaction, if the premium does not exceed
the fees and charges described in paragraph (l)
which would otherwise be payable.

A b* ot’
r>»» >yp» o*-eha«$*»whMifr iMoufw
#*d—*iie—<xekisi*e- ot—whiwc- trow ■ tlw
iM n w
<appr»««d-^t tW Beard-^y rogw»»
latioa.
(e)
The following items, when charged in con­
nection with any extension of credit secured by
an interest in real property, shall not be included
in the computation of the finance charge with
respect to that transaction:
(1) Fees or premiums for title examination,
title insurance, or similar purposes.
(2 ) Fees for preparation of a deed, settlement
statement, or other documents.
(3 ) Escrows for future payments of taxes and
insurance.
(4 ) Fees for notarizing deeds and other docu­
ments.
(5) Appraisal fees.
(6) Credit reports.
§ 107. Determination of annual percentage rate
(a) The annual percentage rate applicable to
any extension of consumer credit shall be deter­
mined, in accordance with the regulations of the
Board,
(1 ) in the case of any extension of credit
other than under an open end credit plan, as
(A ) that nominal annual percentage rate
which will yield a sum equal to the amount of
the finance charge when it is applied to the un­
paid balances of the amount financed, calculated
according to the actuarial method of allocating
payments made on a debt between the amount
financed and the amount of the finance charge,
pursuant to which a payment is applied first to
the accumulated finance charge and the balance
is applied to the unpaid amount financed; or
(B) the rate determined by any method
prescribed by the Board as a method which mate­
rially simplifies computation while retaining rea­
sonable accuracy as compared with the rate de­
termined under subparagraph (A ).
(2 ) in the case of any extension of credit
under an open end credit plan, as the quotient
(expressed as a percentage) of the total finance
charge for the period to which it relates divided
by the amount upon which the finance charge for
that period is based, multiplied by the number of
such periods in a year.
(b) Where a creditor imposes the same finance
charge for balances within a specified range, the
annual percentage rate shall be computed on the
median balance within the range, except that if
the Board determines that a rate so computed




3

§ 107.
would not be meaningful, or would be materially
misleading, the annual percentage rate shall be
computed on such other basis as the Board may
hy regulation require.
fe ) -The—annual —pcrecn*<tg»- rata may— b*»
♦aundedi to the aeawst -quasi®* o£»l -pus ee«tum»
ies uredit —eaneactiaas payable -*a substantially
i qaal"insiaimeiw 'w «n *-c?edito»-dc)i<rmia<. i -»n«
tetaH inanoe-chftggc-e n -»he "qas ia -o H f sio^ie-add^

My a ccount, periadicr on-other-mte; ao ^ -the-raiaie-coaveswd 4«*o-aa annual*parse rttag»-fa4» undes*
-proaedums p*esa**b**i>by. tW Beard*

(cj The disclosure o f an annual percentage rate is accurate fo r
the purpose o f th is title i f the rate disclosed is w ith in a tolerance
not greater than one-eighth o f 1 p er centum more or less than the
actual rate or rounded to the nearest one-fourth o f 1 p er centum.
The Board m ay allow a greater tolerance to sim plify com pliance
where irregular paym ents are involved.
(d) The Board may authorize the use of rate
tables or charts which may provide for the dis­
closure of annual percentage rates which vary
from the rate determined in accordance with
subsection (a)(1)(A) by not more than such tol­
erances as the Board may allow. The Board may
not allow a tolerance greater than 8 per centum
of that rate except to simplify compliance where
irregular payments are involved.
(e) In the case of creditors determining the
annual percentage rate in a manner other than as
described in subsection -4®4* «nn* (d), the Board
may authorize other reasonable tolerances.
(1)
Prior—to—January. V W U any -pate-re­
quired -under this -tkle-to—be—disclosed -as -a- per­
centage-rate- may, -as the- option- o& the- creditor?be expressed, in-the—form o f the -correspondingcatio-of-doilars-per-huadred -doUarsr

§ 108. Administrative enforcement
(a)
Compliance with the requirements imposed
under this title shall be enforced under
(1 ) section 8 of the Federal Deposit Insurance
Act, in the case of
(A ) national banks, by the Comptroller of
the Currency.
(B ) member banks of the Federal Reserve
System (other than national banks), by the Board.
(C ) banks insured by the Federal Deposit
Insurance Corporation (other than members of
the Federal Reserve System), by the Board of
Directors of the Federal Deposit Insurance Cor­
poration.
(2 ) section 5(d) of the Home Owners’ Loan
Act of 1933, section 407 of the National Housing
Act, and sections 6(i) and 17 of the Federal
Home Loan Bank Act, by the Federal Home
Loan Bank Board (acting directly or through the
Federal Savings and Loan Insurance Corpora­
tion), in the case of any institution subject to any
of those provisions.



9

wssmmasssmsmsamssssssssmssm■

>---

§
(3)
the Federal Credit Union Act, by the Ad­
ministrator of the National Credit Union Admin­
istration with respect to any Federal credit union.
°* (4) the Federal Aviation Act of 1958, by the
Civil Aeronautics Board with respect to any air
carrier or foreign air carrier subject to that Act.
** (5) the Packers and Stockyards Act, 1921
(except as provided in section 406 of that Act), by
the Secretary of Agriculture with respect to any
activities subject to that Act.
(6)
the Farm Credit Act of 1971, by the
Farm Credit Administration with respect to any
Federal land bank. Federal land bank association,
Federal intermediate credit bank, or production
credit association.
(b) For the purpose of the exercise by any
agency referred to in subsection (a) of its powers
under any Act referred to in that subsection, a
violation of any requirement imposed under this
title shall be deemed to be a violation of a re­
quirement imposed under that Act. In addition to
its powers under any provision of law specifically
referred to in subsection (a), each of the agencies
referred to in that subsection may exercise, for
the purpose o f enforcing compliance with any
requirement imposed under this title, any other
authority conferred on it by law.
(c) Except to the extent that enforcement of
the requirements imposed under this title is spe­
cifically committed to some other Government
agency under subsection (a), the Federal Trade
Commission shall enforce such requirements. For
the purpose of the exercise by the Federal Trade
Commission of its functions and powers under
the Federal Trade Commission Act, a violation
of any requirement imposed under this title shall
be deemed a violation of a requirement imposed
under that Act. Ail of the functions and powers
of the Federal Trade Commission under the Fed­
eral Trade Commission Act are available to the
Commission to enforce compliance by any person
with the requirements imposed under this title,
irrespective of whether that person is engaged in
commerce or meets any other jurisdictional tests
in the Federal Trade Commission Act.
(d) The authority of the Board to issue regu­
lations under this title does not impair the au­
thority of any other agency designated in this
section to make rules respecting its own proce­
dures in enforcing compliance with requirements
imposed under this title.

(eXl) In carrying out its enforcement a ctivities under th is section,
each agency referred to in subsection (a) or (c), in cases where an
an n u al percentage rate or finance charge wa3 inaccurately disclosed,
sh a ll notify the creditor o f such disclosure error and is authorized
in accordance w ith the provisions o f th is subsection to require the
creditor to make an adjustm ent to the account o f the person to
whom credit was extended, to assure th a t such person w ill not be
required to pay a finance charge in excess o f the finance charge ac­
tu ally disclosed or the dollar equivalent o f the annual percentage
rate actually disclosed, whichever is lower. For the purposes o f th is
subsection, except whore such disclosure error resulted from a w ill


10

10




§ 108.
fu l violation which was intended to m islead the person to whom
credit was extended, in determ ining w hether a disclosure error has
occurred and in calculating any adjustm ent, (A) each agency sh a ll
apply (i) w ith respect to the annual percentage rate, a tolerance o f
one-quarter o f 1 percent more or less than the actual rate, deter­
m ined w ithout regard to section 107(c) o f th is title, except in the
case o f an irregular mortgage lending transaction, and (ii) w ith re­
spect to the finance charge, a corresponding num erical tolerance as
generated by the tolerance provided under th is subsection for the
annual percentage rate; except th a t (B) w ith respect to transactions
consum m ated a fter tw o years follow ing the effective date o f section
608 o f the Truth in Lending S im plification and Reform Act, each
agency sh a ll apply (i) fo r transactions th a t have a scheduled am orti­
zation o f ten years or less, w ith respect to the annual percentage
rate, a tolerance not to exceed one-quarter o f 1 percent more or la s
than the actual rate, determ ined w ithout regard to section 107(c) o f
th is title, but in no event a tolerance o f less than the tolerances al­
lowed under section 107(cX (ii) for transactions th a t have a sched­
uled am ortization o f more than ten years, w ith respect to the
annual percentage rate, only such tolerances as are allow ed under
section 107(c) o f th is title, and (iii) fo r a ll transactions, w ith respect
to the finance charge, a corresponding num erical tolerance as gener­
ated by the tolerances provided under th is subsection fo r the annual
percentage rate.
tl{2) Each agency sh a ll require such an adjustm ent when it deter­
m ines th a t such disclosure error resulted from (A) a clear and con­
sisten t pattern or practice o f violations, (B) gross negligence, or (CD a
w illfu l violation which was intended to m islead th e person to
whom the credit was extended. N otw ith standin g the preceding sen­
tence, except where such disclosure error resulted from a w illfu l vio­
lation which was intended to m islead the person to whom credit
w as extended, an agency need not require such an adjustm ent i f it
determ ines th a t such disclosure error—
•YA) resulted from an error involving the disclosure o f a fee or
charge th a t w ould otherw ise be excludable in com puting the fi­
nance charge, including but not lim ited to violations involving
the disclosures described in sections 106(b), (cj and (d) o f th is
title, in which event the agency m ay require such rem edial
action as it determ ines to be equitable, except th a t fo r transac­
tions consum m ated after two years after the effective date o f
section 608 o f the Truth in Lending S im plification and Reform
Act, such an adjustm ent sh e ll be ordered fo r violations o f sec­
tion 106(b);
*YB) involved a disclosed am ount which was 10 per centum or
less o f the am ount th a t should have been disclosed and (i) in
cases where the error involved a d isclose d finance charge, the
annual percentage rate was disclosed correctly, and (ii) in cases
where the error involved a disclosed annual percentage rate, the
finance charge was disclosed correctly; in which event the
agency m ay require such adjustm ent as it determ ines to be equi­
table;
*YO involved a to ta l failu re to disclose eith er the annual per­
centage rate or the finance charge, in which event the agency
m ay require such adjustm ent as it determ ines to be equitable; or
a(D) resulted from any other unique circum stance involving
clearly technical and nonsubstantive disclosure violations th at
do not adversely affect inform ation provided to the consumer
and th a t have not m isled or otherw ise deceived the consumer.
In the case o f other such disclosure errors, each agency m ay require
such an adju stm en t
“(3) N otw ithstanding paragraph (2X no adjustm ent sh a ll be or­
dered (A) i f it w ould have a sign ificantly adverse im pact upon the
safety or soundness o f the creditor, but in any such case, the agency
m ay require a p a rtia l adjustm ent in an am ount which does not
have such an im pact except th a t w ith respect to any transaction
consum m ated a fter the effective date o f section 608 o f the Truth in
Lending Sim plification and Reform Act, the agency sh a ll require
the fu ll adjustm ent, but perm it the creditor to make the required
adjustm ent in p a rtia l paym ents over an extended period o f tim e
which the agency considers to be reasonable, (B) i f the am ount o f
the adjustm ent would be less than Si, except th a t i f more than one
year has elapsed since the date o f the violation, the agency m ay ro­

ll




MMNm H H M h M

§ 108.
quire i/iai suc/i amount be paid into the Treasury o f the United
States, or (C) except where such disclosure error resulted from a
w illfu l violation which was intended to m islead the person to
whom credit was extended, in the case o f an open-end credit plan,
more than two years after the violation, or in the case o f any other
extension o f credit, as follows:
“fV w ith respect to creditors th at are subject to exam ination
by the agencies referred to in paragraphs (1) through (3) o f sec­
tion 108(a) o f this title, except in connection w ith violations
arising from practices identified in the current exam ination
and only in connection with transactions that are consummated
after the date o f the im m ediately preceding examination, except
th at where practices giving rise to violations identified in earli­
er examinations have not been corrected, adjustm ents for those
violations sh all be required in connection w ith transactions
consummated after the date o f the exam ination in which such
practices were first identified;
ii) w ith respect to creditors th at are not subject to examina­
tion by such agencies, except in connection w ith transactions
th at are consummated after May 10, 1978; and
“(iii) in no event after the later o f (D the expiration o f the life
o f the credit extension, or (W two years after the agreement to
extend credit was consummated,
*X4XA) N otw ithstanding any other provision o f this section, an ad­
justm ent under this subeectuln may be required by an agency re­
ferred to in subsection (a) or (c) only by an order issued in accord­
ance w ith cease and desist procedures provided by the provision o f
law referred to in such subsec tions.
*XB) In the case o f an agency which is not authorized to conduct
cease and desist proceedings, such an order may be issued after an
agency hearing on the record conducted a t least th irty but not more
than sixty days after notice o f the alleged violation is served on the
creditor. Such a hearing sh all be deemed to be a hearing which is
subject to the provisions o f section 8(h) o f the Federal Deposit Insur­
ance A ct and shall be subject to ju d icia l review as provided therein.
*X5) Except as otherwise specifically provided in this subsection
and notwithstanding any provision of law referred to in subsection
(a) or (c), no agency referred to in subsection (a) or (d may require a
creditor to make dollar adjustm ents for errors in any requirements
under this title, except w ith regard to the requirements o f section
165.
“(6) A creditor sh all not be subject to an order to make an adjust­
ment, i f w ithin sixty days after discovering a disclosure error,
whether pursuant to a fin al w ritten exam ination report or through
the creditor's own procedures, the creditor notifies the person con­
cerned o f the error and adjusts the account so as to assure that such
person w ill not be required to pay a finance charge in excess o f the
finance charge actually disclosed or the dollar equivalent o f the
annual percentage rate actually disclosed, whichever is lower.
lX7) N otwithstanding the second sentence o f subsection (eXl), sub­
section (eXSXCXiX cuid subsection (eXSXCXii), each agency referred to
in subsection (a) or (c) sh all require an adjustm ent far an annual
percentage rate disclosure error th at exceeds a tolerance o f one quar­
ter o f one percent less than the actual rate, determ ined without
regard to section 107(c) o f this title, except in the case o f an irregu­
lar mortgage lending transaction, w ith respect to any transaction
consummated between January 1, 1977, and the effective date o f sec­
tion 608 o f the Truth in Lending Sim plification and Reform Act.

(b) This section sh all take effect on the date o f enactment o f the
Truth in Lending Sim plification and Reform A c t
(c) Effective one year after the date o f enactment o f the Truth in
Lending Sim plification and Reform Act, section 108(eXlXAXi) and
section 108(eX7) o f the Truth in Lending A ct are amended by strik­
ing out except in the case o f an irregular mortgage lending trans­
action".
12

Truth in Lendinc
Simplification c
Reform Act,
§ 608 (b),(c)




§ 109.
§ 109. Views of other agencies
In the exercise of its functions under this title,
the Board may obtain upon request the views of
any other Federal agency which, in the judgment
of the Board, exercises regulatory or supervisory
functions with respect to any class of creditors
subject to this title.
§ 110. Advisory committee
[Repealed by §703(b) of P i . 94-239 effective
3 /2 3 /7 6 .]
§ 111. Effect on other laws
fa) This—
title-does* not annuh- alter,- o f affect,
oc exempt any creditor from complying-with, the
laws- of—any- State ralating-to -the -disclosure of
Uuormation in-connection-wkh credit- transactiom,except to-the-ex tent-that-those iaws-are-tncomistent-with-the-provisions-of this tide ee-regtiiadoHethereunder. -and—then—only to- the extent- of -fehemcooaistency*

(aXl) Chapters 1, 2 and 3 do not annul, alter, or affect the lawe
o f any State relating to the disclosure o f information ui connection
w ith credit transactions, except to the extent th at those laws are in­
consistent w ith the provieione o f this title, and then only to the
extent o f the inconsistency. Upon its own motion or upon the request
o f any creditor, State, or other interested party which is subm itted
in accordance w ith procedures prescribed in regulations o f the
Board, the Board sh all determ ine whether such any such inconsis­
tency exists. I f the Board determ ines th at a State-required disclosure
is inconsistent, creditors located in th at State may not make disclo­
sures using the inconsistent term or form , and sh all incur no liabili­
ty under the law o f th at State for failure to use such term or form,
notw ithstanding th at such determ ination is subsequently amended,
rescinded, or determ ined by ju d icia l or other authority to be invalid
for any reason.
_ “(2) Upon its own motion or upon the request o f any creditor.
sh all determine whether any disclosure required under the law o f
any State is substantially the same in meaning as a disclosure re­
quired under this title. I f the Board determines th at a State-re­
quired disclosure is substantially the same in meaning as a disclo­
sure required by this title, then creditors located in th at State may
make such disclosure in compliance w ith such S tate law in lieu o f
the disclosure required by th is title, except th at the annual percent­
age rate and finance charge sh all be disclosed as required by section

122.

(b) This title does not otherwise annul, alter
or affect in any manner the meaning, scope or
applicability of the laws of any State, including,
but not limited to, laws relating to the types,
amounts or rates of charges, or any element or
elements of charges, permissible under such laws
in connection with the extension or use of credit,
nor does this title extend the applicability of those
laws to any class of persons or transactions to
which they would not otherwise apply.

13




§ 111.

(c) In any action or proceeding in any court
involving a consumer credit sale, the disclosure
of the annual percentage rate as required under
this title in connection with that sale may not be
received as evidence that the sale was a loan or
any type of transaction other than a credit sale.
’* ** * (d) Except as specified in sections 125, 130.
and 166. this title and the regulations issued there­
under do not affect the validity or enforceability
of any contract or obligation under State or Fed­
eral law.

§ 112. Criminal liability for willful and knowing
violation
Whoever willfully and knowingly
(1) gives false or inaccurate information or fails
to provide information which he is required to
disclose under the provisions of this title or any
regulation issued thereunder,
(2) uses any chart or table authorized by the
Board under section 107 in such a manner as to
consistently understate the annual percentage rate
determined under section 107(a)(1)(A), or
(3) otherwise fails to comply with any require­
ment imposed under this title,
shall be fined not more than S5,000 or impris­
oned not more than one year, or both.
Penalties- itwtpp&eahle— to— governmental
agencies.
N o civil—or -criminal—penalty—provided, unden
this-title-foe-any violation, thereon may-be im­
posed—upon -the-U nited-States or—any -agencythereof, oe-upon-any-State. op-political subdivisionthereof. -or any agency- of—any- State-or-poiitieal

subdivision!-

§ 113. E ffect on governmental agencies
(a)
A ny departm ent or agency o f the United States which adm in­
isters a credit program in which it extends, insures, or guarantees
consumer credit and in which it provides instrum ents to a creditor
which contain any disclosures required by this title shall, prior to
the issuance or continued use o f such instruments, consult w ith the
Board to assure th at such instrum ents comply w ith this title.
“(b) No civil or crim inal penalty provided under this title for any
violation thereof may be imposed upon the United States or any de­
partm ent or agency thereof, or upon any State or political subdivi­
sion thereof, or any agency o f any State or political subdivision.
{,(c) A creditor participating in a credit program adm inistered, in­
sured, or guaranteed by any departm ent or agency o f the United
States sh all not be held liable for a civil or crim inal penalty under
this title in any case in which the violation results from the use o f
an instrument required by any such departm ent or agency.
%d) A creditor participating in a credit program adm inistered, in­
sured, or guaranteed by any departm ent or agency o f the United
States sh all not be held liable for a civil or crim inal penalty under
the laws o f any State (other than laws determ ined under section 111
to be inconsistent w ith this title) for any technical or procedural
failure, such as a failure to use a specific form, to make information
available a t a specific place on an instrument, or to use a specific
typeface, as required by State law, which is caused by the use o f an
instrument required to be used by such departm ent or agency.
14




§

§ 114. Reports by Hoard and Attorney General
-Not later-than- January—3- of each- year after
1-949^ the Board and the Attorney General shall,
respectively, make reports to the Congress con­
cerning the administration of their functions
under this title, including such recommendations
as the Board and the Attorney General, respec­
tively, deem necessary or appropriate. In addi­
tion. each report of the Board shall include its
assessment of the extent to which compliance with
the requirements imposed under this title is being
achieved.

145.-Lkiinti ty-of-assigneesExcept -as. -otherwise- -specifically provided—iftt&s—M(«r-aoy> chrih-actloo-for- a- violation of-thishtle -which m ay-be -erim^ht—against- the -original*

■ - * 1» »
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tam ed- against—any- s**hst*q«ent—assignee—o f—the
origmal afeditor wheFe- the violation-trom- which
the adeged-habdiry-aro***- ia-apparent—en-the-face
of- the* instrument—assigwed unless—the-asrignment
is—involuntary.

CHAPTER 2—CREDIT TRANSACTIONS
Sec.
121.
122.
123.
124.
125.

General requirement of disclosure.
Form of disclosure; additional information.
Exemption for State-regulated transactions.
Effect of subsequent occurrence.
Right of rescission as to certain transac­
tions.

nf QAElVulic C
flfpmAH
niv. ■■’VOlHOlle trl
>t^wrfraif»cyr
11* [Rtpmaimil
127. Open end consumer credit plans.
128. — Salos-not-under-open-ond-credii-pians.

ItS. Canmtmercreditnotunderopm endcreditplana
1-29.—Consumer loans-not- under-open- end* credit
plans.

1SS. [Repmxied\.
130. Civil liability.
1-31. —Written acknowledgment as* proof* of- fo*
eeipfc

131.Liabilityofamignm*.
132.
133.
134.
135.

Issuance of credit cards.
Liability of holder of credit card.
Fraudulent use of credit card.
Business credit cards.

13S.Dimemination ofannualpercentagerate*.

15

|Each year

114

§ 121.
§ 121. General requirement of disclosure
{a> Each-creditor shall-disclose clearly- and-consfwctKHisly, in-accordance-w ith-the-re gulations-of
the-B oard, to- eaoh -p e rson- to—whom—consumer
eredit-is <jrtended-the-i« formation-required- underthis-chapter or chapter-4.

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required under-this-chapter-oo chapter- 4-to- mo r»
than one of thfiTiii
The -B oard-m ay provide- by—regulation* that* any
portion* of—the—information—required—to* be—diedosed-by this, section-may-he* given ■iff the* form

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tion-4s not in- a position to- know-ettaeS-informa*

(a)
Subject to subsection (bX cl creditor or lessor sh all disclose to
the person who is obligated on a consumer lease or a consumer
credit transaction the information required under th is title. In a
transaction involving more than one obligor, a creditor or lessor,
except in a transaction under section 125, need not disclose to more
than one o f such obligors if the obligor given disc losure is a prim ary
obligor.
“(b) I f a transaction involves one creditor as defined in section
105(f), or one lessor as defined in section 181(3), such creditor or
lessor sh all make the disclosures. I f a transaction involves more
than one creditor or lessor, only one creditor or lessor sh all be re*
quired to make the disclosures. The Board sh all by regulation
specify which creditor or lessor sh all make the disclosures.
“(c) The Board may provide by regulation that any portion o f the
information required to be disclosed by this title may oe given in the
form o f estim ates where the provider o f such inform ation is not in a
position to know exact information.
“(d) The Board sh all determ ine whether tolerances for numerical
disclosures other than the annual percentage rate are necessary to
facilitate compliance with this title, and i f it determ ines th at such
tolerances are necessary to facilitate compliance, it sh all by regular
tion perm it disclosures w ithin such tolerances. The Board sh all ex­
ercise its authority to perm it tolerances for numerical disclosures
other than the annual percentage rate so th at such tolerances are
narrow enough to prevent such tolerances from resulting in m islead­
ing disclosures o r disclosures th at circum vent the purposes o f this
tide.




3 122. Form of disclosure; additional information

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that -disclosures pwrsuant-to. this- chapter* or-chap-*

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K-A.MIUUt« TTuTr-x~Itivrwrlpea
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or-chapter -4.- and- may-permit the* use- of-termi­
nology diderenc from that-employed in-this ehapter-or-chapter- 4 if —
io conveys- substantially-the
same-meaning*

(a)
Information required by th is title sh all be disclosed clearly
and conspicuously, in accordance w ith regulations o f the Board.
The terms ‘annual percentage ra te ' and finance charge* sh all be
disclosed more conspicuously than other terms, data, or information
provided in connection with a transaction, except information relat­
ing to the identity o f the creditor. Regulations o f the Board need not
require th at disclosures pursuant to this title be made in the order
set forth in this title and, except as otherwise provided, may perm it
the use o f terminology different from th at employed in this title if it
conveys substantially the same meaning.
16




§ 122
Any-creditor-may-supply-additional- infor­
mation- oc- explanations with-any-disclosures-F8qui red-under ttws- chapter-or-chaptec-4.

(b)
Any creditor or lessor may supply additional inform ation or
explanation w ith any disclosures required under chapters 4 and 5
and, except as provided in section 128(bXl), under this chapter.
§ 123. Exemption for State-regulated transactions
The Board shall by regulation exempt from the
requirements of this chapter any class of credit
transactions within any State if it determines that
under the law of that State that class of transac­
tions is subject to requirements substantially simi­
lar to those imposed under this chapter, and that
there is adequate provision for .enforcement.
§ 124. Effect of subsequent occurrence
If information disclosed in accordance with
this chapter is subsequently rendered inaccurate
as the result of any act. occurrence, or agreement
subsequent to the delivery of the required disclo­
sures, the inaccuracy resulting therefrom does not
constitute a violation of this chapter.
§ 125. Right of rescission as to certain transac­
tions
(a) Except as otherwise provided in this sec(including opening or increasing
tion. in the case of any consumer credit transac­
th* credit lim it for an open end credit plan)
t i o n ^ which a security interest, including any
such interest arising by operation of law, is or will
be retained or acquired in any real property which
is usedj^o^ is-axpeaied to be-uaed as the-restdence
as the principal dwelling
of the person to whom credit is extended, the
obligor shall have the right to rescind the transac­
tion until midnight of the third business day fol­
lowing the consummation of the transaction or
the delivery of' the dwclowres-required- under this
secaon-aad aii~ethe*-mate«ai dieeioswes requiredu*der-this chapter
inform ation and rescission forms re­

quired under this section together w ith a statem ent containing the
m aterial disclosures required under th is title
, whichever is later, by notifying
the creditor, in accordance with regulations of the
Board, of his intention to do so. The creditor shall
clearly and conspicuously disclose, in accordance
with regulations of the Board, to any obiigor in a
transaction subject to this section the rights of the
obligor under this section. The creditor shall also
provide, in accordance with regulations of the
Board.j^Mt-adaquat«-oppeftuAt«y -te- tha—obligor
to exercise his right to rescind any transaction
subject to this section.

17 -

appropriate form s for the obligor




§ 125
lb) When an obligor exercises his right to
rescind under subsection (a), he is not liable for
any finance or other charge, and any security
interest given by the obligor, including any such
interest arising by operation of law, becomes void
upon such a rescission. W i t h i n d a y s after
receipt of a notice of rescission, the creditor shall
return to the obligor any money or property
given as earnest money, downpayment, or other­
wise, and shall take any action necessary or
appropriate to reflect the termination of any
security interest created under the transaction. If
the creditor has delivered any property to the obli­
gor, the obligor may retain possession of it. Upon
the performance of the creditor’s obligations
under this section, the obligor shall tender the
property to the creditor, except that if return of
the property in kind would be impracticable or
inequitable, the obligor shall tender its reasonable
value. Tender shall be made at the . location of
the property or at the residence of the obligor, at
the option of the obligor. If the creditor does not
take possession of the property withinj^ei» days
after tender by the obligor, ownership of the
property vests in the obligor without obligation
on his part to pay for it

10

The procedures prescribed by th is subsection sh all apply except
when otherwise ordered by a court
(c) Notwithstanding any rule of evidence,
written acknowledgment of receipt of any disclo­
sures required under this title by a person to____________
whomja statement is required to be given pursuant
( information, forms, and
to this section does no more than create a rebuttable presumption of delivery thereof.
(d) The Board may, if it finds that such action
is necessary in order to permit homeowners to
meet bona fide personal financial emergencies,
prescribe regulations authorizing the modification
or waiver of i ny rights created under this section
to the extent and under the circumstances set
forth in those regulations.
* U ) This -section-does- aot-appiy 4o-4h*-creatiooop- retention—of a- first—lien -against—
a -dwelling- to
finance-the-acquisition- o£-that-dweiiing-er -to- »
consumer—credit-transaction-in—which on- agency
of-a State is- the- creditor,

(eXl) This section does not apply to—
“(A) a residential mortgage transaction as defined in section
lOS(w);
*XB) a transaction which constitutes a refinancing or console
dation (w ith no new advances) o f the principal balance then
due and any accrued and unpaid finance charges o f an existing
extension o f credit by the same creditor secured by an interest in
the same property;
“(C) a transaction in which an agency o f a State is the credi­
tor; or
4XD) advances under a preexisting open end credit plan if a
security interest has already been retained or acquired and such
advances are in accordance w ith a previously established credit
lim it for such plan.
‘X2) The provisions o f paragraph (1XD) sh all cease to be effective 3
yean after the effective date o f the Truth in Lending Sim plification
and Reform A c t
- 18 «£\




§ 125

(f)
Afl-obttgor’s-Fvght-of resaission-shail-exptFethree yaars-after-the date of-coflsummati&a- o£-tf>»
transaction - o p upon—the—said «& the —property,
whic hevcp-oacufs-eai+terr-notwk hs tandiag-1 he- factthat the- disolosures-requked- undef-thts- sectie»-or
aay- other material- disclosures required- undw-this
ehapter-have-noc-been-dalivered to-the-obiigerr-

(f)
An obligor's right o f rescission sh all expire three years after
the date o f consummation o f the transaction or upon the sale o f the
property, whichever occurs first, notw ithstanding the fact that the
information and forms required under this section or any other dis­
closures required under this chapter have not been delivered to the
obligor\ except th at if (1) any agency empowered to enforce the provi­
sions o f this title institutes a proceeding to enforce the provisions o f
this section w ithin three years after the date o f consummation o f
the transaction, (2) such agency fin ds a violation o f section 125, and
(2) the obligor’s right to rescind is based in whole or in part on any
m atter involved in such proceeding, then the obligor's right o f re­
scission sh all expire three years after the date o f consummation o f
the transaction or upon the earlier sale o f the property, or upon the
expiration o f one year follow ing the conclusion o f the proceeding, or
any ju d icia l review or period for ju d icia l review thereof, whichever
is later,
iLtg) In any action .in which it is determ ined th at a creditor has
violated th is section, in addition to rescission the court may award
relief under section 120 for violations o f this title not relating to the
right to rescind.
-5—126—Conieot ofcpwiodie statements
If—a-creditor transmits—periodic-statements incoanechoo-with-an^-extension ot—consumer wed if
otfter—than—under an- open—end—consumer—credit
plan,-&en each-of -these—jtatements-shall-sst forth
each-o&he-foUowing-items:
(44-The- annual—percentage-rate- o f-th e total
finance-charge^
fS-V-The-date-by^-whichr Off-tho- period- (if-any>
within-which, payment-must be-made m-oFder to
avoid-addhionat-hnaace chaFgee-or-other-chafges.
(24 Such of-the-items-set-forth-in -section-127{b>
as-the-Boacd may by-regulation require-as appro­
priate—to -the teHns-and-cenditiofls—under whichthe extensioo-of-credit-in question-* m ade
§ 127. Open end consumer credit plans
(a) Before opening any account under an open
end consumer credit plan, the creditor shall dis­
close to the person to whom credit is to be ex­
tended each of the following items, to the extent
applicable:
■* (1) The conditions under which a finance
charge may be imposed, including the time period
(if any) within which any credit extended may be
repaid without incurring a finance charge, except
that the creditor may, at his election and without
disclosure, impose no such finance charge if pay­
ment is received after the termination of such time
period.

I f no such tim e period is provided, the creditor shall
disclose such fa c t

19

(2) The method of determining the balance
upon which a finance charge will be imposed.
(3) The method of determining the amount of
the finance charge, including any minimum or
fixed amount imposed as a finance charge.
(4) Where one or more periodic rates may be
used to compute the finance charge, each such
rate, the range of balances to which it is appiicable, and the corresponding nominal annual per­
centage rate determined by multiplying the peri­
odic rate by the number of periods in a year.
If-<he credhofr-ro eketsrfA) the average—effective- annual—percentage
fate eh return-feee*ve<A—from- accounts- -under-the
plan far a-representative pewod-ef-dmet-eF
wheneveF-cirGumstances-afe such that the
computation—af -a—rate—under subparagraph—(A>
would—not -be- feasible—or-praettealr-or -would-be
misleading—or meaningless,—a- projected rote -ofHJUiPfl—to-be- received- from -eecounts—under -the
plan.—The Beard-shaU-prcscfifee-Fegulationsr eons+stest—with—commonly accepted—standards—for
accounting-or-statistical—procedures,-to carry-outthe purposes ot-thls- paragraph.
(Jj) (Op The—condition*- under—which- any- other
charges-may—be Imposedr and the-method—by
which-they will. be-determiaetL-

(5)
Identification o f other charges which may be imposed as
part o f the plan, and their method o f computation, in accord­
ance w ith regulations o f the Board,
l
Aj dSi
a w
r*r\r^A\t
nwi
\ 1/ *T%
> HV
viiuuiinrvr
wi ij u iiu v i

which---thu-■
*Mueii vuv •gfgriifcflr
et wviewi

may retain ©r-acquite any security-interest in-any
property—to—secure the- payment—ef -any orodit
entended-under the-plan,-and-a description of the
iaterest-or 4nterest»-which> may be-so-retained-or

acquired*
(6)
In cases where the credit is or w ill be secured, a state­
ment that a security interest has been or w ill be taken in (A)
the property purchased as part o f the credit transaction, or (B)
property not purchased as p a rt o f the credit transaction identi­
fied by item or type.
(y ) "fSf A statement, in a form prescribed by regu­
lations of the Board of the protection provided by
sections 161 and 170 to an obligor and the
creditor’s responsibilities under sections 162 and
170. With respect to each-of two billing—cycles
per- year, -as semi-annual-intervals




one billin g cycle per calendar year, at
intervals o f not less than six m onths or more than eighteen
months

, the creditor
shall transmit such statement to each obligor to
whom the creditor is required to transmit a state­
ment pursuant to section 127(b) for such billing
cycle.




§ 127.

(b)
The creditor of any account under an open
end consumer credit pian shall transmit to the
obligor, for each billing cycle at the end of which
there is an outstanding balance in that account or
with respect to which a finance charge is imposed,
a statement setting forth each of the following
items to the extent applicable:
(1) The outstanding balance in the account at
the beginning of the statement period.
*42) The amount and dato-of- cach-extervanc-4
efedit-durmg- the period-and-a-brief- identifteadon
on-op-accompanying the> stacement-of aach-extension -ot-credit-iiv a4orm-prescribed-by regulationset-the-Be»f*i-5uffi«ient-to-enaWe -the-obligor to
identify the- tfansactioftr-of-rekde h-to-eopies of
sales -vouchers -or- sinHiar—instruments-previousiyfurnished.

(2) The am ount and date o f each extension o f credit during
the period, and a brief identification, on or accompanying this
statem ent o f each extension o f credit in a form prescribed by the
Board sufficient to enable the obligor either to identify the
transaction or to relate it to copies o f sales vouchers or sim ilar
instrum ents previously furnished except th at a creditor’s fa ilure to disclose such inform ation in accordance w ith this para­
graph sh a ll not be deemed a failure to com ply w ith th is chapter
or th is title i f (A) the creditor m aintains procedures reasonably
adapted to procure and provide such inform ation, and (B) the
creditor responds to and treats any inquiry for clarification or
docum entation as a billin g error and an erroneously billed
am ount under section 161. In lieu o f com plying w ith the re­
quirem ents o f the previous sentence, in the case o f any transac­
tion in which the creditor and seller are the same person, as de­
fined by the Board, and such person's open end credit plan has
few er than 15,000 accounts, the creditor m ay elect to provide
only the am ount and date o f each extension o f credit during the
period and the seller’s name and location where the transaction
took place if (A) a brief identification o f the transaction has
been previously furnished, and (B) the creditor responds to and
treats any inquiry fo r clarification or docum entation as a bill­
ing error and an erroneously billed amount under section 161,
(3) The total amount credited to the account
during the period.
(4) The amount of any finance charge added to
the account during the period, itemized to show
the amounts, if any, due to the application of
percentage rates and the amount, if any, imposed
as a minimum or fixed charge.
(5) Where one or more periodic rates may be
used to compute the finance charge, each such
rate, the range of balances to which it is applica­
ble, and, unless the annual percentage rate (deter­
mined under section 107(a)(2)) is required to be
disclosed pursuant to paragraph (6), the corres­
ponding nominal annual percentage rate deter­
mined by multiplying the periodic rate by the
number of periods in a year.

21 -

(6)
Where the total finance charge exceeds 50
cents for a monthly or longer billing cycle, or the
pro rata part of 50 cents for a billing cycle
shorter than monthly, the total finance charge ex­
pressed as an annual percentage rate (determined
under section 107(a)(2)), except that if the finance
charge is the sum of two or more products of a
rate times a portion of the balance, the creditor
may, in lieu of disclosing a single rate for the
total charge, disclose each such rate expressed as
an annual percentage rate, and the part of the
balance to which it is applicable.
(3)
Ju-tas-ciectien-dt-the-erediter.-the average
effective annual-percentage—pate-of- return-4or the
■projected rate) under-the-plan- as prescribed -in
sobsecbon-4a)( 5-K
( 7 ) -(8* The balance on which the finance charge
was computed and a statement of how the balance
was determined. If the balance is determined with­
out first deducting all credits during the period,
that fact and the amount of such payments shall
also be disclosed.
(S )
The outstanding balance in the account at
the end of the period.
( 9) e*W t The date by which or the period (if any)
within which, payment must be made to avoid
additional finance charges, except that the creditor
may. at his election and without disclosure, im­
pose no such additional finance charge if payment
is received after such date or the termination of
such period.
( l0 ) *’H t+ t The address to be used by the creditor
for the purpose of receiving billing inquiries from
the obligor.




aa-open ewl-coflwmw. credit pUn-having -an- outebwc -a£-the-eredi«er’s-Stst -full -b*Hing-eyde-ender
ee-a n y amendments—thereto? the-items described
to- subsection -(e), 4e-tbe* emem-epplieeele -end
nee -previously-disci asedr-sheii- be—disclosed m—a
aetice-meiled-or-dedvwe* te-4he obligee not ‘later

t n

tW M n

th e

tii& A

£

—■

-r%

»1

Ia a

qutrcd-bv subseenen ^bb

*»%.■«

>-»«■»




§ 128.

3 128,

not under opes end credit plans

CONSUMER CREDIT

fa h I* —connection with, each consumes-credit
not-undes. ao-open-eod «edic-pian, tho cresiu
toe shad dieeloso—each—of -the £ohow>og-item*
whicb-ie-apedcabiat
T he-eash-price-of-ton property—®s» secwce
purchasedfit* The* suae of—any—amounts osadited—as
dewnpayment-dincluding aop trade-in)—
m T h e digcfcncotoctweoa the-atnount relcwed
to-in paragraph-41) -and the-ameuot refereed tc-to
paragraph (2htoh-All ether <toergesr-todmd«ally--itemuad*
■which -are included—to the—amount ot—toe credit
owended—but—wrnch—are net- paw* of -the* finance
charge(5-Hfhe total am ount to -b e daanced. .'the turn
oT-the—amount dccer ibcd—to peeagraph—to) -pius
tow amount-daeeribed-in paragraph (4to
(6)- fi*ccpt-to the—caso-to* a sate o#-wdweHtog,
tow am ount-oh th e -f nanec* chaegw which map-in
whole-ow» in—part he designated as -e-time priee
different*#! ec—any—urmiaa tewn-to the» extent-ap ­
plicable*
to^-The -finance char gw exp netsad as-ao annnrd
jMNCtllA^C
in-toe cacwof—w-finance
ehargo
(A)- whioh—does - a t exceed ST—en d -is appiicabie—to an—amoonw financed -not* exceeding
(1» wfaieh-doee wot -eneeed—fi7.5to-and—is
applicable ta-on amount financed-excecdtog
.1 creditor mau not, divide-* consumer-—scdit ,*ak
into te n o r more sales to-evo id-toe disclosure of
an—annual percentage ratc-purauant to—this para

gsaphp,
h8) T he wwnbee, amount, -and due—datee—or
pcciods-of* payments sched uled ,»<o repay the - in
to^-The detoultr d eltoqucnoy, or similar charges
payable in -tow event of kite* payments.
m
A d escription c f any 1security iotesest heid
ea to he retained or—eequireh by-toe ereditoe—to
ecnnectien with-the—extension of—credit?—and a
h ear identifiaadon -ef-the-peopewy-to which-toc
security-totereet- relates.

(a)
For each consumer credit transaction other than under an
open end credit plan, the creditor sh all disclose each o f the follow­
ing items, to the extent applicable:
**(1) The identity o f the creditor required to make disclosure.
(2XA) The \amount financed\ using that term, which shall
be the amount o f credit o f which the consumer has actual use.
This amount shall be computed as follows, but the computa­
tions need not be disclosed and sh all not be disclosed with the
disclosures conspicuously segregated in accordance w ith subsec­
tion (bXV:
u(i) take the principal amount o f the loan or the cash
price less downpayment and trade-in ;

23

§ 128.
“(ii) add any charges which are not part o f the finance
charge or o f the principal amount o f the loan and which
are financed by the consumer, including the cost o f any
items excluded from the finance charge pursuant to section
106; and
“(iii) subtract any charges which are part o f the finance
charge but which w ill be p a id by the consumer before or at
the tim e o f the consummation o f the transaction, or have
been w ithheld from the proceeds o f the credit
‘YB) In conjunction with the disclosure o f the amount fi­
nanced, a creditor sh all provide a statem ent o f the consumer's
right to obtain, upon a w ritten request a written item ization o f
the amount financed. The statem ent sh all include spaces for a
'yes’ and 'no' indication to be in itialed by the consumer to indi­
cate whether the consumer wants a w ritten item ization o f the
amount financed. Upon receiving an affirm ative indication, the
creditor sh all provide, a t the tim e other disclosures are required
to be furnished, a w ritten item ization o f the amount financed.
For the purposes o f this subparagraph, item ization o f the
amount financed* means a disclosure o f the follow ing items, to
the extent applicable:
,i(i) the amount th at is or w ill be p a id directly to the con­
sumer7
“(ii) the amount th at is or w ill be credited to the consum­
er’s account to discharge obligations owed to the creditor;
‘Yiii) each amount th at is or w ill be paid to th ird persons
by the creditor on the consumer’s behalf, together w ith an
identification o f or reference to the th ird person; and
“(iv) the total amount o f any charges described in the
preceding subparagraph (AJfiiiX
“(3) The finance charge’, not item ized, using th at term.
“(V The finance charge expressed as an ‘annual percentage
rate', using th at term. This sh all not be required if the amount
financed does not exceed $75 and the finance charge does not
exceed $5, or if the amount financed exceeds $75 and the fi­
nance charge does not exceed $7.50.
*Y5) The sum o f the amount financed and the finance charge,
which shall be termed the ‘total o f paym ents’.
“(6) The number, amount, ana due dates or period o f pay­
ments scheduled to repay the total o f payments.
‘*(7) In a sals o f property or services in which the seller is the
creditor required to d isclose pursuant to section 121(b), the ‘total
sale price’, using th at term, which sh all be the total o f the cash
price o f the property or services, additional charges, and the fi­
nance charge.
“(8) Descriptive explanations o f the terms 1amount financed’,
finance charge’, 'annual percentage rate’, ‘total o f payments',
and ‘total saw price' as specified by the Board. The descriptive
explanation o f ‘total sale price’ sh all include reference to the
amount o f the downpayment.
(9) Where the credit is secured, a statem ent that a security
interest has been taken in (A) the property which is purchased
as part o f the credit transaction, or (B) property not purchased
as part o f the credit transaction identified by item or type.
"(10) Any dollar charge or percentage amount which may be
imposed by a creditor solely on account o f a late payment, other
than a deferral or extension charge.
“(11) A statem ent indicating whether or not the consumer is
entitled to a rebate o f any finance charge upon refinancing or
prepayment in fu ll pursuant to acceleration or otherwise, i f the
obligation involves a precomputed finance charge. A statem ent
indicating whether or not a penalty w ill be imposed in those
same circumstances i f the obligation involves a finance charge
computed from time to tim e by application o f a rate to the
unpaid principal balance.
‘(12) A statem ent that the consumer should refer to the ap­
propriate contract document for any information such document
provides about nonpayment, default, the right to accelerate the
m aturity o f the debt, and prepayment rebates and penalties.
“(13) In any residential mortgage transaction, a statem ent in­
dicating whether a subsequent purchaser or assignee o f the con­
sumer may assume the debt obligation on its original terms and
conditions.



- 24 ■




§ 128.

-ffe) Sw ept as otherwise-provided in-*hts ch*e-tcfr th»-disc4eeure»'required- under subsection-C)
-shell be-ma4e-be*ere the-eredie-is e.-rtemied.-^ed
m vf be-fwade-by dieelosiag the-information in-tbe
/*tt— 'TfTWVl i i yi Haana vl^^HWvC
f i a rJnK*
—
7TW«v^
WIi
iU«i
signed by tho-pwcheacr.
(bXl) Except as otherwise provided in this chapter, the disclo­
sures required under subsection (a) sh all be made before the credit is
extended. Except for the disclosures required by subsection (aXl) o f
this section, a ll disclosures required under subsection (a) and any
disclosure provided for in subsection (b), (c), or (d) o f section 106
sh all be conspicuously segregated from a ll other terms, data, or in­
formation provided in connection w ith a transaction, including any
computations or item ization.
“(2) In the case o f a residential mortgage transaction, as defined
in section 10d(w), which is also subject to the R eal E state Settlem ent
Procedures Act, good faith estim ates o f the disclosures required
under subsection (a) sh all be made in accordance w ith regulations
o f the Board under section 121(c) before the credit is extended, or
sh all be delivered or placed in the m ail not later than three busi­
ness days after the creditor receives the consumer's written applica­
tion, whichever is earlier. I f the disclosure statem ent furnished
within three days o f the written application contains an annual per­
centage rate which is subsequently rendered inaccurate w ithin the
meaning o f section 107(c), the creditor sh all furnish another state­
ment a t the tim e o f settlem ent or consummation.

(c )flt a creditor receives a purchase order by
mail or telephone without personal solicitation.
and the cash price and theJdef erred payment
price and the terms of financing, including the
annual percentage rate, are set forth in the credi­
tor's catalog or other printed material distributed
to the public, then the disclosures required under
subsection (a) may be made at any time not later
than the date the first payment is due.

( 1)
total sale

(2) I f a creditor receives a request for a loan by m ail or telephone
w ithout personal solicitation and the terms o f financing, including
the annual percentage rate for representative amounts o f credit, are
set forth in the creditor's printed m aterial distributed to the public,
or in the contract o f loan or other printed m aterial delivered to the
obligor, then the disclosures required under subsection (a) may be
made a t any tim e not later than the date the first paym ent is due.
(d)
If a consumer credit sale is one of a series
of consumer credit sales transactions made pur­
suant to an agreement providing for the addition
of the deferred payment price of that sale to an
existing outstanding balance, and the person to
whom the credit is extended has approved in
writing both the annual percentage rate or rates
and the method of computing the finance charge
or charges, and the creditor retains no security
interest in any property as to which he has re­
ceived payments aggregating the amount of the
sales price including any finance charges attribut­
able thereto, then the disclosure required under
subsection (a) for the particular sale may be
made at any time not later than the date the first

25

—

§ 128 .

payment for that sale is due. For the purposes of
this subsection, in the case of items purchased on
different dates, the first purchased shall be deemed
first paid for, and in the case of items purchased
on the same date, the lowest priced shall be
deemed first paid for.
3 129C- Consume*—lonus—not—unde*- open end
credit plans*
(a4- Aay. -creditor makiug-a. consumer loan-or
otherwise-extending-consumer-CFedit-in a-tfsnseeU©« which-is. neither—a- consume r- credit-sale -nor
under an- open- end - consum er-credit- plan- shaUdiselosu-each-of the-foUowing4tem vdo-thc-exteatapplicablec(44- The amount- of credit of-whieh-the-obligorw ili-have-thc actual use,, or—w hich4s—OF-will-bcpaid- to-bim -ot-for-his account-or to-another per­
son- on-his behalf,—
(-34 All—charges, individuaWy-4temiaedr~whieh
arc included in-4he amount-of credit- extended-hut
which -arc not-part-of dw-ftnimee charger—'
(44- The- total-amount t o -be-financed (the -sum
of-4hc-amouuts- roferrod-to -in-paragraph -4-L.)—
the-aroounts-referr-ed-to in-paragraph- (2»r—
(44- Exeept-i«-the-case-o£-a loan- secured-hy -a
first- lien- on—a dwelling- and- raade-to finance ..the
purchase -of- that- dwelling; the amount- et—thefinance-charger
(44- The-finance charge-expressed as-an -annual
percentage rate -except-la the- case- of-a-fin an cs
charge(AT which does-not—exceed- $5—and-is- ap­
plicable- to-an -extension of- consumer credit-not
exceeding STSf nr
fB ) w hich-does-aot-exceed - $3 t-5 0 -and
applicable to-an extension- of-eonsum er credit-ex­
ceeding—S7S.
A—creditor may-not-divide-aa extensioo—of -credit
into two-or more transactions to-avoid- the-disdosure -of- an—annual percentage-Fate-pursuant-to
this-paragraphr
(6)- The—FiumbeF, araountr-and—the -due -datesor-periods ef-payments scheduled to-repay-thedndebtednessi
(4-) The -default, —delinquency,— or— similarcharges-payabie -in-the-eveat-of-late paym ents
A-description-of any-seeuFity-isteFest-hekior- to-be retained-or-acqulred by-the—oreditor inconnection- with- the-exteasion-of-oreditr- anti—a
clear-identification of- the-propefty-to- w hich-the
security interest-relates.
(b-) Except-as otherwise-provided-in-thie-chapter, the- disclosures- required- by subseetion - (a)
shall-be- made before the* credit is-extendedT and
may be-raade-by-disclosing-1he- informatioa kv the
a o te-o r other- evidence-of -indebtedness - to be
signodby-the obligorv




26




§ 129.

fe4- If—a creditor retti*'cs-a--reqeuis* £of-aa-ex>
-Uosioe—of—credit-by -mail oe-telephone - w ithout
pefsonai-solicitation and the-terms ot-Snancicgr
including the-annual percentage-rate-fof-repre-senUMive—araouuts—of—erethf; a+e set- forth in-fha
creditor's—printed material distributed-to-the-pub14or or-in -the contract o£-loan-or—other-printed
material delivered-to-the etdigory then- the-disclo­
sures -required- under subsection (o>- m ay-bs-made.
a4-aoy—tirrvo-BOt-hHcr-tharv-the dat«-the-§rst-pay-

A

r m mtiv
f ig
t-ia
iu 'Tcn»«

§ 130. Civil liability
(a) Except as otherwise provided in this sec­
tion, any creditor who fails to comply with any
requirement imposed under this chap terror cnapter 4 or 5 of this title with respect to any person is
liable to such person in an amount equal to the
sum of—
(1) any actual damage sustained by such per­
son as a result of the failure;
(2)
(A)(i) in the case of an individual action
twice the amount of any finance charge in con­
nection with the transaction, or (ii) in the case
◦ f an individual action relating to a consumer
lease under chapter 5 of this title. 25 per centum
of the total amount of monthly payments under
the lease, except that the liability under this subparagraph shall not be less than $100 nor greater
than $1,000; or
(B)
in the case of a class action, such amount
as the court may allow, except that as to each
member of the class no minimum recovery shall
be applicable, and the total recovery in» such ac-

, including any requirement under section 125*

****
under this subparagraph in any class
action or series o f close actions arising out o f the same failure
to comply by the same creditor
shall not be more than the lesser of $500,000
or 1 per centum of the net worth of the creditor,
and
(3)
in the case of any successful action to en­
force the foregoing liability
.

. . . . .

or in any action in which
a person is determ ined to have a right o f rescission under sec­
tion 125
, the costs of the ac­
tion, together with a reasonable attorney’s fee as
determined by the court.
In determining the amount of award in any class
acnon, the court shail consider, among other rele­
vant factors, the amount of any actual damages
awarded, the frequency and persistence of fail­
ures of compliance by the creditor, the resources
of the creditor, the number of persons adversely
affected, and the extent to which the creditor’s
failure of compliance was intentional.

In connection
w ith the disclosures referred to in section 127, a creditor shall
have a liability determ ined under paragraph (2) only for failing

27

§ 130
to comply with the requirements o f section 125, section 127(a), or
o f paragraph (41 (5), (6), (7), (8), (9), or (10) o f section 127(b) or
for failing to comply with disclosure requirements under State
law for any term or item which the Board has determ ined to be
substantially the" same in meaning under section 111(a)(2) as
any o f the terms or item s‘referred to in -section 127(a) or any o f
those paragraphs o f section 127(b). In connection w ith the dis­
closures referred to in section 128, a creditor sh all have a liabil­
ity determ ined under paragraph (2) only for failin g to comply
w ith the requirements o f section 125 or o f paragraph (2) (insofar
as it requires a disclosure o f the ‘amount financed), (3), (41 (5),
(61 or (9) o f section 128(al or for fa ilin g to comply w ith disclo­
sure requirements under State law for an y term which the
Board has determ ined to be substantially the same in meaning
under section 111(a)(2) as any o f the terms referred to in any o f
those paragraphs o f section 128(al With respect to any failure
to make disclosures required under th is chapter or chapter 4 or
5 o f this title, liability sh all be imposed only upon the creditor
required to make disclosure, except as provided in section 131.

44dbiii(¥*a,u ^i^raB^HS
•aaent-itn posed-undee tbi* chapter df-cbaptae-5r-if
withle- rifceen-bays aftoe diseovarie g
e w r , aad
paioe—to—the -bwtihKiew ■«£> a w actio w under ■
"thi»
^

W

£1“'"'1?* vTTlf iVJWSMP’t- VI
t

a r*»
o■
»
» 4<a ,

i

t

i

l li

^ ;l^infhmiHw
i'S
1r®
” ;?Viw
' tisJ*-

niiA f hft .ftfldTW
Tin ilflHH fitOliTfj- tilj1*i1

u

uwi j u i r w u w ’vi iiu u ' *

the-a#OF-»fld-«takae-wheteve#-edjHt»tniente ia-th*
appropriate account u a nocosaary-to 4asuea-»that»
the fvrsee will a e t b* ■rcq»»red-te-pny-a-cha*ge-ia
«6co5S-o6-the-a<itoimt-or-peFCe«tege-Fete -actually

‘
diSCiQfoiQilr
(b) A creditor or assignee has no lia b ility under this section or
section 108 or section 112 for any failure to comply w ith any require­
ment imposed under this chapter or chapter 5, if w ithin sixty days
after discovering an error, whether pursuant to a fin al w ritten ex­
am ination report or notice issued under section 108(e)(1) or through
the creditor’s or assignee’s own procedures, and prior to the institu­
tion o f an action under this section or the receipt o f written notice
o f the error from the obligor, the creditor or assignee notifies the
person concerned o f the error and makes whatever adjustm ents in
the appropriate account are necessary to assure th at the person w ill
not be required to pay an amount in excess o f the charge actually
disclosed, or the dollar equivalent o f the annual percentage rate ac­
tually disclosed, whichever is lower.
(cVA-greditee may not -be-hdd-4iabie-m any
aetion-btoughc ueder this section lee- a vielatiee
d-this-title -tf-the-eredker shews by~a preeendeeaeee ofc-evideece-that the viciatioe -was act-in teetteaal eed reauitccMcoa-w bane She am r-aet*
wkhstaehtng—the —maiatceance- o4— pteeedwcc
reasonably adapted-wavetd aay-suab-«»ee»

(c) A creditor or assignee may not be held liable in any action
brought under this section or section 125 for a violation o f th is title
if the creditor or assignee shows by a preponderance o f evidence th at
the violation was not intentional and resulted from a bona fide
error notwithstanding the maintenance o f procedures reasonably
adapted to avoid any such error. Examples o f a bona fide error in­
clude, but are not lim ited to, clerical, calculation, computer mal­
function and programing, and printing errors, except th at an error
o f legal judgm ent with respect to a person's obligations under this
title is not a bona fide error.




28




§

130.

fd4- Any- aatian-whici»-flnay~be-^fOU§h» ua««r

sagtion— again st ih+> ofiginai— are d itor ia-aay
««dit t-NMsae^en -mvoh4og-^ security interest in

iim

r "UuvA #- niiiiuniuirrw
^ iit ta jw a ^
•> r r r >»
Twr\m1jr1

IO a I
iiA ^ iiA A #

rw

-ig g i r t n ^

^ r

f * nUM « U - .a i >

the assignee, ito-subsidiaries, -ac affiliate* wer©-ia
a-continuto^ business relationship wish the. origiQa I

«"S
A
*

A
>
<
-wj.

t tUa

»•
. -i..•-»»
, -W ". i

»K^

.(i W" »

«f Wirta. afcVT_

tended"or—<*«- the—4im»—of—Ae-weig»mentr-u»iwe

the- assignment w a s involuntary? or-dio assignee
shews by a-pfauuna e ninee ofe»eviden ee that-it did
auc have -reasonable— grounds-to- believe- that-the
aaginato creditor w a s— oagaged — its vio lation* afr
ebU^r
44M d 4 M 4 d i l M ^
■reasonably-adapted ia e*priae-it-e£ tha-exiataaoa

n

UaA^d/l^Af

WTten there are m ultiple obligors in a consumer credit trans­
action or consumer lease, there sh all be no more than one recovery
o f damages under subsection (aX2) for a violation o f this title.
(e)
Any action under this section may be
brought in any United States district court, or in
any other court of competent jurisdiction, within
one year from the date of the occurrence of the

violation.
This subsection does not bar a person from
asserting a violation o f this title in an action to collect the debt
which was brought more than one year from the date o f the oc­
currence o f the violation as a m atter o f defense by recoupment
or set-off in such action, except as otherwise provided by State
law.
(f)
N o provision of this section^or section
1 12 imposing any liability shall apply to any act
done or omitted in good faith in conformity with
any rule, regulation, or interpretation thereof by
the Board or in conformity with any interpretation
or approval by an official or employee of the Fed­
eral Reserve System duly authorized by the Board
to issur such interpretations or approvals under
such procedures as the Board may prescribe
therefor, notwithstanding that after such act or
omission has occurred, such rule, regulation, in­
terpretation, or approval is amended, rescinded,
or determined by judicial or other authority to
be invalid for any reason.
**** (g) The multiple failure to disclose to any
person any information required under this chap­
ter or chapter 4 or 5 of this title to be disclosed
in connection with a single account under an open
end consumer credit plan, other single consumer
credit sale, consumer loan, consumer lease, or
other extension of consumer credit, shall entitle *
the person to a single recovery under this section
but continued failure to disclose after a recovery
has been granted shall give rise to rights to addi­
tional recoveries,
,

section 108(b), section 108(c), section 108(ej

This subsection does not bar any remedy per•
nutted by section 125.

29




■

'

§ 130
(b)- A-person-may-aot -?*he aay-acti»n-to oifset-any ao*ouot-for which a»oreditor is potentially
liable to—suck—person under subsection- (a^i)
against-any amount-owing* to ■ouch-creditor by
sueh person, unless the amount-et the—creditor-*
fa c ility- to auch -person hae-beoa- determined-by
judgment-of a-uourt-ef cempetent-jurisdiction-in
an action-to which such person was-a patty.

(h)
A person may not take any action to offset any amount for
which a creditor or assignee is potentially liable to such person
under subsection (aX2) against any amount owed by such person,
unless the amount o f the creditor’s or assignee's lia b ility under this
title has been determ ined by judgment o f a court o f competent ju ris­
diction in an action o f which such person was a party. This subsec­
tion does not bar a consumer then in default on the obligation from
asserting a violation o f this title as an original action, or as a de­
fense or counterclaim to an action to collect amounts owed by the
consumer brought by a person liable under this title.

§—131» Written-acknowledgment—ae pioat of—re­
ceipt
Except, as-provided—in section—12£(e) and ex­
cept in-the-case-of actions-bfought-under section
I36(d)r-in -any- action or-procceding-by -or against
any subsequent-assignee of—the -original—ereditor
without knowledge te-tho-centrary by-the assignee
when-be. acquires-;he- obiigatiorv-wittea-ackaowiadgment-of-receipt by-a- person te-whora a-statement-is-requkeci-to-be-givea-pursuant-to this-title
shall -be- conclusive proof—of- the- delivery-thereof
and, unless the-violation is-apparent-on the-face-of
the- statement* of-compliaece with this- chapter.
This section—does—not- adect—the—rights-of—the
obligor ia-aay-action-against-the-original-creditor.

3 121. L iability o f assignees
(a) Except as otherwise specifically provided in this title, any
civil action for a violation o f this title or proceeding under section
108 which may be brought against a creditor may be m aintained
against any assignee o f such creditor only if the violation fo r which
such action or proceeding is brought is apparent on the face o f the
disclosure statement, except where the assignment was involuntary.
For the purpose o f this section, a violation apparent on the face o f
the disclosure statem ent includes, but is not lim ited to (1) a disclo­
sure which can be determ ined to be incomplete or inaccurate from
the face o f the disclosure statem ent or other documents assigned, or
(2) a disclosure which does not use the terms required to be used by
this title.
(b) Except as provided in section 125(c), in any action or proceed­
ing by or against any subsequent assignee o f the original creditor
without knowledge to the contrary by the assignee when he acquires
the obligation, written acknowledgement o f receipt by a person to
whom a statem ent is required to be given pursuant to this title sh all
be conclusive proof o f the delivery thereof and, except as provided in
subsection (a) o f compliance with th is chapter. This section does not
affect the fights o f the obligor in any action against the original
creditor.
(c) Any consumer who has the right to rescind a transaction
under section 125 may rescind the transaction as against any as­
signee o f the obligation.

30




§ 132.
§ 132. Issuance of credit cards
No credit card shall be issued except in re­
sponse to a request or application therefor. This
prohibition does not apply to the issuance of a
credit card in renewal of, or in substitution for,
an accepted credit card.
§ 133. Liability of holder of credit card
fa} A-cardholdar shall be-liable-for the uaau-

*Uvi<lwu UJV ws-

t

1I'll*

\.an2vTTTY

r\ £, n- -prpH It -T lP fi

U1L V»«Tvl ifl*
fhi'u m rrl

l
c
u

-aa- accepted -credit card, the liability, is-oot- ia-excass-of-S-Sd- the-sard-issuec-givee adequate -notice

f
rej
fliiuilwiuvi
llflf***. *1^ xT
*^re pVTCiinn*
»««-»1 1
<\
t"rv f
Cr
Tn
TV
vw
!*
IBulutTy
luTl

card-lssuee-^hao-pFooided the- cardholder-with -a
self-addressed, —prestamped -notification —to —he
-aaaiied-by-thc-eardhelde*» in-tho-event-of-thc leso
or-theft-of the CFedit-earck-aod-the-tHiauthorized
use oecurs-befofe-the-cardhoider bee notified-the

YfBU “ •«wr liiuk UrI“ UiJUUU!"l.wu UJUUI luw LICUil
^nrn
»» 'T
«■^
••• v*""kne
truj" Vl^V*CTTTrVUr'*.l»%r^
TTay"" Cuf* nni j tUU £UJUIl -U
LIf

tW
mA
- » l-V

■
■
-—

>L^-

loss,—theft, -oc- otherwise* Notwithstanding-- the
foregoing ,-ao cardheldcr-shall-be- liable—for -the
unauthorized- use-of-any-credit-casd- which was-is.
sued-on-or-aftes-tha-effeefive dale- of-this-sectioo*
a a d after the-expiration-ef-twelve months follow­
ing such—effective- date, -no -cardholder-shall he
liable for-the unauthorised use of- any-cfedit-oasd
regardless-of-the -date-of-ite-isseancer-unless -(4}
the conditions of-4iability-spec*6ed-in the- preced­
ing- sentence-are-met,-and (24-the-eard issuer -hae
provided a-method wbereby-the-usec of-such-oar-dcan be-idoatified-as the- person-aothofiaed-to-use
iti For- the-purpeses- of thin seetionr-a -eardhekier
aoufies- a-eerd-iesuen-by-taking-sueh-steps as* mayreasonably-required-in-the-ordinary-cotwee o f
business-to-provide the-card-issuer-with-the-pertioeat informadon-whether-or- net- any-parfkukrt*
otScefr employee, -on agent -of the-oard-tssuer dees
ia-fact receive-such-infocmatioo*

(aXl) A cardholder sh all be liable for the unauthorized use o f a
credit card only if—
>l(A) the card ie an accepted credit card;
>4(B) the lia b ility ie not in excete o f $50;
‘Y O the card issuer gives adequate notice to the cardholder o f
the potential liability;
(D)
the card issuer hae provided the cardholder with a de­
scrip tio n o f a means by which the card issuer may be notified o f
loss or theft o f the card, which description may be provided on
the face or reverse side o f the statem ent required by section
127(d) or on a separate notice accompanying such statement;
“(E) the unauthorized use occurs before the card issuer has
been notified th at an unauthorized use o f the credit card has
occurred or may occur as the result o f loss, theft, or otherwise;
and
“(F) the card issuer has provided a method whereby the user
o f such card can be identified as the person authorized to use i t
“(2) For purposes o f this section, a card issuer has been notified
when such steps as may be reasonably required in the ordinary
course o f business to provide the card issuer with the pertinent in­
formation have been taken, whether or not any particular officer,
employee, or agent o f the card issuer does in fact receive such infor­
mation.
31




(b) In any action by a card issuer to enforce
liability for the use of a credit card, the burden
of proof is upon the card issuer to show that the
use was authorized or, if the use was unauthor­
ized, then the burden of proof is upon the card
issuer to show that the conditions of liability for
the unauthorized use of a credit card, as set forth
in subsection (a), have been met.
(c) Nothing in this section imposes liability
upon a cardholder for the unauthorized use of a
credit card in excess of his liability for such use
under other applicable law or under any agree­
ment with the card issuer.
(d) Except as provided in this section,' a card­
holder incurs no liability from the unauthorized
use of a credit card.
§ 134. Fraudulent use of credit card
(a) Whoever knowingly in a transaction affect­
ing interstate or foreign commerce, uses or at­
tempts or conspires to use any counterfeit, ficti­
tious, altered, forged, lost, stolen, or fraudulently
obtained credit card to obtain money, goods,
services, or anything else of value which within
any one-year period has a value aggregating
SI,000 or more; or
(b) Whoever, with unlawful or fraudulent in­
tent. transports or attempts or conspires to trans­
port in interstate or foreign commerce a counter­
feit, fictitious, altered, forged, lost, stolen, or
fraudulently obtained credit card knowing the
same to be counterfeit, fictitious, altered, forged,
lost, stolen, or fraudulently obtained; or
(c) Whoever, with unlawful or fraudulent in­
tent. uses any instrumentality of interstate or for­
eign commerce to sell or transport a counterfeit,
fictitious, altered, forged, lost, stolen, or fraudu­
lently obtained credit card knowing the same to
be counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained; or
(d) Whoever knowingly receives, conceals, uses,
or transports money, goods, services, or anything
else of value (except tickets for interstate or for­
eign transportation) which (1) within any one-year
period has a value aggregating SI,000 or more,
(2) has moved in or is part of. or which consti­
tutes interstate or foreign commerce, and (3) has
been obtained with a counterfeit, fictitious, al­
tered, forged, lost, stolen, or fraudulently obtained
credit card; or
(e) Whoever knowingly receives, conceals, uses,
sells, or transports in interstate or foreign com­
merce one or more tickets for interstate or for­
eign transportation, which (1) within any one-year
period have a value aggregating S500 or more, and
(2) have been purchased or obtained with one or
more counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained credit cards; or




§ 134.

(f)
Whoever in a transaction affecting interstate
or foreign commerce furnishes money, property,
services, or anything else of value, which within
any one-year period has a value aggregrting
$1,000 or moie. through the use of any counter­
feit, fictitious, altered, forged, lost, stolen, or
fraudulently obtained credit card knowing the
same to be counterfeit, fictitious, altered, forged,
lost, stolen, or fraudulently obtained—
shall be fined not more than $10,000 or impris­
oned not more than ten years, or both.
§ 135. Business credit cords
The exemption provided by section 104(1) does
not apply to the provisions of sections 132, 133,
and 134, except that a card issuer and a business
or other organization which provides credit cards
issued by the same card issuer to ten or more
of its employees may by contract agree as to
liability of the business or other organization with
respect to unauthorized use of such credit cards
without regard to the provisions of section 133,
but in no case may such business or other orga­
nization or card issuer impose liability upon any
employee with respect to unauthorized use of
such a credit card except in accordance with and
subject to the limitations of section 133.

$ 128. Dissemination o f annual percentage rates
(a) The Board sh all collect, publish, and dissem inate to the
public, on a dem onstration basis in a number o f standard metro­
politan statistical areas to be determ ined by the Board, the annual
percentage rates charged for representative types o f nonsale credit by
creditors in such areas. For the purpose o f this section, the Board is
authorized to require creditors in such areas to furnish information
necessary for the Board to collect, publish, and dissem inate such in­
formation.
(b) The Board is authorized to enter into contracts or other ar­
rangements with appropriate persons, organizations, or State agen­
cies to carry out its functions under subsection (a) and to furnish
financial assistance in support thereof.

33




----- --------------------------------------- — ----------------- — — — s

§ 141.

CHAPTER 3—CREDIT ADVERTISING
Sec.
141. Catalogs and multiple-page advertisements.
142. Advertising of downpayments and install­
ments.
143. Advertising of open end credit plans.
144. Advertising of credit other than open end
plans.
145. Nonliability of media.
1-4& More-than four-instalknent- rule*.
U S Urn of annual ptnxntagt raU in oral diacLmum.

§ 141. Catalogs and multiple-page advertisements
For the purposes of this chapter, a catalog or
other multipie-page advertisement shall be consid­
ered a single advertisement if it dearly and con­
spicuously displays a credit terms table on which
the information required to be stated under this
chapter is clearly set forth.
§ 142. Advertising of downpayments and install­
ments
N o advertisement to aid, promote, or assist di­
rectly or indirectly any extension of conruraer
credit may state
(1) that a specific periodic consumer credit
amount or installment amount can be arranged,
unless the creditor usually and customarily
arranges credit payments or installments for that
period and in that amount.
(2) that a specified downpayment is required
in connection with any extension of consumer
credit, unless the creditor usually and customarily
arranges downpayments in that amount.
§ 143. Advertising of open end credit plans
No advertisement to aid, promote, or assist
directly or indirectly the extension of consumer
credit under an open end credit plan may set
forth any of the specific terms of that plan
the a p p rob ate- rate—determiood under—seorionunless it also clearly and conspicuously
sets forth all of the following items:
|44-The-4im«-period* if—any, within-which--any
credii-axtended-may-be repaid-without-incurring
a-finaoc e-charge.
(2)-The-method—of determining-the—balance
upon-which a-Snance-charge -wdl-be-imposed*
The-methcd of-determining-the-amoont of
the- finance charge*—including—any-miaimura -of
fixed-amoonf-imposed-as-a-fi nance charge-.
(4)-Where periodic—rates-may-be used-to-corapotc the finance- charge,—the-periodic- rates—exprassed as-annoal percentage Fates?

-

34

-




§ 143

Such—other or- additional—information-tor
the- advertising-of-opea—end-credit pians-as-the
w

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adequate-comparison-of-credifr costs as-between
different types -of. open end credit plans*

fXJ Any m in im u m o r fix e d am ount w h ich co u ld be im posed.
(2 ) In a n y case in w h ic h p e rio d ic ra tes m ay be used to com •
p u te the fin a n c e charge, th e p e rio d ic ra te s expressed as a n n u a l
percentage rates.
(2 ) A n y o th e r term th a t th e B o a rd m ay b y re g u la tio n re q u ire
to be disclosed.

§ 144. Advertising of credit other than open end
plans
(a) Except as provided in subsection (b), this
section applies to any advertisement to aid. promote, or assist directly or indirectly any consumer
credit sale, loan, or other extension of credit sub­
ject to the provisions of this title, other than an
open end credit plan.
(b) The provisions of this section do not apply
to advertisements of residential real estate except
to the extent that the Board may by regulation
require.
(c) If any advertisement to which this section
applies states the rate of a finance charge, the
advertisement shall state the rate of that charge
expressed as an annual percentage rate.
(d) If any advertisement to which this section
applies states the amount of the downpayment, if
any, the amount of any installment payment, the
dollar amount of any finance charge, or the num­
ber of installments or the period of repayment,
then the advertisement shall state all of the fol­
lowing items:
The eash p « ce-» r -the am ount of—the-loan
a« applicable
(2} The downpayment,-IT any.
(34-The—number,—amount, and due- dates orperiod-ot-paym ents—scheduled- to repay -the -tndebted««se-t£- th*-CF«4k ie-extendod.
LA

\ i tiva rrttc v r ttw
*!«■» iii!aiR»c
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ae-an-annual-per c-enta ge-r ate.

(1 ) Th e dow np aym ent, i f a n y.
(2 ) Th e term s o f re p a ym e n t
(3 ) Th e ra te o f th e fin a n c e charge expressed as an a n n u a l
percentage ra te .

§ 145. Nonliability of media
There is no liability under this chapter on the
part of any owner or personnel, as such, of any
medium in which an advertisement appears or
through which it is disseminated.

35




§ 146

§- M ir More-than-four-instnllment -rule
Any -advertisement te—aidr-pFomoter or- assist
difecdy - op indireetly the* extension of- consumer*
credit-repayable -in- more than four—ins tail foentsshailr-unless a-finaaee oharge-is imposed,—sieasiyaod conspicuously-stater* in—accordance -with the

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Use o f a n n u a l percentage ra te in o ra l diacloeuree
In resp on d ing o ra lly to a n y in q u iry ab out the cost o f c re d it, a
c re d ito r, rega rd less o f th e m ethod used to com pute fin a n c e charges,
s h a ll sta te ra tes o n ly in term s o f the a n n u a l percentage ra te , except
th a t in th e case o f a n open end c re d it p la n , the p e rio d ic ra te a lso
m ay be stated and, in the case o f an o th e r th a n open end c re d it p la n
w here a m a jo r com ponent o f th e fin a n c e cha rge consists o f in te re st
com puted a t a sim p le a n n u a l ra te , th e sim p le a n n u a l ra te a lso m ay
be stated . Th e B o a rd m ay, by re g u la tio n , m o d ify th e req u irem e nts o f
th is section o r p ro vid e a n exception fro m th is section fo r a tra n sa c­
tio n o r class o f tra n sa ctio n s fo r w h ic h the c re d ito r can n ot d eterm ine
in ad vance th e a p p lica b le a n n u a l percentage ra te .
$

CHAPTER 4— CREDIT BILLING
Sec.
161. Correction of billing errors.
162. Regulation of credit reports.
163. Length of billing period.
164. Prompt crediting of payments.
4-45.—Greditinp-excett-paymenUJSS. Treatment of credit hefan— .
166.
167.
168.
169.
170.
171.

Prompt notification of returns.
Use of cash discounts.
Prohibition of tie-in services.
Prohibition of offsets.
Rights of credit card customers.
Relation to State laws.

§ 161. Correction of billing errors
(a)
If a creditor, within sixty days after having
transmitted to an obligor a statement of the obli­
gor’s account in connection with an extension
of consumer credit, receives at the address dis­
closed under section 427(b)(
written notice
(other than notice on a payment stub or other
payment medium supplied by the creditor if the
creditor so stipulates with the disclosure required
under s e c t i o n f r o m the obligor in which
the obligor—

36

127(bX10)

1 127(aX7)




§ 161

(1) sets forth or otherwise enables the creditor
to identify the name and account number (if
any) of the obligor,
(2) indicates the obligor’s belief that the state­
ment contains a billing error and the amount of
such billing error, and
(3) sets forth the reasons for the obligor’s be­
lief (to the extent applicable) that the statement
contains a billing error,
the creditor shall, unless the obligor has, after
giving such written notice and before the expira­
tion of the time limits herein specified, agreed that
the statement was correct—
(A) not later than thirty days after the receipt
of the notice, send a written acknowledgment
thereof to the obligor, unless the action required
in subparagraph (B) is taken within such thirtyday period, and
(B) h o t later than two complete billing cycles
of the creditor (in no event later than ninety days)
after the receipt of the notice and prior to taking
any action to collect the amount, or any part
thereof, indicated by the obligor under paragraph
(2) either—
(0 make appropriate corrections in the
account of the obligor, including the crediting of
any finance charges on amounts erroneously
billed, and transmit to the obligor a notification
of such corrections and the creditor's explanation
of any change in the amount indicated by the
obligor under paragraph (2) and, if any such
change is made and the obligor so requests, cop­
ies of documentary evidence of the obligor’s in­
debtedness; or
(ii)
send a written explanation or clarifica­
tion to the obligor, after having conducted an
investigation, setting forth to the extent applicable
the reasons why the creditor believes the account
of the obligor was correctly shown in the state­
ment and, upon request of the obligor, provide
copies of documentary evidence of the obligor’s
indebtedness. In the case of a billing error where
the obligor alleges that the creditor’s billing state­
ment reflects goods not delivered to the obligor
or his designee in accordance with the agreement
made at the time of the transaction, a creditor
may not construe such amount to be correctly
shown unless he determines that such goods were
actually delivered, mailed, or otherwise sent to
the obligor and provides the obligor with a state­
ment of such determination.
After complying with the provisions of this sub­
section with respect to an alleged billing error,
a creditor has no further responsibility under this
section if the obligor continues to make substan­
tially the same allegation with respect to such
error.

37




§ 161.

(b) F or the purpose of this section, a “billing
error” consists of any of the following:
(1) A reflection on a statement of an extension
of credit which was not made to the obligor or,
if made, was not in the amount reflected on such
statement.
(2) A reflection on a statement of an extension
of credit for which the obligor requests addi­
tional clarification including documentary evi­
dence thereof.
(3) A reflection on a statement of goods or
services not accepted by the obligor or his desig­
nee or not delivered to the obligor or his desig­
nee in accordance with the agreement made at
the time of a transaction.
(4) The creditor’s failure to reflect properly on
a statement a payment made by the obligor or
a credit issued to the obligor.
(5) A computation error or similar error of an
accounting nature of the creditor on a statement.

(6 )
F a ilu re to tra n s m it the statem ent re q u ire d u n d e r section
127(b) o f th is A c t to th e la s t ad dress o f th e o b lig o r w h ic h has
been disclosed to th e c re d ito r, unless th a t ad dress w as fu r­
n ish ed less th a n tw e n ty d ays before th e end o f th e b illin g cycle
fo r w h ic h th e statem ent is re q u ire d .
(7 ) & ¥ Any other error described in regulations of
the Board.
(c)
For the purposes of this section, “action
to collect the amount, o r any part thereof, indi­
cated by an obligor under paragraph (2)” does not

!, w h ic h m ay in c lu d e fin a n c e charges
j am ounts in d isp u te,
ligor as specified under subsection (a), if—
(1) the obligor's account is not restricted o r
closed because of the failure of the obligor to
pay the amount indicated under paragraph (2) of
subsection (a), and
(2) the creditor indicates the payment of such
amount is not required pending the creditor’s
compliance with this section. Nothing in this
section shall be construed to prohibit any action
by a creditor to collect any amount which has
not been indicated by the obligor to contain a
billing error.
(d)
Pursuant to regulations of the Board, a
creditor operating an open end consumer credit
plan may not, prior to the sending of the written
explanation or clarification required under para­
graph (B)(ii), restrict o r close an account with
respect to which the obligor has indicated pur­
suant to subsection (a) that he believes such
account to contain a billing error solely because
of the obligor’s failure to pay the amount indi­
cated to be in error. Nothing in this subsection
shall be deemed to prohibit a creditor from apply­
ing against the credit limit on the obligor’s ac­
count the amount indicated to be in error.

38

a

A




§ 161.
(e)
Any creditor who fails to comply with the
requirements of this section or section 162 for­
feits any right to collect from the obligor the
amount indicated by the obligor under paragraph
(2) of subsection (a) of this section, and any
finance charges thereon, except that the amount
required to be forfeited under this subsection may
not exceed $50.
§ 162. Regulation of credit reports
(a) A fter receiving a notice from an obligor
as provided in section 161(a), a creditor or his
agent may not directly or indirectly threaten to
report to any person adversely on the obligor's
credit rating or credit standing because of the ob­
ligor’s failure to pay the amount indicated by
the obligor under section 161(a)(2), and such
am ount may not be reported as delinquent to any
third party until the creditor has met the require­
ments of section 161 and has allowed the obligor
the same number of days (not less than ten) there­
after to make payment as is provided under the
credit agreement with the obligor for the pay­
ment of undisputed amounts.
(b) If a creditor receives a further written no­
tice from an obligor that an amount is still in dis­
pute within the time allowed for payment under
subsection (a) of this section, a creditor may not
report to any third party that the amount of the
obligor is delinquent because the obligor has failed
to pay an amount which he has indicated under
section 161(a)(2), unless the creditor also reports
that the amount is in dispute and, at the same
time, notifies the obligor of the name and address
of each party to whom the creditor is rv pot ting
information concerning the delinquency.
(c) A creditor shall report any subsequent reso­
lution of any delinquencies reported pursuant to
subsection (b) to the parties to whom such de­
linquencies were initially reported.

9 163. Length of billing period
(a)
If an open end consumer credit plan pro­
vides a time period within which an obligor may
repay any portion of the credit extended without
incurring an additional finance charge, such addi­
tional finance charge may not be imposed with
respect to such portion of the credit extended for
the billing cycle of which such period is a part
unless a statement which includes the amount
upon which the finance charge for that period
is based was mailed at least fourteen days prior
to the date specified in the statement by which
payment must be made in order to avoid imposi­
tion of that finance charge.

39




(b)
Subsection (a) does not apply in any case
where a creditor has been prevented, delayed, or
hindered in making timely mailing or delivery of
such periodic statement within the time period
specified in such subsection because of an act of
God, war, natural disaster, strike, o r other excus­
able or justifiable cause, as determined under
regulations of the Board.
§ 164, Prom pt crediting of payments
Payments received from an obligor under an
open end consumer credit plan by the creditor
shall be posted promptly to the obligor’s account
as specified in regulations of the Board. Such reg­
ulations shall prevent a finance charge from being
imposed on any obligor if the creditor has re­
ceived the obligor’s payment in readily identifiable
form in the amount, manner, location, and time
indicated by the creditor to avoid the imposition
thereof.
§-46i«- Gteditiog

payments

•Whenever-an obligee-transmit* funds-le a-erediin-axcass* of-tho-total-balaaoe-due en-an-epeaend consumer—«redi4-acsoun^-4he—creditor shall
promptly
upon replies*—ef the* obligor- refundthe -amount- of—the—overpaymen t - or —(2) -credit
such—amount te-the-obhgec’s-aecount*

§16$. Tre a tm e n t o f c re d it balance*
“ W henever a c re d it balance in excess o f $1 is created in connec­
tion w ith a consum er c re d it tra n sa ctio n th ro u g h (1 ) tra n s m itta l o f
fu n d s to a c re d ito r in excess o f th e to ta l b alance due on an account*
(2 ) rebates o f unearned fin a n c e charges o r in su ra n ce prem ium s* o r
(3 ) am ounts o th e rw ise ow ed to o r h e ld fo r th e b e n e fit o f a n o b lig o r,
th e c re d ito r s h a ll—
“(A ) c re d it th e am ount o f th e c re d it balance to th e consum er's
account;
“(B ) re fu n d a n y p a rt o f the am ount o f the re m a in in g c re d it
balance, upon request o f the consum er: a nd
“(C ) m ake a good fa ith e ffo rt to re fu n d to th e consum er by
cash* check* o r m oney o rd e r a n y p a rt o f th e a m o u nt o f the c re d it
balance re m a in in g in the account fo r m ore th a n s ix m onths,
except th a t no fu rth e r a ctio n is re q u ire d in a n y case in w h ic h
the consum er's c u rre n t lo ca tio n is n o t know n by the c re d ito r
a nd cannot be traced th ro u g h the consum er’s la s t know n ad­
dress o r telephone num ber.
§ 166. Prompt notification o f returns
With respect to any sales transaction where a
credit card has been used to obtain credit, where
the seller is a person other than the card issuer,
and where the seller accepts or allows a return of
the goods or forgiveness of a debit for services
which were the subject of such sale, the seller
shall promptly transmit to the credit card issuer,
a credit statement with respect thereto and the
credit card issuer shall credit the account of the
obligor for the amount of the transaction.

§ 167.

§ 167. Use of cash discounts
(a)(1) With respect to credit card which may
be used for extensions of credit in saies transac­
tions in which the seller is a person other than the
card issuer, the card issuer may not, by contract
or otherwise, prohibit any such seller from offer­
ing a discount to a cardholder to induce the card­
holder to pay by cash, check, or similar means
rather than use a credit card.
(2) No seller in any saies transaction may im­
pose a surcharge on a cardholder who elects to
use a credit card in lieu of payment by cash,
check, or similar means.
(b)
With respect to any sales transaction, any
discount not in excess of 5 per centum offered by
the seller for the purpose of inducing payment by
cash, check, or other means not involving the use
of a credit card shall not constitute a finance
charge as determined under section 106, if such
discount is offered to all prospective buyers and
its availability is disclosed to all prospective buy­
ers clearly and conspicuously in accordance with
reguiations of the Board.

shall be deemed to exist if the card issuer has
previously notified the cardholder that the use of
his credit card account will subject any funds
which the card issuer holds in deposit accounts of
such cardholder to offset against any amounts
due and payable on his credit card account which
have not been paid in accordance with the terms
of the agreement between the card issuer and the
cardholder.
(b)
This section does not alter or affect the
right under State law of a card issuer to attach or
otherwise levy upon funds of a cardholder held
on deposit with the card issuer if that remedy is
constitutionally available to creditors generally.
9 170. Rights of credit card customers
(a) Subject to the limitation contained in sub­
section (b), a card issuer who has issued a credit
card to a cardholder pursuant to an open end
consumer credit plan shall be subject to all claims
(other than tort claims) and defenses arising out
of any transaction in which the credit card is
used as a method of payment or extension of
credit if (1) the obligor has made a good faith
attempt to obtain satisfactory resolution of a dis­
agreement or problem relative to the transaction
from the person honoring the credit card; (2) the
amount of the initial transaction exceeds $50;
and (3) the place where the initial transaction
occurred was in the same State as the mailing
address previously provided by the cardholder
or was within 100 miles from such address, except
that the limitations set forth in clauses (2) and
(3) with respect to an obligor’s right to assert
claims and defenses against a card issuer shall
not be applicable to any transaction in which
the person honoring the credit card (A) is the
same person as the card issuer, (B) is controlled
by the card issuer, (C) is under direct or indirect
common control with the card issuer, (D) is a
franchised dealer in the card issuer’s products or
services, or (E) has obtained the order for such
transaction through a mail solicitation made by or
participated in by the card issuer in which the
cardholder is solicited to enter into such trans­
action by using the credit card issued by the card
issuer.
(b) The amount of claims or defenses asserted
by the cardholder may not exceed the amount of
credit outstanding with respect to such transaction
at the time the cardholder first notifies the card
issuer or the person honoring the credit card of

§ 168. Prohibition of tie-in services
Notwithstanding any agreement to the contrary,
a card issuer may not require a seller, as a con­
dition to participating in a credit card plan, to
open an account with or procure any other serv­
ice from the card issuer or its subsidiary or agent.
I 169. Prohibition of offsets
(a)
A card issuer may not take any action to
offset a cardholder’s indebtedness arising in con­
nection with a consumer credit transaction under
the relevant credit card plan against funds of the
cardholder held on deposit with the card issuer
unless—
(1) such action was previously authorized in
writing by the cardholder in accordance with a
credit plan whereby the cardholder agrees period­
ically to pay debts incurred in his open end credit
account by permitting the card issuer periodically
to deduct all or a portion of such debt from the
cardholder’s deposit account, and
(2) such action with respect to any outstand­
ing disputed amount not be taken by the card
issuer upon request of the cardholder.
In the case of any credit card account in exis­
tence on the effective date of this section, the
previous written authorization referred to in
clause (1) shall not be required until the date
(after such effective date) when such account is
renewed, but in no case later than one year after
such effective date. Such written authorization




41

§ 170.

CHAPTER 5—CONSUMER LEASES

such claim or defense. For the purpose of de­
termining the amount of credit outstanding in
the preceding sentence, payments and credits to
the cardholder’s account are deemed to have been
applied, in the order indicated, to the payment
of: (1) late charges in the order of their entry to
the account; (2) finance charges in order of their
entry to the account; and (3) debits to the ac­
count other than those set forth above, in the
order in which each debit entry to the account
was made.

Sec.
181. Definitions.
182. Consumer lease disclosures.
183. Lessee’s liability on expiration or termina­
tion of lease.
184. Consumer lease advertising.
185. Civil liability.
186. Relation to State laws.
I 181. Definitions

§ 171. Relation to State laws

For purposes of this chapter—
(a) This chapter does not annul, alter, or affect,
(1) The term “consumer lease” means a con­
or exempt any person subject to the provisions
tract in the form of a lease or bailment for the
of this chapter from complying with the laws
use of personal property by a natural person for
of any State with respect to credit billing prac­
a period of time exceeding four months, and for
tices, except to the extent that those laws are
a total contractual obligation not exceeding
inconsistent with any provision of this chapter,
525,000, primarily for personal, family, or house­
and then only to the extent of the inconsistency.
hold purposes, whether or not the lessee has the
The Board is authorized to determine whether
option to purchase or otherwise become the
such inconsistencies exist. The Board may not
owner of the property at the expiration of the
determine that any State law is inconsistent with
lease, except that such term shall not include any
any provision of this chapter if the Board deter­
credit sale as defined in section 103(g). Such term
mines that such law gives greater protection to
does not include a lease for agricultural, business,
the consumer.
or commercial purposes, or to a government or
(b) The Board shall by regulation exempt from
governmental agency or instrumentality, or to an
the requirements of this chapter any class of
organization.
credit transactions within any State if it deter­
(2) The term “lessee” means a natural person
mines that under the law of that State that class
who leases or is offered a consumer lease.
of transactions is subject to requirements substan­
(3) The term “lessor” means a person who is
tially similar to those imposed under this chapter
regularly engaged in leasing, offering to lease, or
or that such law gives greater protection to the
arranging to lease under a consumer lease.
consumer, and that there is adequate provision
(4) The term “personal property” means any
for enforcement.
property which is not real property under the
(c)
Notwithstanding any other provisions of laws of the State where situated at the time offered
this title, any discount offered under section 167(b)
or otherwise made available for lease.
of this title shall not be considered a finance
(5) The terms “security” and “security inter­
charge or other charge for credit under the usury
est” mean any interest in property which secures
laws of any State or under the laws of any State
payment or performance of an obligation.
relating to disclosure of information in connec­
tion with credit transactions, or relating to the
§ 182. Consumer lease disclosures
types, amounts or rates of charges, or to any
Each lessor shall give a lessee prior to the con­
element or elements of charges permissible under
summation of the lease a dated written state­
such laws in connection with the extension or
ment on which the lessor and lessee are identified
use of credit.
setting out accurately and in a clear and con­
spicuous manner the following information with
respect to that lease, as applicable:




42

§ 182.

The disclosures required under this section may
be made in the lease contract to be signed by
the lessee. The Board may provide by regula­
tion that any portion of the information required
to be disclosed under this section may be given
in the form of estimates where the lessor is not
in a position to know exact information.

(1) A brief description or identification of the
leased property;
(2) "hie amount of any payment by the lessee
required at the inception of the lease;
(3) The amount paid or payable by the lessee
for official fees, registration, certificate of title,
or license fees or taxes;
(4) The amount of other charges payable by
the lessee not included in the periodic payments,
a description of the charges and that the lessee
shall be liable for the differential, if any, between
the anticipated fair market value of the leased
property and its appraised actual value at the
termination of the lease, if the lessee has such
liability,
(5) A statement of the amount or method of
determining the amount of any liabilities the
lease imposes upon the lessee at the end of the
term and whether or not the lessee has the option
to purchase the leased property and at what price
and time;
(6) A statement identifying all express warran­
ties and guarantees made by the manufacturer or
lessor with respect to the leased property, and
identifying the party responsible for maintaining
or servicing the leased property together with a
description of the responsibility,
(7) A brief description of insurance provided
or paid for by the lessor or required of the lessee,
including the types and amounts of the coverages
and costs;
(8) A description of any security interest held
or to be retained by the lessor in connection with
the lease and a clear identification of the property
to which the security interest relates;
(9) The number, amount, and due dates or
periods of payments under the lease and the total
amount of such periodic payments;
(10) Where the lease provides that the lessee
shall be liable for the anticipated fair market
value of the property on expiration of the lease,
the fair market value of the property at the
inception of the lease, the aggregate cost of the
lease on expiration, and the differential between
them; and
(11) A statement of the conditions under which
the lessee or lessor may terminate the lease prior
to the end of the term and the amount or method
of determining any penalty or other charge for
delinquency, default, late payments, or early
termination.




§ 183. Lessee's liability on expiration or termina­
tion of lease
(a) Where the lessee’s liability on expiration of
a consumer lease is based on the estimated resi­
dual value of the property such estimated residual
value shall be a reasonable approximation of the
anticipated actual fair market value of the prop­
erty on lease expiration. There shall be a rebutta­
ble presumption that the estimated residual value
is unreasonable to the extent that the estimated
residual value exceeds the actual residual value
by more than three times the average payment
allocable to a monthly period under the lease. In
addition, where the lessee has such liability on
expiration of a consumer lease there shall be a
rebuttable presumption that the lessor's estimated
residual value is not in good faith to the extent
that the estimated residual value exceeds the ac­
tual residual value by more than three times the
average payment allocable to a monthly period
under the lease and such lessor shall not collect
from the lessee the amount of such excess liability
on expiration of a consumer lease unless the
lessor brings a successful action with respect to
such excess liability. In all actions, the lessor
shall pay the lessee’s reasonable attorney’s fees.
The presumptions stated in this section shall not
apply to the extent the excess of estimated over
actual residual value is due to physical damage to
the property beyond reasonable wear and use, or
to excessive use. and the lease may set standards
for such wear and use if such standards are not
unreasonable. Nothing in this subsection shall
preclude the right of a willing lessee to make any
mutually agreeable final adjustment with respect
to such excess residual liability, provided such an
agreement is reached after termination of the
lease.
(b) Penalties or other charges for delinquency,
default, or early termination may be specified in
the lease but only at an amount which is reason­
able in the light of the anticipated or actual harm
caused by the delinquency, default, or eariy ter-

43




§ 183.

mination, the difficulties of proof of loss, and the
inconvenience or nonfeasibiiity of otherwise ob­
taining an adequate remedy.
(c) If a lease has a residual value provision at
the termination of the lease, the lessee may obtain
at his expense, a professional appraisal of the
leased property by an independent third party
agreed to by both parties. Such appraisal shall
be final and binding on the parties.
§ 184. Consumer lease advertising
(a) No advertisement to aid, promote, or assist
directly or indirectly any consumer lease shall
state the amount of any payment, the number
of required payments, or that any or no downpayment or other payment is required at inception
of the lease unless the advertisement also states
clearly and conspicuously and in accordance with
regulations issued by the Board each of the fol­
lowing items of information which is applicable:
(1) That the transaction advertised is a lease.
(2) The amount of any payment required at
the inception of the lease or that no such payment
is required if that is the case.
(3) The number, amounts, due dates or periods
of scheduled payments, and the total of payments
under the lease.
(4) That the lessee shall be liable for the differ­
ential, if any, between the anticipated fair market
value of the leased property and its appraised
actual value at the termination of the lease, if
the lessee has such liability.
(5) A statement of the amount or method of
determining the amount of any liabilities the lease
imposes upon the lessee at the end of the term
and whether or not the lessee has the option to
purchase the leased property and at what price
and time.
(b) There is no liability under this section on
the part of any owner or personnel, as such, of
any medium in which an advertisement appears
or through which it is disseminated.
§ 185. Civil liability
(a) Any lessor who fails to comply with any
requirement imposed under section 182 or 183
of this chapter with respect to any person is
liable to such person as provided in section 130.
(b) Any lessor who fails to comply with any
requirement imposed under section 184 of this
chapter with respect to any person who suffers
actual damage from the violation is liable to such
person as provided in section 130. For the pur­
poses of this section, the term “creditor” as used
in sections/jvW-5r-4 30, -an d - 1-54 shall include a
lessor as defined in this chapter.

130 a n d 131




§ 185.

(c)
Notwithstanding section 130(e), any action
under this section may be brought in any United
States district court or in any other court of com­
petent jurisdiction. Such actions alleging a failure
to disclose or otherwise comply with the require­
ments of this chapter shall be brought within one
year of the termination of the lease agreement.
§ 186. Relation to State laws
(a) This chapter does not annul, alter, or affect,
or exempt any person subject to the-provisions of
this chapter from complying with, the laws of any
State with respect to consumer leases, except to
the extent that those laws are inconsistent with
any provision of this chapter, and then only to the
extent of the inconsistency. The Board is author­
ized to determine whether such inconsistencies
exist. The Board may not determine that any State
law is inconsistent with any provision of this chap­
ter if the Board determines that such law gives
greater protection and benefit to the consumer.
(b) The Board shall by regulation exempt from
the requirements of this chapter any class of lease
transactions within any State if it determines that
under the law of that State that class of transac­
tions is subject to requirements substantially simi­
lar to those imposed under this chapter or that
such law gives greater protection and benefit to
the consumer, and that there is adequate provision
for enforcement.

TITLE V— GENERAL PROVISIONS
Sec.
501.
502.
503.
504.

Severability.
Captions and catchlines for reference only.
Grammatical usages.
Effective dates.

§ 501. Severability
If a provision enacted by this Act is held in­
valid. all valid provisions that are severable from
the invalid provision remain in effect. If a provi­
sion enacted by this Act is held invalid in one
or more of its applications, the provision remains
in effect in all valid applications that are severable
from the invalid application or applications.
§ 502. Captions and catchlines for reference only
Captioas and catchlines are intended solely as
aids to convenient reference, and no inference as
to the legislative intent with respect to any provi­
sion enacted by this Act may be drawn from
them.

45




1

§ 503.

§ 503. Grammatical usages
la this Act:
(1) The word "may” is used to indicate that
an action either is authortzed or is permitted.
(2) The word “shall” is used to indicate that
an action is both authorized and required.
(3) The phrase “may not” is used to indicate
that an action is both unauthorized and for­
bidden .
• •
(4) Rules of law are stated in the indicative
mood.
§ 504. Effective dates
(a) Except as otherwise specified, the provisions
of this Act take effect upon enactment.
(b) Chapters 2 and 3 of title I take effect on
July 1, 1969.
(c) Title III takes effect on July 1, 1970.

Truth in Lending Simplification and Reform Act, § 625

EFFECTIVE D A T E

S e c . 625. (a ) E xc e p t as p ro vid e d in section 608(b), th e am endm ents
m ade b y th is title s h a ll take e ffe ct upon th e e xp ira tio n o f tw o ye a rs
a fte r the d ate o f enactm ent o f th is title .
(b ) A ll re g u la tio n s, form s, a n d clauses re a u ire d to be p re scrib e d
w id e r the am endm ents m ade b y th is title s n a il be p ro m u lg a te d a t
least one ye a r p rio r to such e ffe c tive date.
(d N o tw ith s ta n d in g subsections (a ) a n d (b), a n y c re d ito r m ay
com ply w ith th e am endm ents m ade by th is title , in accordance w ith
th e re g u la tio n s, fo rm s, a n d clauses p re scrib e d b y th e B o a rd , p rio r to
such e ffe c tive date.

46

(see

p . 12,
supra)