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FEDERAL RESERVE BANK OF NEW YORK No. 8 9 0 6 1 Lr Circular August 27, 1980 J ANNUAL PERCENTAGE RATE DISCLOSURES TO BORROWERS Deferral of Mandatory Compliance Date of Amendments to Regulation Z To A ll Member Banks, and Others Concerned, in the Second Federal Reserve D istrict: In January, the Board of Governors of the Federal Reserve System adopted amendments to its Regulation Z, “Truth in Lending,” relating to the calculation and disclosure to borrowers of the annual percentage rate and other credit terms. Compliance by creditors with these amendments, which were sent to you with our Circular No. 8743, would have become mandatory on October 1, 1980. The Board of Governors has now deferred the mandatory compliance date of the annual per centage rate amendments to April 1, 1982, coinciding with the mandatory compliance date of the Truth in Lending Simplification and Reform Act. In connection with this action, the Board of Governors has issued the following statement: The Federal Reserve Board has deferred the date on which new methods of calculating and disclosing the annual percentage rate on consumer loans under Regulation Z—Truth in Lending—become mandatory. The Board acted to avoid an increased regulatory burden that would otherwise be brought about by differing mandatory effective dates for amendments to Regulation Z adopted by the Board in January, and regulatory revisions resulting from the Truth in Lending Simplification and Reform Act enacted since then. The annual percentage rate (A P R ) amendments to Regulation Z adopted by the Board in January pro vide greater flexibility and protection to creditors in calculating and disclosing the APR. These would have become mandatory October 1, 1980. The Truth in Lending Simplification and Reform Act, and the new Regulation Z proposed by the Board to conform to the Act, contain A PR calculation and disclosure rules very similar to those adopted by the Board in January. These will become effective April 1, 1981 and will become mandatory April 1, 1982. To avoid requiring creditors to conform their practices to two sets of regulations in a short time, the Board deferred the mandatory date of the January revisions of APR calculation and disclosure to April 1, 1982. The deferral has the effect of preserving the status quo. It is expected that the action will have no adverse impact on consumers. Creditors may begin to comply with the APR changes when the new Act and the new regulation under the Act take effect April 1, 1981 or earlier, but creditors are not required to do so until a year thereafter. This provides time for retraining of personnel and other changes creditors must make to conform to the new requirement. The Board’s action does not affect creditors that have already made APR changes in conformity to the amendments adopted by the Board in January. Enclosed is a copy of the Board’s Order reflecting this action. Questions may be directed to our Consumer Affairs and Bank Regulations Department (Tel. No. 212-791-5914). A nthony M. S o l o m o n , President. Board of Governors of the Federal Reserve System TRUTH IN LENDING DEFERRAL OF MANDATORY COMPLIANCE DATE OF AM ENDMENTS TO REGULATION Z Calculation and Disclosure of Annual Percentage Rates [Reg. Z; Docket No. R-0239] A G E N C Y : Board of Governors of the Federal date. the Board adopts the final regulation. Until April 1, 1982, creditors may either continue to rely on the existing annual percentage rate rules or begin complying with the amended annual percentage rate provisions. S U M M A R Y : The Board is deferring the man E F F E C T IV E D A T E : August 20, 1980. Reserve System. A C T IO N : Deferral of mandatory effective datory effective date for compliance with revi sions to Regulation Z (Truth in Lending) re garding calculation and disclosure of the annual percentage rate and other credit terms. The re visions were adopted with an effective date of January 10, 1980, but creditors were not re quired to comply with the new provisions until October 1, 1980 (44 FR 77139, December 31, 1979). In the interim, creditors have been per mitted to utilize either the existing or the amended rules. After adoption of the amend ments, the Truth in Lending Simplification and Reform Act was enacted and the Board recently proposed a substantially revised Regulation Z to implement the act. The regulation must be adopted by the Board by April 1, 1981, but compliance will be optional until April 1, 1982. In order to avoid the need for creditors to as similate two sets of changes in the regulation within a relatively short period, the Board is deferring the mandatory effective date of the annual percentage rate amendments to coincide with the mandatory effective date of the revised regulation. Creditors wishing to implement all changes at one time may begin doing so when F O R F U R T H E R IN F O R M A T IO N CO N T A C T : Ellen Maland, Section Chief (202-452- 3667) or Margaret Stewart, Senior Attorney (202-452-2412), Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551. S U P P L E M E N T A R Y IN F O R M A T IO N : On December 31, 1979, the Board adopted re visions to Regulation Z relating to the calcula tion and disclosure oj the annual percentage rate and other credit terms (44 FR 77139). The amendments were designed to simplify and clarify the requirements of the regulation with regard to these provisions and involved revi sions to §§ 226.5 and 226.8 of the regulation and to Supplement I, § 226.40, which sets forth the technical equations and instructions for de termining the annual percentage rate under the actuarial method. For the most part, the changes made provide greater flexibility and protection to creditors and do not appear to require major changes in For Regulation Z to be complete, retain: 1) 2) 3) 4) Regulation Z pamphlet, amended to March 23, 1977. Technical corrections slip sheet, dated October 1978. Amendments pamphlet, dated March 1980. Changes in pamphlet containing amendments to Regulation Z, dated July 1980. 5) Amendment effective August 1, 1980. 6) This slip sheet. [Enc. Cir. No. 8906] P R IN T E D IN NEW YORK ( o ver) calculation tools and creditor practices. How ever, because the revisions do require creditors to analyze and review existing tools and prac tices in order to fully assimilate the changes, compliance with the new rules was made op tional until October 1, 1980. Creditors were permitted to put the revisions into effect prior to that time, but could continue to follow the previous rules until October, in the event that they required a longer period of adjustment. After adoption of the annual percentage rate changes, Congress enacted the Truth in Lend ing Simplification and Reform Act (Title VI of Public Law 96-221, the Depository Institu tions Deregulation and Monetary Control Act of 1980). That act requires the Board to have in place a completely revised Regulation Z by April 1, 1981, with a mandatory effective date of April 1, 1982. Creditors may comply with the new regulation immediately upon its adoption by the Board. At the time of adoption of the annual percentage rate revisions, the ultimate passage of the new act was in doubt. Adoption of the new regulation, as a result of the revised act, will require significant revisions by credi tors in their procedures and forms, as well as retraining of personnel. The Board believes that creditors should not be required to undertake two separate reviews within a short period, but should instead be per mitted to assimilate all changes at one time. The Board is therefore deferring the mandatory date for compliance with the annual percentage rate revisions from October 1, 1980, to April 1, 1982, to coordinate those revisions with the gen eral revision to Regulation Z pursuant to the Truth in Lending Simplification and Reform Act. This action means that creditors will con tinue to have the option of complying with either the previous or the new annual percent age rate rules, but that option will be available until April 1, 1982, instead of October 1, 1980. The Board wishes to emphasize that the de ferral is designed to ease the burden of absorb ing regulatory change and not to provide an opportunity for further changes in the annual percentage rate provisions. No extensive revi sions to either these portions of the regulation or Supplement I are contemplated as a result of the deferral. However, the Board’s staff has re ceived several questions regarding this material which may warrant further study. For example, several commenters have questioned the manner in which unit-periods for single-payment trans actions must be determined under Supple ment I. After anaylsis by the staff, the Board will determine whether any further specific changes should be proposed. Any adjustments that might result from such a review should be relatively minor and would be made only after thorough consideration of their impact on credi tors that have already invested in new calcula tion tools and procedures. No changes are anticipated which would invalidate changes al ready made by creditors in reliance on the previously announced Board actions. The Board has determined that compliance with the provisions of 5 U.S.C. § 553 relating to notice, public participation and deferred effec tive date would be impracticable in view of the short time available before the October manda tory effective date. No Board action on this matter was taken earlier because the extent of the regulatory burden imposed by changes in the regulation could not be assessed until pas sage of the Truth in Lending Simplification and Reform Act and the publication for comment of the revised regulation implementing the act. Therefore, pursuant to 5 U.S.C. §§ 553(b)(3) (B ) and 553(d) (3), the Board is deferring the mandatory effective date of October 1 , 1980, without notice and prior opportunity for com ment. Pursuant to § 105 of the Truth in Lending Act (15 U.S.C. § 1604 (1970)), the Board de lays from October 1, 1980, to April 1, 1982, the amendment of original § 226.5(a) and the re scission of original §§ 226.5(b) through (e), Interpretations §§ 226.502, 226.503 and 226.505, and Supplement I to Regulation Z, as described at 44 FR 77144, December 31, 1979. The Janu ary 10, 1980, effective date for revised § 226.5, new § 226.8(r) and 226.8(s), and revised Sup plement I remains unchanged. By order of the Board of Governors, August 20, 1980.
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