Full text of Federal Reserve Bank of New York Circulars : 9213. Official Staff Commentaries

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FEDERAL RESERVE BANK
OF NEW YORK

t

Circular No. 9213 "1
December 14, 1981 J

OFFICIAL STAFF COMMENTARIES
— Amendments to Regulation Z Commentary
— Technical Amendment to Regulation E Commentary
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

The Board o f Governors o f the Federal R eserve System has announced a change in its official staff com m entary
on Regulation Z, “ Truth in L ending.” The follow in g is quoted from the text o f the statement issued by the Board o f
Governors regarding this matter:
The staff of the Federal Reserve Board has issued a revision of its commentary on Regulation Z (Truth in Lending)
stating that the origination fee on student loans made before August 1, 1982 need not be taken into account in making any
Truth in Lending disclosures.
The staff previously stated, in its commentary on Regulation Z published in October, that the origination fee need not
be taken into account in calculating or disclosing the annual percentage rate on student loans, but the commentary did not
extend the exception to other Truth in Lending disclosures.
E nclosed — for m em ber banks in this District — is a copy o f the text o f the am endm ents, which has been
reprinted from the Federal Register o f D ecem ber 3, 1981, together with a copy o f the text o f certain technical
amendments to the com m entary. The full text o f the Regulation Z staff commentary was published in the October 9,
1981 issue o f the Federal Register ; single cop ies o f that commentary are available upon request directed to the
Circulars D ivision o f this Bank (T el. N o. 2 1 2 -7 9 1 -5 2 1 6 ).
A lso enclosed — for mem ber banks in this District — is a copy o f the text o f a technical amendment to the
Board’s official staff com m entary to its Regulation E, “ Electronic Fund Transfers,” w hich was m ailed to all
depository institutions in this District on N ovem ber 30. C opies o f the technical am endm ent and o f the official
commentary to Regulation E are available from the Circulars D ivision.




A n t h o n y M. S o l o m o n ,

President.

Board of Governors of the Federal Reserve System

T R U T H IN L E N D IN G
Official Staff Commentary: Revision
(effective December 4, 1981)

FEDERAL R E SE R V E SYSTEM
12CFR Part 226
[Reg. Z; TIL-1]

Truth in Lending; Official Staff
Commentary: Revision

Federal Reserve System.
Revision to official staff
commentary to Regulation Z.
ag en cy

:

A C T IO N :

S U M M A R Y : On October 9,1981 (46 FR
50288), the Board’s staff published a
final official staff commentary to
Regulation Z, as revised effective April
1,1981. One paragraph of the
commentary discussed the treatment of
origination fees in certain student loans
and provided an exception to the annual
percentage rate disclosure for such fees.
The staff is now revising that position to
state that until August 1,1982, the
origination fee in such student loans
need not be reflected in any of the Truth
in Lending disclosures. Because of the
need for prompt action, the revision is
being adopted in final form immediately.
E F F E C T IV E D A T E : December 4,1981.
F O R F U R T H E R IN F O R M A T IO N C O N T A C T :

Claudia J. Yarns or Rugenia Silver, Staff
Attorneys, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System,
Washington, D.C. 20551 (202-452-3667).
S U P P L E M E N T A R Y IN F O R M A T IO N : (1) An
August 13,1981 amendment to the
Higher Education Act pf 1965 (Pub. L.
97-35, 536(a)(4)) permits lenders to
charge an origination fee of up to 5% on
certain guaranteed student loans. The
amendment provides that for loans
made before August 1,1982, the
disclosure of origination fees "need not
meet the requirements of Truth in
Lending" and “shall not be taken into
account in calculating and disclosing the
annual percentage rate.”
After reviewing the legislative history,
the staff included an interpretation of
the amendment in the official staff
commentary to Regulation Z (TIL-1).
Comment 17(i)-4 provided that these
origination fees should be excluded from
the annual percentage rate, but required
that all other Truth in Lending
disclosures must account for the fees.

Examples of such other disclosures
include the prepaid finance charge and
the amount financed.
After publication of the commentary,
the Chairmen and Ranking Minority
Members of the Subcommittee on
Education, Arts and Humanities of the
Senate Committee on Labor and Human
Relations and the Subcommittee on
Postsecondary Education of the House
Committee on Education and Labor
wrote to the Board regarding this matter.
They stated that the congressional
intent was to exclude the origination fee
from Truth in Lending for all purposes
and urged that the commentary be
revised to reflect that intent, particularly
to avoid any disruption to the student
loan program.
The staff is now revising Comment
17(i)-4 to state that for loans made
before August 1,1982, the origination fee
shall not be considered in calculating
and disclosing the annual percentage
rate and need not be taken into account
for purposes of any other Truth in
Lending calculations and disclosures.
While this revision does not alter the
commentary’s previous treatment of the
annual percentage rate, it now permits
the creditor either to reflect the
origination fee in the other disclosures
or to disregard the fees altogether for
purposes of Truth in Lending.
The revised position applies to
student loans made under both previous
Regulation Z and revised Regulation Z.
The Truth in Lending effects of
revised Comment 17(i)—4 are set forth
below. These examples contrast the
disclosures as they may be made for an
interim student loan pursuant to the
amendment to the Higher Education Act
until August 1,1982, with the way the
disclosures would be made without that
amendment. An interim student loan as
defined in the commentary is an
extension of credit for educational
purposes where the repayment amount
and schedule are not known at the time
the credit is advanced. Both examples
are based on a typical student loan of
this type involving a single advance of
$2,000 for 18 months, with a 5%
origination fee and a 1% guarantee
insurance fee. These examples assume
that the only finance charge for the
repayment period is 9% simple interest.

• Before August 1,1982, the Truth in
Lending disclosures may reflect an
amount financed of $1,980, a prepaid
finance charge of $20 (attributable only
to the guarantee fee), an annual
percentage rate-of .67% for the interim
period, and an annual percentage rate of
9% for the repayment period.
• Beginning on August 1,1982, the
Truth in Lending disclosures will reflect
an amount financed of $1,880, a prepaid
finance charge of $120 ($100 attributable
to the origination fee and $20
attributable to the guarantee fee), an
annual percentage rate of 4.20% for the
interim period, and an annual
percentage rate of 9% for the repayment
period.
The staff is adopting this revision in
final form rather than inviting public
comment on it. Immediate resolution of
this issue is essential to avoid disruption
to guaranteed student loan programs,
and the delay required for a comment
period would be contrary to the public
interest.
(2)
Pursuant to 15 U.S.C. 1640(f), the
staff is amending TIL-1 by revising
Comment 17(i)—
4 to read as follows:
Section 226.17—General Disclosure
Requirements * * *
17(i) Interim student credit
extensions. * * *
4. Origination fee disclosure. Pub. L.
97-35 (August 13,1981) amended the
Higher Education Act of 1965 to permit
lenders to charge up to a 5% origination
fee on certain student credit extensions,
such as federally-insured student loans.
On such credit extended before August
1,1982, creditors are not to take those
fees into account in calculating and
disclosing the annual percentage rate.
Moreover, the origination fee need not
be taken into account for purposes of
any other Truth in Lending calculations
and disclosures (for example, amount
financed, prepaid finance charge, and
prepayment disclosures) on such credit
extended before August 1,1982.
*

*




*

William W. Wiles,
Secretary of the Board.

PRINTED IN NEW YORE, FROM FEDERAL REGISTER, VOL. 46, NO. 232
[Ref. Cir. No. 9213]

*

*

Board of Governors of the Federal Reserve
System, November 27,1981.

FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Reg. Z* TIL-1]
TRUTH IN LENDING
Official Staff Commentary; Technical Amendments.
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Official staff interpretation; technical amendments.

SUMMARY: The staff is making technical amendments to its official staff c o m ­
mentary to Regulation Z (Truth in Lending) published at 46 FR 50288, October 9,
1981.
FOR FURTHER INFORMATION CONTACT: Ann Marie Bray, Staff Assistant, Division
of Consumer and Community Affairs, Board of Governors of the Federal Reserve
System, Washington, D.C. 20551, (202) 452-2412.
SUPPLEMENTARY INFORMATION: The final official staff interpretation contained
in FR Doc. 81-29734 is amended as follows:
1. On page 50296, column 2, the fourth sentence of the second para­
graph of 1981 changes is amended to read as follows:
"Other terms previously defined, such as 'customer' and 'organization,' are
merged into new definitions."
2. On page 50299, column 1, the fourth sentence of the third bulleted
paragraph in Comment 4(a )-4 is amended to read as follows:
"In addition, the agreement states that the creditor will pay 0% interest on
the amount of the time deposit that corresponds to the amount of the credit
extension(s)."
3. On page 50307, column 2, the following heading for and the first
sentence of Comment 7(g )2 is added immediately after "1. Rate same as corre­
sponding annual percentage rate. See Comment7(d)-5":
"2. Multifeatured plans. In a multifeatured plan, the actual annual
percentage rate that reflects the finance charge imposed during the cycle may
be separately stated for each feature."
4. On page 50307, column 3, the last sentence of Comment 7(k )-2
is amended by adding "the" after "Both of the billing rights statements in
Appendix G contain such a precautionary instruction, so that a creditor could,
by including either of these statements with each periodic statement, ensure
that" and before "required address is provided in a clear and conspicuous manner.

[Ref. Cir. No.9213]




(Over)

2

5.
On page 50309, column 3, the punctuation of the first sentence o
Comment 9(c)-l is amended as follows:
"No notice of a change in terms need be given if the
specific change is set forth initially, such as: rate
increases under a properly disclosed variable rate plan, a
rate increase that occurs when an employee has been under a
preferential rate agreement and terminates employment, or
an increase that occurs when the consumer has been under an
agreement to maintain a certain balance in a savings account
in order to keep a particular rate and the account balance
falls below the specified minimum."
6.
is amended as follows:

On page 50310, column 1, the last sentence of Comment 9(c)(1)-3

"But the consumer's general acceptance of the creditor's
contract reservation of the right to change terms, or the
consumer's use of the account (which might imply acceptance
of its terms under state law), is not 'an agreement' between
the consumer and the creditor for purposes of § 226.9(c)(1)."
7. On page 50311, column 3, the reference to § 226.10 appearing in
the 1981 changes paragraph is amended to read "§ 226.11."
8. On page 50316, column 3, the reference in Comment 13(f )-2 is
amended by changing "(See Comment 13(e)-!)" to "(See Commentary to §226.13(e).)"
9. On page 50317, column 3, the first sentence of Comment 14(a )-3 is
amended by inserting "by" after "permitted" and before "§ 226.14(a)."
10. On page 50318, column 2, the title of Comment 1 4 (d)-1 is amended
by changing "Quotient Methods." to "Quotient Method."
11. On page 50336, column 3, Comment 23(a)-4 is amended by changing
"creditor" to "consumer."
Board of Governors of the Federal Reserve System, December 3, 1981.

(si

iles

Secretary of the Board

[SEAL]




FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Reg. E; EFT-2]
ELECTRONIC FUND TRANSFERS
Official Staff Commentary; Technical Amendment.
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Official staff interpretation; technical amendment.

SUMMARY: The staff is making a technical amendment to its official staff
commentary to Regulation E (Electronic Fund Transfers) published at 46 FR 46876,
September 23, 1981.
FOR FURTHER INFORMATION CONTACT: Lynn Goldfaden, Staff Attorney, Division of
Consumer and Community Affairs, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551, (202) 452-3867.
SUPPLEMENTARY INFORMATION: The final official staff interpretation contained
in FR Doc. 81-27675 is amended as follows:
On page 46881, column 3, answer 5-2 is amended by changing the
reference to question 7-9 to read, "(See question 7-6.)"
Board of Governors of the Federal Reserve System, December 3, 1981.

(signed) William W. Wiles
William W. Wiles
Secretary of the Board

[SEAL]

[Ref. Cir. No.9213]