Full text of Federal Reserve Bank of New York Circulars : Board of Governors' Semiannual Regulatory Agenda

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

Mailed with Circular No. 10295

NOTICE

(Ref. At-Cir. No. 10292-C)

BOARD OF GOVERNORS’ SEMIANNUAL REGULATORY AGENDA
April 1, 1989 — October 1, 1989

The Semiannual Regulatory Agenda provides information on those regulatory matters that the Board
now has under consideration or anticipates considering over the next six months. It is divided into three
parts: (1) regulatory matters that the Board may consider for public comment during the next six months;
(2) matters that have been proposed and are under consideration; and (3) regulatory matters that the
Board has completed or is not expected to consider further.
A copy of the Agenda has been mailed to those on our mailing list who have previously requested
it. Copies will be furnished to others upon request (Tel. No. 212-720-5215 or 5216).




Circulars Division
F E D E R A L R E S E R V E BAN K O F NEW Y O R K
April 1989




Federal Reserve System
If.

-h)/
I'iAR 3 0 1389

Semiannual Regulatory Agenda
April 1, 1989 - October 1, 1989

BOARD OF GOVERNORS' SEMIANNUAL REGULATORY AGENDA

The Semiannual Regulatory Agenda provides information on those regulatory matters that
the Board now has under consideration or anticipates considering over the next six months.
It is divided into three parts: (1) regulatory matters that the Board may consider for publiccomment during the next six months; (2) matters that have been proposed and are under con­
sideration; and (3) regulatory matters that the Board has completed or is not expected to con­
sider further.
The Agenda is published in the Federal Register twice a year -- In April and in October.
Comments regarding any of the Agenda items should be submitted directly to the Board of
Governors.

Circulars Division
FEDERAL RESERVE BANK OF NEW YORK

FEDERAL RESERVE SYSTEM
112 CFR CHAPTER II]
Notice of Semiannual Regulatory Flexibility Agenda
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Semiannual Agenda.

SUMMARY:

The Board is issuing this Agenda under the Regulatory

Flexibility Act and the Board's Statement of Policy Regarding
Expanded Rulemaking Procedures.

The Board anticipates having

under consideration regulatory matters as indicated below during
the period from April 1 through October 1, 1989.

The next

Semiannual Agenda will be published in October 1989.
DATE:

Comments about the form or content of the Agenda may be

submitted any time during the next six months.
ADDRESS:

Comments should be addressed to William W. Wiles,

Secretary of the Board, Board of Governors of the Federal Reserve
System, Washington, D.C.

20551.

FOR FURTHER INFORMATION CONTACT:

A staff contact for each item

is indicated with the regulatory description below.
SUPPLEMENTARY INFORMATION:

The Board is publishing its April

1989 Agenda as part of the April 1989 Unified Agenda of Federal
Regulations, which is coordinated by the Office of Management and
Budget under Executive Order 12291.

Participation by the Board

in the Unified Agenda is on a voluntary basis.
The Board's Agenda is divided into three sections.

The

first, Proposed Rule Stage, -reports on matters the Board may
consider for public comment during the next six months.




The




second section, Final Rule Stage, reports on matters that have
bee i proposed and are under Board consideration.

A third

sec ^ion, Completed Actions, reports on regulatory matters the
Boa 'd has completed or is not expected to consider further.
A dot (•) preceding an entry indicates a new matter that
was not a part of the Board’s previous Agenda, and which the
Boa 'd has not completed.
(signed) Barbara R. Lowrey_______
Barbara R. Lowrey
Associate Secretary of the Board

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Section 1
Proposed Rule Stage

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TITLE:
Regulation: B - Equal Credit Opportunity
LEGAL AUTHORITY:
15 USC 1691 et seq. (as amended) "Equal Credit Opportunity Act"
CFR CITATION:
12 CFR 202
ABSTRACT:
During the next four months the Board will propose for public
comment revisions to Regulation B to implement amendments to the
Equal Credit Opportunity Act that were part of H.R. 5050,
enacted on October 25, 1988. The statutory amendments deal with
the notice and record retention requirements applicable in
business credit transactions. Once the revised regulation takes
effect, covered lenders will be required to give notice of a
business applicant’s right to a written statement of reasons for
a credit denial; and will have to maintain records on creait
applications for a minimum of one year.
Because the new requirements apply to all depository
institutions, there will be some economic impact on a
substantial numoer of small financial institutions.
TIMETABLE:
ACTION
DATE
Board will consider
revisions to Regulation 3
during tne next four months
06/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Dolores S. Smith
Assistant Director
Division of Consumer and Community Affairs
202 452-2412

FR CITE

2.
TITLE:
Regulation: E - Electronic Fund Transfers
LEGAL AUTHORITY:
15 USC 1693 et seq "Electronic Fund Transfer Act"
CFR CITATION:
12 CFR 205
ABSTRACT:
During the next six months, the Board will conduct a review of
Regulation E, which implements the Electronic Fund Transfer Act,
and establishes tne basic rights, liabilities, and
responsibilities of consumers who use electronic fund transfer
services and of financial institutions that offer tnese services
(wnetner or not these institutions hold the consumer’s account).
The review will consider whether any provisions of the regulation
are in need of updating and whether any substantive changes are
necessary because of technological and other developments. Tne
Board will also consider whether to make any legislative
recommendations for statutory changes.
Public comment will be requested on any regulatory proposals that
may be developed following the review. It is not anticipated that
the revisions would have a significant economic impact on a
substantial number of small banks.
TIMETABLE:
ACTION
DATE
Board will consider revisions to
Regulation E during the next six
months 08/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Dolores S. Smith
Assistant Director
Division of Consumer and Community Affairs
202 452-2M12
RIN: 7100-AA77




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3•
TITLE:
R e g u l a t i o n : G - S e c u r i t i e s C r e d i t by P e r s o n s O t h e r
B r o k e r s , o r D e a l e r s ; a n d R e g u l a t i o n : U - C r e d i t by
P u r p o s e of P u r c h a s i n g or C a r r y i n g M a r g i n S t o c k s

T han Banks,
B a n k s f o r t he

LEGAL AUTHORITY:
15 USC 78g "Securities Exchange Act of 1 9 3 4 , as amended"
15 USC 78w "Securities Exchange Act of 1934, as amended"
CFR CITATION:
12 CFR 221
12 CFR 207
ABSTRACT:
During the next three months the Board may address the ability
of lenders subject to Regulations G and U to transfer a credit
between these two types of lenders without treating the
transaction as creating a new extension of credit. The
regulations currently permit a transfer only between lenders
subject to the same regulation. Several law firms have expressed
an interest in such a deregulatory amendment.
It is not anticipated that this proposal will affect a
significant portion of the overall lending activities of a
substantial number of small firms.
TIMETABLE:
Board may address
transfer provisions in
Regulations G and U

ACTION

DATE
05/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Laura Homer
Securities Credit Officer
Div. of Banking Supervision and Regulation
202 452-2781

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FR CITE

u .

TITLE:
Regulation: K - International Banking Operations
LEGAL AUTHORITY:
12 USC 601 et seq
CFR CITATION:
12 CFR 2 11
ABSTRACT:
The Board will consider an amendment to its regulation governing
the establishment of foreign operating subsidiaries by member
banks. Tne amendment would eliminate the requirement in section
211.3(h)(9) of Regulation K that a member bank's operating
subsidiary be established only where required by local law or
regulation. The revision is intended to promote the efficiency of
member banks’ foreign operations. Because the revision would
remove a restriction, it is not anticipated that comment will be
requested .
The proposal would not have a significant economic impact on a
substantial number of small businesses because it affects only
U.S. banks operating abroad.
TIMETABLE:

ACTION
DATE
Final action by 10/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Kathleen O ’Day
Senior Counsel
Legal Division
202 452-3786
RIN: 7100-AA67




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FR CITE




TITLE:
Regulation:

LEGAL
12
12
12

K

-

International

Banking

Operations

AUTHORITY:
USC 1843 (c )(1 3)
USC 601 to 604a
USC 611 to 631

CFR CITATION:
12 CFR 211
ABSTRACT:
The Board will consider whether to publish for public comment a
proposed amendment to Regulation K to permit U.S. banking
organizations to engage in a broader range of activities abroad.
Specifically, the Board will consider whether U.S. banking
organizations should be permitted to underwrite, distribute, and
deal in equity securities outside the United States in excess of
the current restriction in Regulation K, which prohibits a
subsidiary of a U.S. banking organization from making an
underwriting commitment for shares of an issuer in excess of: (i)
$2 million, or (ii) 20 percent of the capital and surplus of the
issuer's voting shares, unless covered by binding commitments
from subunderwriters or other purchasers.
In addition, the Board will consider whether the purchases of
shares of companies held in trading accounts should continue to
be subject to the investment procedures set out in Regulation K
at 12 CFR 211.5(c).
It is not expected that the proposal would have a significant
economic impact on a substantial number of small businesses,
because it applies to U.S. banking organizations involved in
international securities activities. .
TIMETABLE:
ACTION
Board may consider an amendment to
Regulation K

DATE
10/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Kathleen O'Day
Senior Counsel
Legal Division
202 452-3786

RIN: 7 100-AA92

-S -

FR CITE

TITLE:
Regulation:

LEGAL
12
12
12

K -

International

Banking

Operations

AUTHORITY:
USC 221 et seq
USC 1841 et seq
USC 3101 et seq

CFR CITATION:
12 CFR 2 11
ABSTRACT:
In 19S9, tne Board will conduct a zero-based review of Subpart A
of Regulation K (International Operations of United States
Banking Organizations), as required every five years by the
International Banking Act. This review will include
consideration of tne powers of Edge corporations and additional
overseas activities of U.S. banking organizations. In addition,
Suopart B (Foreign Banking Organizations) will be reviewed,
particularly with respect to the effect of the revisions of the
Standard Industrial Classification (SIC) codes on that Subpart.
Subpart C (Export Trading Companies) will be reviewed with a view
toward bringing that Subpart into conformity witn tne Export
Trading Company Act Amendments of 1988.
Separate, but related to this review of Regulation K, is the
consideration of the liberalization of overseas securities
activities (RIN:
7100-AA92).
It is not expected that any revisions would have an adverse
impact on a substantial number of small banking organizations.
TIMETABLE:
ACTION
DATE
Board will conduct review by
12/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Kathleen O'Day
Senior Counsel
Legal Division
202 452-3786




FR CITE




TITLE:
Regulation: P - Minimum Security Devices and Procedures for
Federal Reserve Banks and State Member Banks
LEGAL AUTHORITY:
12 USC 1881 to 1884
CFR CITATION:
12 CFR 216
ABSTRACT:
During the next two months, the Board will conduct a zero-based
review of Regulation P, which implements the Bank Protection Act
of 1968, and establishes minimum security standards for Federal
Reserve Banks and for state member banks. The review will
consider wnether any provisions of the regulation are outdated
and whether any substantive changes are necessary because of new
technological developments. The regulation will also be
reorganized and revised for simplicity and clarity. Public
comment will be requested following the zero-based review. It is
not anticipated that the revised regulation will have a
significant economic impact on a substantial number of small
banks.
TIMETABLE:
ACTION
DATE
Board will consider revisions to
Regulation P 04/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Thomas A. Durkin
Regulatory Planning and Review Director
Office of the Secretary
202 452-2326
RIN: 7100-AA69

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TITLE:
Regulation: T - Credit by Brokers and Dealers
LEGAL AUTHORITY:
15 USC 78g "Securities Excnange Act of 1934, as amended"
15 USC 73w "Securities Exchange Act of 1934, as amended"
CFR CITATION:
12 CFR 220
ABSTRACT:
During the next three months the Board may consider proposing
amendments to Regulation T to accommodate settlement and
clearance of foreign securities in accounts covered by Regulation
T. A request has been made that extensive amendments be proposed
because of the growing internationalization of the securities
markets.
It is not anticipated that any proposals in this area would
affect a significant portion of the overall lending activities of
a substantial number of small firms.
TIMETABLE:
ACTION
DATE
Board may review a proposal to
amend Regulation T 05/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Laura Homer
Securities Credit Officer
Div. of Banking Supervision and Regulation
202 452-2781
RIN: 7 100-AA72




- 1 1 -

FR CITE




9

.

TITLE:
Regulation: T - Credit by Brokers and Dealers
LEGAL AUTHORITY:
15 USC 78g "Securities Exchange of 1934, as amended"
15 USC 73w "Securities Exchange of 193^, as amended"
CFR CITATION:
12 CFR 220
ABSTRACT:
Several national securities exchanges have proposed trading new
stock-index-related products, often called "index
participations." Because these products may not fit the existing
categories of securities in Regulation T, it is expected that
the Board will address the marginability of these products at
broker-dealers.
It is not anticipated that this proposal will affect a
significant portion of the overall lending activities of a
substantial number of small firms.
TIMETABLE:
ACTION
DATE
Board may address raarginability of
new exchange-traded products under
Regulation T
05/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Laura Homer
Securities Credit Officer
Div. of Banking Supervision and Regulation
202 452-2781
RIN: 7100-AA93

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FR CITE

1o .
TITLE:
Private Sector Presentment (Docket Number: R-0631)

LEGAL AUTHORITY:
12 USC 4008(c)
CFR CITATION:
00 CFR None
ABSTRACT:
In April 1938, the Board requested comment on whether it should
require paying tanks to pay for checks presented by private
sector collecting banks before 2:00 p.ra. in same-day funds and
without imposing presentment fees (53 FR 11911, April 11, 1 9 8 8 ).
The purpose of such a regulation would be to speed the forward
collection of checks by requiring paying banks to accept checks
without charging a fee later in the day, thus increasing the
number of checks that can be collected that day. It would give
private sector collecting banks the same rights vis-a-vis paying
banks as the Federal Reserve Banks now have.
The Board has not yet made a specific proposal to amend its
regulation in this regard. Rather, it is merely requesting
comment on the idea of same-day payment in private sector
presentments. If such a regulation were to be adopted, small
entities that might be affected include small banks and state and
local governments.
The Board will review the public comments and determine whether
to propose specific regulations.
TIMETABLE:

ACTION
DATE
Board requests comment 04/11/88
Board extends comment period to 07/21/88
December 1, 1 9 8 8
Board will review further 04/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Louise L. Roseman
Assistant Director
Div. of Federal Reserve Bank Operations
202 452-3874
RIN: 7100-AA96




FR CITE
53 FR 11911
53 FR 27565




TITLE:
Proposals for Long-Term Improvement to the Check Collection
System (Docket Number: R-0622)
LEGAL AUTHORITY:
12 USC 4001 et seq
CFR CITATION:
00 CFR none
ABSTRACT:
In December 1937, the Board published for comment several
proposals that have the potential to improve the check collection
system (52 FR 47112, December 11, 1987). They are, however,
long-term proposals that are not likely to be implemented in the
immediate future. They include bar-code indorsements, digitized
image processing of checks, electronic clearing zones, and an
electronic clearing house.
If these were to be introduced, they would likely have a
significant economic impact on a substantial number of small
banks and small entities including state and local governments
that use their services.
The Boarc will review the public comments and may take further
action within tne next twelve months.
TIMETABLE:
ACTION
DATE
Board issued proposals for comment 12/11/87
Board may take further action 04/00/90
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Gayle Thompson
Program Leader
Div. of Federal Reserve Bank Operations
202 452-2934
RIN: 7100-AA94

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FR CITE
52 FR 47112




Section 2
Final Rule Stage

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1 2 .

TITLE:
Regulation: D - Reserve Requirements of Depository Institutions
(Docket Number:
R-0571)
LEGAL AUTHORITY:
12 USC 248(k )
12 USC 461(a)
CFR CITATION:
12 CFR 204
ABSTRACT:
In May 1986, the Board issued for comment rules to clarify the
definition of "deposit” in Regulation D to include the interest
or liability associated with a borrowing in the form of certain
sales of assets and related transactions by a depository
institution (51 FR 16855, May 7, 1986). These transactions
include a sale of assets that involves a full guarantee by the
institution tnat, in effect, substitutes the institution's
credit standing for that of the ultimate borrower and in which
the institution retains the risk of borrower default after the
asset is sold.
Further, the regulation currently treats obligations of an
affiliate as deposits of the depository institution to the
extent the proceeds are provided to the depository institution.
The 3oard proposes to exclude proceeds received from a sale of
assets without recourse to the affiliate.
The proposal also would clarify the application of Regulation D
to certain of these transactions involving organizations
effectively controlled by the depository institution even thougn
not formally affiliated. Finally, the proposal would clarify how
the 3oard measures the "maturity" of an obligation for the
purposes of Regulation D.
The proposal requests comment on any alternatives that the
public believes may be preferable to the Board's proposed
amendments. Suggested alternatives will be considered when
comments are analyzed.
The proposed rule would apply to all depository institutions. It
is not anticipated that the proposal will have a negative impact
on the ability of small depository institutions to attract
deposits.
The Board will review the comments and take further action
in the near future.

TITLE:
Regulation: D - Reserve Requirements of Depository Institutions
(Docket Number:
R-0571)
TIMETABLE:

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
John Harry Jorgenson
Senior Attorney
Legal Division
2C2 L52-5778
RIN: 7100-AA62




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FR CITE
in r

ACTION
DATE
Board proposed revisions to
Regulation D 05/07/86
Comment period extended 07/10/86
Furtner Board action by 10/00/89

51 FR 1685
51 FR 2506;*




TITLE:
Regulation: K - International Banking Operations (Docket Number:
R-0550)
LEGAL AUTHORITY:
12 USC 611 et seq
CFR CITATION:
12 CFR 211
ABSTRACT:
In August 1985, the Board published for comment proposed
regulations that would restrict lending by an Edge Corporation to
its affiliates where the Edge Corporation is not subject to the
restrictions of section 23A of the Federal Reserve Act (12 USC
371c) because it is not owned by a U.S. insured bank (50 FR
35238, August 30, 1985). In taking this action, the Board noted
tne increasing number of owners of Edge corporations that are not
subject to federal banking supervision and the potential adverse
effects that might result from such affilations, such as the
impairment of the Edge’s ability to act as an impartial arbiter
of credit. The Board requested comment on the effect of tne
proposal on existing Edge Corporations, especially those owned by
foreign banks and whether any exemptions from the restrictions
are appropriate.
It is not expected tnat the proposal would have a significant
economic impact on a substantial number of small businesses,
because it applies only to organizations involved in
international banking.
The Board is continuing to evaluate whether this proposal snould
be adopted and will consider it in a zero-based review of
Regulation K expected during the next.eight months.
TIMETABLE:

ACTION
DATE
Board proposed revisions to
Regulation K
08/30/85
Further Board action by
12/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Kathleen O'Day
Senior Counsel
Legal Division
202 M52-3786
RIN: 7100-AA58

-

13 -

FR CITE
50 FR 35238

1 4 .

TITLE:
Regulation: Q - Interest on Deposits (Docket Number R-0514)
- .- v

LEGAL AUTHORITY:
12 USC 371d
CFR CITATION:
12 CFR 217
ABSTRACT:
In January 1936, tne Board issued for comment proposals to
clarify, update, and simplify the advertising provisions of
Regulation Q (51 FR 1379, January 13, 1986). The revisions
incorporate and supersede the proposals of March 1984 concerning
advertising of split-rate deposits and IRA/Keogh (HR 10) Plan
accounts. The proposal is not expected to have a significant
adverse effect on small banks.
The Board will review the comments and is expected to take
further action within the next six months.
It is also anticipated that the Board will consider at that time
various options with regard to providing written disclosures to
consumers about tneir accounts.
TIMETABLE:

ACTION
DATE
Board proposed revisions 01/13/86
Further Board action by 10/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Patrick J. McDivitt
Attorney
Legal Division
202 452-3818
RIN: 7100-AA56




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FR CITE
51 FR 1379




TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank Control
(Docket Number: R-0537)
LEGAL
12
12
12

AUTHORITY:
USC 1841 "Bank Holding Company Act"
USC 221 "Federal Reserve Act"
USC 3901 "International Lending Supervision Act of 1983"

CFR CITATION:
12 CFR 225
ABSTRACT:
In December 1986, the Board requested public comment on a
proposal to permit bank holding companies to engage in real
estate investment activities within certain limits (52 FR 543,
January 7, 1987). The proposed limits are designed to ensure that
conduct of the activity does not result in unsafe or unsound
practices, unfair competition, conflicts of interest or other
adverse effects.
The Board requested public comment on a number of specific items,
including whether real estate investment activities may be deemed
to be closely related to banking and a proper incident thereto
for purposes of section 4(c)(8) of the Bank Holding Company Act;
whether the proposed limits on the size, scope, and manner in
which tne activity would be conducted are appropriate; whether
nonbank companies owned by holding company banks should be
prohibited from conducting these activities; and whether the
Board should establish special capital requirements for bank
holding companies that control banks directly engaged in these
activities.
The proposal, if adopted, would permit bank holding companies to
engage in limited real estate investment activities that banK
holding companies are not now permitted to conduct and would not
impose more burdensome requirements on bank holding companies
than are currently applicable. Moreover, the proposal includes
provisions designed to permit small bank holding companies to
participate meaningfully in the proposed activities. The proposal
does not impose any limitations on the direct real estate
investment activities of holding company banks. (See Docket
Number R-0616, for additional information on proposed real estate
investment limitations.)
It is not expected that the Board would take action on this
proposal until after resolution of pending rulemaking to rescind

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TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank Control
(Docket Number: R-0537)
(ABSTRACT CONT.)
the Regulation Y provision permitting bank holding companies to
acquire, through their subsidiary state banks, shares of
companies engaged in activities that the bank is permitted to
conduct under state law, so-called operations subsidiaries
(R — 0652 ) .
TIMETABLE:

ACTION
DATE
ANPRM 01/31/85
Board issues proposal for comment 01/07/87
Further Board action indefinite 10/00/89

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES:
AGENCY CONTACT:
J. Virgil Mattingly
Deputy General Counsel
Legal Division
202 452-34 30
RIN: 7100-AA52




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FR CITE
50 FR 4519
52 FR 543
None




16.
TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank
Control and Regulation H - Membership of State Banking
Institutions (Docket Number: R—0616)
LEGAL AUTHORITY:
12 USC 1643 (c)(8)
12 USC 371c
12 USC 3901
CFR CITATION:
12 CFR 225.13 (d )(1)
12 CFR 225, Appendix
12 CFR 208. 14
*
ABSTRACT:
In November 1987, the Board requested comment on whether, in
evaluating proposals submitted under section 3 of the Bank
Holding Company Act, the Board should consider the impact of
real estate activities of the bank to be acquired by the bank
holding company on tne financial condition of the bank and bank
holding company, and, where appropriate, should prohibit banks
and savings banxs that are acquired by bank holding companies
from directly engaging in real estate investment and development
activities (52 FR 14230 1, November 4, 1987).
The 3oard also requested comment on whether member banks that
are not in a bank holding company should be made subject to the
interaffiliate lending restrictions of section 23A of the
Federal Reserve Act in their dealings with real estate
investment and development subsidiaries of the bank.
Finally, the Board requested comment on whether the Board should
impose special capital requirements on real estate subsidiaries
of banks in a bank holding company, under the Board’s authority
in the International Lending Supervision Act. These three
proposals supplement the Board's earlier request for comment in
December 1986 regarding whether the Board should permit bank
holding companies to engage in real estate investment
activities.
This proposal is not expected to have a significant economic
impact on small companies because the Board believes that very
few small banks are currently engaged in real estate investment
and development activities, and bank holding companies are not
generally permitted to engage in these activities.
It is not expected that the Board would take action on this
proposal until after resolution of pending rulemaking to rescind

- 2 2 -

TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank
Control and Regulation H - Membership of State Banking
Institutions (Docket Number: R-0616)
(ABSTRACT CONT.)
the Regulation Y provision permitting bank holding companies
to acquire, tnrough their subsidiary state banks, shares of
companies engaged in activities that the bank is permitted to
conduct under state law, so-called operations subsidiaries
(R-0652 ) .
TIMETABLE:
ACTION
DATE
Board requested public comment 11/04/87
Further Board action indefinite 10/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Scott G. Alvarez
Assistant General Counsel
Legal Division
202 452-3583
RIN: 7100-AASS




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FR CITE
52 FR 42301




17.
TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank
Control (Docket Number: R-0614)
LEGAL AUTHORITY:
12 USC 1643 (c)(8)
CFR CITATION:
12 CFR 225.25 (b)(9)
ABSTRACT:
In September 1987, the Board requested public comment on whether
the Board should authorize bank holding companies to acquire
thrift institutions as a general matter under section 4(c)(8) of
the Bank Holding Company Act (52 FR 36041, September 25, 1987).
The 3oard currently permits bank holding companies to acquire
thrift institutions only if the thrift is failing or has failed,
and the acquisition is likely to result in revitalization of tne
thrift.
The Board has requested comment on whether changes in the
economic and regulatory environment, in particular, the
expansion of the powers of thrifts and the growth in state
initiatives authorizing interstate banking, justify revisions of
the Board’s policy and the authorization of thrift acquisitions
by bank holding companies. The Board also requested comment on
what, if any, conditions the Board should impose on bank holding
companies seeking to acquire thrifts.
The 3oard’s proposal, if adopted, is not expected to impose a
substantial economic burden on small bank holding companies
because this action, if taken, would permit all bank holding
companies to acquire thrift institutions, and would not impose
different requirements on companies based on their size.
It is expected that the Board will consider this matter further
during the next six months.
TIMETABLE:
ACTION
DATE
Board requested public comment
09/25/87
Further Board action during
next six months
10/00/89
EFFECTS OH SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Michael J. O'Rourke
Senior Attorney
Legal Division
202 452-3288
RIN: 7100-AA89

-24-

FR CITE
52 FR 36041

TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank Control
(Docket Number: R-0652)
LEGAL AUTHORITY:
12 USC 1843 "Bank Holding Company Act"
12 USC 1 8 4 4 ( d ) "Bank Holding Company Act"
CFR CITATION:
12 CFR 225
ABSTRACT:
A provision of Regulation Y permits a State bank subsidiary of a
bank holding company to engage through a nonbank subsidiary in
any activity that is permissible under State law for the bank
subsidiary itself, subject to the same limits as if the bank
engages in the activity directly. (A similar rule applies to
national bank subsidiaries regarding activities permissible for
such banks under Federal law.) The Board received comments on
this provision in connection with its general request for
comments in May 1933 regarding the proposed revision of
Regulation Y. Some of the comraenters challenged the Board’s
authority to issue this provision, although it has been part of
Regulation Y since 1971. In taking final action on the revision
of Regulation Y, the Board deferred consideration of the comments
on this provision and allowed the existing rule to remain in
effect in the interim (49 FR 794, January 5, 1984).
In December 1988, the Board requested public comment regarding
wnetner this rule, as it applies to nonbanking companies owned by
state banks in a holding company system, continues to be valid
and appropriate in lignt of enactment of the Garn-St Germain Act
and certain recent court decisions (53 FR 48915, December 5,
1988).
The Board has also scheduled an informal public hearing
on this matter for April 7, 1989. The Board has not proposed
revising its current rule regarding subsidiaries of national
banks in a holding company.
A determination to reverse the Board’s state bank rule could have
an adverse impact on small banks that are subsidiaries of holding
companies because they might be required to restructure their
nonbanking activities or to take other action.
The Board is expected to take further action within the next six
months.




-25-

TIMETABLE:

ACTION
Board requested comments
Board allows existing
rule to remain in effect
Boarc requested comments
Furth er Board action by

DATE
05/25/83
01/05/84
12/05/88
10/00/89

EFFECTS ON SHALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
J. Virgil Mattingly
Deputy General Counsel
Legal Division
202 452 - 3^30
RIN: 7100-AA41

-26-

c
o




TITLE:
Regulation: Y - Bank Holding Companies and Change in Bank
Control (Docket Number:
R-0652)
FR CITE
FR 23520

49 FR 794
53 FR 489 15

19 •
TITLE:

Regulation: Z - Truth in Lending (Docket Number R-0655)
LEGAL AUTHORITY:
15 USC 1604, as amended, "Truth in Lending Act"
CFR C I T A TI O N:

12 CFR 226
ABSTRACT:
In January 1989, the Board published a proposal to amend
Regulation Z to implement provisions of the Home Equity Loan
Consumer Protection Act of 1988, which requires creditors to
provide consumers with more information for open-end credit plans
secured by tne consumer's dwelling, and imposes substantive
limitations on these plans (54 FR 3063, January 23, 1989). The
law superseded the Board's December 1987 proposal to amend
Regulation Z to change the disclosure requirements for home
equity lines of credit secured by the consumer's principal
dwelling (52 FR 48702, December 24, 1987).
Under the new law, creditors would have to provide additional
information at the time an application is provided to the
consumer, including information about the payment terras, fees
imposed under the plan, and, for variable-rate plans, information
about the index and a fifteen-year history of changes in the
index values.
Creditors also would be required to provide
consumers with a brochure prepared by the Board (or with one
substantially similar) that describes home equity plans.
In
addition, new duties would be imposed on third parties who
provide applications to consumers, and the rules relating to
advertisements for home equity plans would be modified.
The January 1989 proposal would also amend Regulation Z to
implement new substantive limitations imposed by the law on home
equity plans.
If the Board adopts the proposal, small institutions engaged in
home equity lending could incur additional expenses, including
costs to revise and reprint disclosure forms, to acquire and
distribute the home equity brochures, and possibly to modify
their contracts.
They also would need to review and possibly
modify their advertisements for home equity plans.
Before
adopting any final amendments to its rule, the Board would
consider appropriate steps to minimize the burdens and costs of
compliance.
The Board will review the public comments and take further action
within the next three months.




-27-




TITLE:
Regulation: Z - Truth in Lending (Doc*et Number R-0655)
TIMETABLE:

ACTION
DATE
Board proposed amendment 01/23/89
Further Board action by 05/00/89

EFFECTS OH SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Sharon Bowman
Attorney
Division of Consumer and Community Affairs
202 452-3667
RIN: 7100-AA91

- 2 8 -

54

FR CITE
FR 3063

•

.

20
TITLE:
Regulation: Z - Truth in Lending (Docket Number R-0654)
L E G A L A U T H OR I TY :

15 USC 1604 as amended "Truth in Lending Act”
CFR CITATION:
12 CFR 226
A B ST RA CT :

In December 1988, the Board proposed for comment revisions to
Regulation Z to implement amendments to the Truth in Lending Act
that were part of H.R. 515, the Fair Credit and Charge Card
Disclosure Act of 1988, enacted on November 3, 1988 (53 FR 51785,
December 23, 1988). The statutory amendments require credit and
charge card issuers to provide certain credit disclosures in
telephone solicitations and in direct mail and other applications
and solicitations to open credit and charge card accounts. Card
issuers will also be required to give cardholders written notice
regarding the renewal of their credit and charge card accounts
before a cardholder has to pay a fee to renew the account. In
addition, the law requires credit card issuers to provide
cardholders with written notice of a change in the entity
providing credit insurance on credit card accounts.
Regardless of size, most commercial banks offer credit card plans
to consumers. The proposed regulations do not distinguish between
large and small creditors.
Consequently, creditors of ail sizes
will incur similar types of costs. However, the magnitude of
these expenses will depend upon the level of a particular
creditor’s credit card plan operation and the type of marketing
employed. Witn respect to bank cards, the majority of credit card
accounts are held by a relatively small number of large card
issuers. These institutions also probably account for a
substantial proportion of the credit card solicitations.
Consequently, large card issuers will probably incur a larger
aggregate cost, relative to smaller card issuers, to comply witn
the new rules, although on a cost-per-solicitation or
cost-per-account basis these costs will probably be relatively
small.
The Board will review the public comments and take further action
within the next two months.
TIMETABLE:
Board proposed amendment to
Regulation Z
Further Board action by

ACTION
DATE
12/23/88
04/00/89

EFFECTS OH SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
John C. Wood
Senior Attorney
Division of Consumer and Community Affairs
202 452-2412




-29-

FR CITE
53 FR 51785

U

I

•

TITLE:
Regulation: CC - Availability of Funds and Collection of Checks
(Docket Number: R-0639)
LEGAL AUTHORITY:
12 USC 4001 et seq
CFR CITATION:
12 CFR 229.36
ABSTRACT:
In June 1988, the Board issued for comment a proposed amendment
to Regulation CC that would prohibit banks from issuing teller's
checks unless a depositary bank located in the same check
processing region as the issuing bank would normally receive
credit for the check as early as credit for a check drawn on the
issuing bank (53 FR 24093, June 27, 1988). The purpose of the
amendment is to address the problems connected with certain
delayed disbursement practices.
The rule will affect all banks regardless of size. It is not
expected that the proposal will impose significant costs on small
banks other than the costs of changing paying banks and
purchasing new check stock for those banks that do not currently
meet the equivalent availability standards.
Since the original proposal, the Board, in response to
coramenters' concerns, has determined that such an amendment would
not be effective April 1, 1989 (54 FR 5495, February 3, 1989).
If and when a final rule is adopted, the Board will allow such
lead time as it determines to be reasonable for the industry to
implement any necessary changes.
Following review of public comments and meetings with industry
representatives, the Board may take further action within tne
next six months.
TIMETABLE:

ACTION
DATE
Board requested comment on a 06/27/88
proposed amendment to Regulation CC
Further Board action by 10/00/89

EFFECTS OH SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Louise L. Roseman
Assistant Director
Div. of Federal Reserve Bank Operations
202 452-3874

RIN: 7100-AA95




-30-

FR CITE
53 FR 24093

•

22 .
TITLE:
Regulation: CC - Availability of Funds and Collection of Checks
(Docket Number:
R-0648)
LEGAL AUTHORITY:
12 USC 4001 et seq
CFR CITATION:
12 CFR 229
ABSTRACT:
In November 1988, the Board adopted a rule to amend its
Regulation CC to treat "bank payable through checks" as local or
nonlocal based on the location of the bank on which they are
written rather than the location of the bank through which they
are payable (53 FR 44324, November 2, 1988). In conjunction with
the final rule, the Board issued proposed amendments to
Regulation CC designed to alleviate the operational difficulties
and additional risks resulting from the final rule. (53 FR 44335,
November 2, 1988).
The proposed rule would affect all institutions that issue
payable through checks. A number of these institutions would be
small banks, generally credit unions.
The Board will review the public comments and is expected to
take further action within the next four months.
TIMETABLE:
ACTION
DATE
Board issued proposals for
comment
11/02/88
Further Board action by
06/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Louise L. Roseraan
Assistant Director
Div. of Federal Reserve Bank Operations
202 452-3874




-31-

FR CITE
53 FR 4 4335
1

TITLE:
Regulation: CC - Availability of Funds and Collection of Checks
(Docket Number:
R-0649)
LEGAL AUTHORITY:
12 USC 4001 et seq
CFR CITATION:
12 CFR 229
ABSTRACT:
The Board’s Regulation CC requires banks to make funds available
to their customers within specific times, to disclose their funds
availability policies to their customers, and to handle returned
checks expeditiously. Since the publication of Regulation C C , the
Board has received numerous requests from banks and others for
clarification of various provisions of the regulation.
In
November 1986, the Board issued for comment proposed changes to
Regulation CC that respond to many of the questions and provide
assistance to banxs in understanding and complying with the
regulation (53 FR 44343, November 2, 1988).
Adoption of the proposed amendments would not result in any
significant economic impact on small entities.
The Board will review the public comments and is expected to take
further action within the next two months.
TIMETABLE:
ACTION
DATE
Board request comment on proposed
changes
11/02/88
Further Board action by
04/00/89
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
Stephanie Martin
Attorney
Legal Division
202 452-3198




-32-

FR CITE
53 FR 443 43

TITLE:
Further Proposals to Reduce Risks on Large-Dollar Wire Transfer
Systems (Docket Number: R-0592)
LEGAL AUTHORITY:
12 USC 221 et seq
CFR

C IT A TI O N:

00 CFR None
ABSTRACT:
In December 1936, the Board requested comment on several
proposals that would refine its policy statement on payment
system risK (51 FR 45042, December 16, 1986). The proposals
included modifying automated clearing house transactions to
reduce risks (R — 0591 ) and various proposals to charge a fee for
daylight overdrafts as a way of reducing risks associated witn
them (R-0592 ) .
It is not expected that these actions will have a significant
economic impact on a substantial number of small entities,
because small entities do not usually participate in large-do liar
wire transfer systems.
In December 1937, following review of public comments, the Board
approved changes in the automated clearing house mechanism to
reduce risk (52 FR 49086, December 29, 19§7). Action on pricing
of daylight overdrafts (Docket No. R-0592) is expected bv June
1989.
Further, the 3oard will be conducting a zero-based review of its
risk reduction policy during 1989.
ACTION
DATE
Board requested comment 12/16/86
Board adopted proposal in part 12/29/87
Further Board action by 06/00/89

TIMETABLE:

EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: None
AGENCY CONTACT:
E d w ar d C. E t t i n
Deputy Director
D i v i s i o n of R e s e a r c h

and

Statistics

202 452-3368
RIN: 7100-AA76




-33-

FR CITE
51 FR 45042
52 FR 49036




Section 3
Completed Actions

-3U-

TITLE:
Regulation: H - Membership of State Banking Institutions in the
Federal Reserve System (Docket Number: R-0636)
L E G AL

AUTHORITY

12
12
12
12

u s e 2*48
u s e 321 t
u s e 436
u s e 1814
12 u s e 3907
12 use

3909

CFR C IT A TI O N:

12 CFR 203. 17
A B S T RA CT :

In June 1983, the Board issued for comment an amendment to
Regulation H designed to facilitate the fullest possible
dissemination of publicly available information regarding the
condition of state member banks (53 FR 19308, June 3, 1988). The
amendment would require such banks to make available upon request
their year-end reports of condition or other suitable documents
describing their condition.
Under the amendment to Regulation H, state member banks must make
available to the public, upon request, one free copy of certain
information that is presently prepared by banks.
State member
banks must also notify the public and shareholders of the
availability of the information.
Although many comraenters to the
proposal focused on the cost of such additional regulation,
especially to small banks, the Board does not believe that the
cost would be substantial.
The amendment does not require the
banks to prepare any new documents.
Notification to the public
can be accomplished by means as inexpensive as lobby posters, and
notification to shareholders must be in the form of a written
announcement that may be included with the notice of the annual
shareholders meeting.
In February 1989, after review of the public comments, the Board
approved the proposal with modifications (54 FR 6115, February
8, 1989).
TIMETABLE:
ACTION
D ATE
Proposed regulation issued for 06/03/88
public comment
Final rule adopted
02/08/89
EFFECTS OH SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Stephen L. Siciliano
Special Assistant to the General Counsel
Legal Division
202 452-3920
RIN: 7100-AA36




-35-

FR CITE
53 FR 19308
54 FR 6115

26 .
TITLE:
Regulation: Y - Bank Hold Companies and Change in Bank Control
(Docket Number: R-0637)

LEGAL AUTHORITY:
12 USC 1843
CFR CITATION:
12 CFR 225
ABSTRACT:
In June 1988, the Board proposed for comment amendments to
Regulation Y to implement the limitations on grandfathered
nonbank banks and industrial banks set forth in the Competitive
Equality Banking Act of 1987 (CEBA) (53 FR 21462, June 1, 1988).
The limitations in CEBA on nonbank banks include restrictions on
new activities, joint-marketing with affiliates, annual growth,
and overdrafts. Only the overdraft restriction applies to
industrial banks.
The overdraft restriction requires nonbank banks and industrial
banks to keep records of their affiliates’ transactions in order
to measure overdrafts. Because the overdraft restriction is
required by CEBA, small entities cannot be exempted from this
recordkeeping requirement.
Following an informal hearing on the public comments, the Board,
in September 1988, adopted the amendments with minor changes (53
FR 37733, September 28, 1988).
TIMETABLE:
ACTION
DATE
Board requested public comment 06/01/88
Board adopted the proposal
09/28/88
EFFECTS ON SMALL BUSINESS AND OTHER ENTITIES: Yes
AGENCY CONTACT:
Elaine

Boutilier

Senior Attorney
Legal Division
202
RIN:




452-2418

7 1 00-AA87

-36-

FR CITE
53 FR 21462
53 FR 37733

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

T R U T H IN LEN D IN G

A M E N D M E N T S TO T H E O F FIC IA L STAFF CO M M EN TA RY ON R EG U LA TIO N Z
(effective February 28, 1989)

12 CFR Part 226
[Rag. Z; TIL-11
Truth in Lending; Update to Official
Staff Commentary

Board of Governors of the
Federal Reserve System.
a c t i o n : Official staff interpretation.
AGENCY:

SUMMARY: The Board is publishing
revisions to the official staff
commentary to Regulation Z (Truth in
Lending). The commentary applies and
interprets the requirements of
Regulation Z and is a substitute for
individual staff interpretations of the
regulation. The revisions address a
variety of questions that have arisen
about the regulation, and include new
material and changes in existing
material. The comments address, for
example, disclosure questions raised by
the emergence of reverse mortgage
products, questions concerning the
amendments to Regulation Z affecting
disclosures for adjustable-rate
mortgages, and questions concerning
when a third party fee may be a finance
charge in a credit transaction.
DATES: Effective February 28,1989, but
compliance optional until October 1,
1989.
FOR FURTHER INFORMATION CONTACT:

The following attorneys in the Division
of Consumer and Community Affairs, at
(202) 452-3667 or (202) 452-2412: Sharon
Bowman, Michael Bylsma, Leonard
Chanin, Adrienne Hurt Thomas Noto, or
Linda Vespereny.
For the hearing impaired o n l y ,




Telecommunications Device for the Deaf 2(a) Definitions
(TDD), Eamestine Hill or Dorothea
2 ( a ) ( 2 5 ) ‘S e c u r i t y I n t e r e s t " . In the
Thompson, at (202) 452-3544, Board of
original proposal, comment 23(b)—
3
Governors of the Federal Reserve
would have been revised to clarify that
System, Washington, DC 20551.
multiple security interests in the same
SUPPLEMENTARY INFORMATION: (1)
property need not be disclosed on
G e n e r a l . The Truth in Lending Act (15
rescission notices. The comment for
U.S.C. 1601 e t s e q .) governs consumer
example, would have clarified that the
credit transactions and is implemented
disclosure that an interest is retained, as
by the Board's Regulation Z (12 CFR
Part 226). Effective October 13,1981, an in form H-9, is adequate in a refinancing
official staff commentary (TIL-1, Supp. I where a new mortgage is filed and a
new advance is made. Several
to 12 CFR Part 226) was published to
commenters suggested that the
interpret the regulation. The
commentary is designed to provide
commentary also provide guidance on
guidance to creditors in applying the
the specificity required of the security
regulation to specific transactions and Is interest disclosure under § 5 226.8,
updated periodically to address
226.15, and 226.18. In order to clarify
significant questions that arise. There
that the same principle holds true in
other required disclosures of security
have been seven general updates and
one limited update so far. This notice
interests, the substance of the proposed
contains the eighth general update. This comment has been incorporated in new
comment 2(a)(25)-6, instead of in
update reflects material that was
comment 23(b)—
3.
published in two proposed updates in
1988—a special update regarding
S e c t i o n 2 2 8 .4 — F i n a n c e C h a r g e
disclosures for adjustable-rate
mortgages published at 53 FR 38018
4(a) Definition
(S ep tem b er 29, 1988) and the proposed
general update published at 53 FR 48925
Comment 4(a)-3 is revised to clarify
(December 5,1988). Creditors are free to that charges imposed on the consumer
rely on the revised commentary as of
by someone other than the creditor are
February 28,1989, although they need
finance charges if the creditor requires
not follow the revisions until October 1, the services of the third party. For
1989.
example, if a consumer cannot obtain
(2)
R e v i s i o n s . The following is a briefthe same credit terms from the creditor
description of the revisions to the
without using a loan broker, a fee
commentary:
imposed by the broker is a finance
charge. The revised comment does not
Subpart A—General
affect existing rules regarding charges
S e c t i o n 2 2 6 .2 — D e f i n i t i o n s a n d R u l e s o f
which are excluded from the finance
charge.
C o n s tr u c tio n

PRINTED IN NEW YORK. FROM

FEDERAL R E G ISTE R ,

VOL. 54, NO. 43, pp. 9417-9424

4(b) Examples of Finance Charges
P a r a g r a p h s 4 ( b ) ( 7 ) a n d ( 8 ) . Comment
4(b) (7) and (8}-2 is revised to clarify
that insurance “written in connection
with a credit transaction” does not
include insurance written during an
open-end credit plan if the insurance is
written because of the consumer’s
default or because the consumer
requests voluntary insurance after the
opening of the plan. If insurance written
during the term of the open-end plan is
required by the creditor not as a result
of the consumer’s default however, the
insurance is written in connection with
the plan. The final comment which
differs from the proposed comment will
provide identical rules for insurance
written after consummation of a closedend transaction and insurance written
during the life of an open-end plan.

a fixed term for the disbursement of
funds to the consumer, but provide that
the loan does not have to be repaid until
a later time, such as when the consumer
dies. The comment provides that the
creditor should assume repayment will
occur at the time disbursements are
scheduled to end (or during a period
following the date of the final
disbursement which is not longer than
the regular interval between
disbursements). For example, in a
transaction with monthly disbursements
scheduled for ten years, the creditor
may assume that repayment will be
made in the 120th or 121st month.

The new comment also provides
guidance on how creditors should make
disclosures when both the period for
disbursements and the date for
repayment are determined solely by
Subpart C—Closed-End Credit
reference to future events, including the
consumer's death. In such cases, the
S e c ti o n 2 2 6 .1 7 — G e n e r a l D i s c lo s u r e
creditor may assume that disbursements
R e q u ir e m e n ts
will end upon the consumer’s death (by
17(a) Form of Disclosures
using actuarial tables, for example).
P a r a g r a p h 1 7 ( a ) ( 1 ) . Comment 17(a)(1)- Alternatively, the creditor may assume
that disbursements end upon the
5 is revised to provide that creditors
occurrence of the event that the creditor
with variable-rate transactions subject
estimates will be most likely to occur
to 5 226.18(f)(2) may also provide the
information set forth in 5 228.18(f)(1) as first If terms will be determined by
reference to future events which do not
information directly related to the
include the consumer's death, the
required disclosures.
creditor must base the disclosures on
17(c) Basis of Disclosures and Use of
the event estimated to be most likely to
Estimates
occur first The creditor must assume
P a r a g r a p h 1 7 ( c ) ( 1 ) . Comment 17(c)(1)- repayment will occur at the same time
the disbursements end (or during a
8 is revised to clarify the basis of
disclosure for variable-rate transactions period following the final disbursement
with no initial discounted or premium
which is not longer than the regular
rate. The comment explains that
interval between disbursements).
creditors should base their disclosures
The comment also provides that, in
only on the initial rate and not on any
making disclosures, creditors would
potential rate Increases. The comment
assume that all disbursements and
also has been been reorganized for
clarity, but is not different in substance accrued interest must be paid by the
consumer. Thus, if a reverse mortgage
from the proposal.
has a “nonrecourse” provision providing
Comments 17(c)(l)-14 and 17(c)(l)-15
that the consumer is not obligated for an
are renumbered as 17(c)(l)-15 and
17(c)(1)— respectively. New comment amount greater than the value of the
16.
house, the comment explains that the
17(c)(1)— is added to clarify how
14
disclosures must assume that the full
lenders should provide disclosures for
amount disbursed will be repaid,
reverse mortgages. These mortgages,
also known as reverse annuity or home although the creditor is permitted to
explain that the consumer’s contract
equity conversion mortgages, typically
involve the disbursement of monthly or may limit the amount that must be
other periodic advances to the consumer repaid.
for a fixed period or until the occurrence
Finally, the comment addresses the
of an event such as the sale of the house
disclosure of shared-appreciation
by the consumer or the consumer's
features associated with reverse
death. Repayment of the loan may be
required at the end of the disbursement mortgages. The commentary provides
that the appreciation feature should be
period or at a later time; both accrued
disclosed in accordance with either
interest and principal generally are
§ 228.18(f)(1) or $ 228.19(b), as
payable in one payment.
Some reverse “term” mortgages have appropriate.




2

S e c t i o n 2 2 6 .1 8 — C o n t e n t o f D i s c l o s u r e s

18(0 Variable Rate
P a r a g r a p h 1 8 ( f ) ( 2 ) . Comment 18(f)(2)1 is revised by adding a cross-reference
to the commentary to § 226.17(a)(1)
regarding the disclosure of additional
variable-rate information as directly
related information.
S e c t i o n 2 2 6 .1 9 — C e r t a in R e s i d e n t i a l
M o r tg a g e T r a n s a c tio n s

19(b) Certain Variable-Rate
Transactions
Comment 19(b)— is revised to clarify
1
the disclosure of variable-rate
construction loans that may be
permanently financed. Under the current
rules in § 226.17(c)(6), a creditor may
disclose the construction and permanent
financing arrangements, under $ 226.18,
as a single combined transaction or as
separate transactions. Under revised
comment 19(b)— a creditor is permitted
1,
to apply a similar analysis in
determining the applicability of the
variable-rate disclosure requirements of
$ 226.19(b). Thus, the creditor may treat
the construction phase as a separate
transaction and, if the term is one year
or less, disclosures under $ 226.19(b) are
not required for the construction phase.
The comment also makes clear that a
creditor may treat the construction and
permanent phases as separate and
distinct transactions for purposes of
determining coverage under $ 226.19(b),
yet still provide a single § 226.18
disclosure in accordance with the rules
in $ 226.17(c)(6). If the construction and
permanent phases are treated as a
single combined transaction with a term
greater than one year, disclosures under
5 226.18(f)(2) would be required. As
provided in comment 17(a)(1)—
5,
however, the creditor may describe the
variable-rate features of the combined
transaction pursuant to § 228.18(f)(1).
Comment 19(b)-l also is revised to
address the disclosure requirements in
assumptions of variable-rate
transactions secured by the consumer’s
principal dwelling with a term longer
than one year. The comment explains
that disclosures need not be provided
under § 226.18(f)(2)(ii) or 226.19(b).
References to applicable sections and to
particular parties are deleted as
unnecessary and in order to make the
comment more concise.
P a r a g r a p h 1 9 ( b ) ( 2 ) . Comment
19(b)(b)— is revised to omit references
1
to the form of disclosures for ARM
programs. New comment 19(b)(2)— has
3
been added to describe the manner in
which creditors may make the
disclosures for each ARM program they
offer.

Comment 19(b)(2)-l also is revised to
clarify the timing requirements for
disclosures provided in response to a
subsequent expression of interest by the
consumer. Editorial changes have been
made to the original proposal. The final
comment makes clear that if a
consumer expresses an interest in a
different program, or it the consumer
and creditor decide on a program
different than that set forth in the
disclosures that were first provided,
disclosures for the new program must be
provided as soon as reasonably
possible.
In addressing the proposed revision to
comment 19(b)(2)-l, several commenters
also requested clarification of the timing
requirements in situations, such as
private banking arrangements, where
loan terms that are not generally offered
to the public are individually negotiated
with a consumer. Commenters indicated
that in these instances, creditors do not
know the loan program terms in
advance and therefore cannot prepare
program disclosures until after they
conclude their negotiations with the
consumer. They also expressed concern
that "customized” program disclosures
might be needed to disclose each
individually negotiated program.
Accordingly, an additional sentence has
been added to comment 19(b)(2)— to
1
make clear that, in such cases, creditors
may provide appropriate program
disclosures as soon as reasonably
possible after the terms have been
decided upon, but in no event later than
the time a non-refundable fee is paid.
Furthermore, with the flexibility
provided in this commentary concerning
disclosure of variations in loan
maturities, rate caps and frequencies of
adjustments, the potential that
"customized" disclosures will need to be
developed for each private banking
customer is significantly limited.
Comment 19(b)(2)— has been revised
2
to clarify that the term to maturity of an
ARM loan does not constitute a program
variation. This revision corresponds to
the guidance provided in new comments
19(b)(2)(viii)— and 19(b)(2)(x)— on the
5
2
terms to maturity which may be used in
calculating and disclosing the historical
example and the initial and maximum
rates and payments.
Comments 19(b)(2)— and -4 have
3
been renumbered as comments 19(b)(2)—
4 and -5, respectively. Based upon
public comment and to permit greater
flexibility for compliance with the
requirements, new comment 19(b)(2)—
3
has been added to describe the form for
disclosures required under
5 226.19(b)(2). The Comment
incorporates material previously
contained in comment 19(b)(2)-! and




includes new material which explains
that a creditor may use either a separate
disclosure form to describe each ARM
program it offers or a disclosure form
which describes more than one
available ARM program. The comment
explains that the multiple program form
must disclose if any program features
are available only in conjunction with
certain other features. Finally, the new
comment explains that multiple terms to
maturity or multiple payment
amortizations may be illustrated in any
program disclosure form whether the
form describes separate or multiple
programs.
Paragraph 19(b)(2)(iii). Comment
19(b)(2)(iii)— differs from the proposal
1
in two respects. The use of the term
"balloon payment" has been replaced
by a more specific reference to the type
of transactions subject to the disclosure
provisions. The comment is revised to
clarify that, in transactions where
paying the periodic payments will not
fully amortize the loan at the end of the
loan term and where the final payment
will equal the periodic payment plus the
remaining unpaid balance, the creditor
must disclose that such a payment will
be required. The creditor, however, need
not reflect any irregular final payment in
the historical example or in the
disclosure of the initial and maximum
rates and payments. (The exception for
all irregular final payments is an
expansion of the proposed comment,
and would include final payments that
differ in amount due to the effect of rate
changes.)
Paragraph 19(b)(2)(v). Comment
I9(b)(2)(v>-1 is revised to clarify that
consumer buydowns and third-party
buydowns reflected in the consumer’s
credit obligation should be disclosed in
accordance with the rules for discounted
variable-rate transactions. The revised
comment also makes clear that no
additional disclosures relating to the
buydown need be provided on the
program disclosure.
Paragraph 19(b)(2)(vi). Comment
19(b)(2)(vi)— is revised to address the
1
disclosures for transactions in which the
interval between consummation or
closing and the initial adjustment is not
known—for example, when ARM loans
are grouped together for sale to a
secondary mortgage market purchaser.
In such cases, the comment explains
that lenders may disclose the timing for
the first adjustment as a range of the
minimum and maximum length of time
from consummation or closing until the
first adjustment.
Paragraph 19(b)(2)(vii). Comment
19(b)(2)(vii>— is revised to address the
1
disclosures for transactions in which the
3

overall limitations on rate increases
(and decreases) vary—for example,.
based on the loan features the consumer
chooses or upon fluctuations in the
pricing of the loan. The final comment
extends the alternative disclosure rule
to periodic limitations in addition to
overall rate limitations. In such cases,
the comment explains that the creditor
may disclose the range of the lowest and
highest periodic and overall rate
limitations that may be applicable to the
creditor’s ARM transactions, and must
include a statement that the consumer
ask about the rate limitations that are
currently applicable.
Paragraph 19(b)(2)(viii). Comment
19{b)(2)(viii)-l is revised to clarify that,
in transactions that end before the last
year in the historical example, the
example must illustrate all significant
loan program terms such as rate
limitations that would have affected the
interest rate for the remaining years
shown in the example.
Comment 19(b)(2)(viii)-5 is added to
describe the terms to maturity or
payment amortizations which may be
used as a basis for the disclosures in
ARM transactions. Based upon public
comment and further consideration, the
proposed comment has been revised.
Under the final comment, creditors will
be permitted to base the disclosures
required under $ 226.19(b)(2)(viii) and
(x) for ARM loans within certain ranges
upon only three maturities—five, fifteen
and thirty years. Thus, a creditor who
offers ARM loans for any term over one
year would be permitted to make the
disclosures required under these
sections based on five-, fifteen- and
thirty-year terms, and need not illustrate
every other maturity that is offered. The
comment also permits creditors to use
five-, fifteen- and thirty-year term
assumptions for disclosing payments
based on amortizations different than
the actual loan term. (Disclosures based
on fifteen- and thirty-year maturities
should provide payments that fairly
approximate the payments for long-term
ARMs. Disclosures based on a five-year
maturity should provide payments that
fairly approximate the payments for
most short-term ARMs. Finally, the
comment explains that the creditor
would be required to state the term (or
amortization) used in making the
disclosures when using the three terms
specified in the comment)
Comment 19(b)(2)(viii}-6 is added to
explain that a creditor following the
alternative rule for disclosing periodic
and overall rate limitations described in
revised comment 19(b)(2)(vii)-l must
base the historical example upon the
highest rate limitation disclosed under

f 228.19(b){2}(vii). In addition, such
creditors must state the periodic or
overall limitation used in the historical
example.
Comment 19(b)(2)(viii)-7 also is added
to explain the assumptions that can be
made by a creditor following the
alternative rule for disclosing the
frequency of rate and payment
adjustments described in revised
comment 19(b)(2)(vi)-l. The comment
explains that, in disclosing the historical
example, the creditor may assume that
the first adjustment o c c w e d at the end
of the first year in which the adjustment
could occur.
Paragraph 19(b)(2)(ix). Comment
I9(b)f2)(ix}-1 states that a creditor
should base the example of how a
consumer may calculate their actual
payments on the latest payment shown
in the historical example. The comment
is revised to clarify that, in transactions
where the latest payment shown in the
historical example is not for the latest
year of index values shown, a creditor
may include additional examples that
are based on the initial or maximum
payments disclosed under
§ 228.19(b)(2)(x). This revision differs
from the proposal in that it provides that
creditors may provide the extra
examples in addition to, but not as
alternatives for, the example based on
the last payment shown in the historical
table.
Paragraph 19(b)(2){x). Comment
19(b) (2)(x}-2 is added to allow creditors
to base their calculations of the initial
and maximum rates and payments upon
the terms to maturity stated in new
comment 19{b)(2)(viii}-5. The comment
explains that the term used for making
disclosures under § 226.19{b){2){viii)
also must be used in disclosing the
initial and maximum interest rates and
payments.
Comment 19{b)(2)(x}-3 is added to
describe how a creditor following the
alternative rule for disclosing periodic
and overall rate limitations described in
revised comment I9(b)(2)(vii}-1 would
calculate the maximum interest rate and
payment In such cases, the comment
explains that the creditor must base the
disclosure of the maximum rate and
payment upon the highest periodic and
overall rate limitation disclosed under
§ 228.19(b)(2)(vii). The creditor would be
further required to state the periodic and
overall rate limitations used in
calculating the maximum rate and
payment.
Comment 19(b)(2)(x)-4 also is added
to explain how to calculate the initial
and maximum rates and payments if a
creditor follows the alternative rule for
disclosing the timing of the first rate and



payment adjustment described in
disclosures provided for under comment
revised comment 19(b)(2)(vi)-l. The
25(a)-2.
comment explains that the creditor must
Section 226.30—Limitation on R ates
assume that the first adjustment occurs
Comment 30-8 is revised to clarify
at the earliest time disclosed under
that this paragraph applies to the
§ 226.19(b}(2)(vi).
manner of stating the maximum interest
Section 226.20—Subsequent Disclosure
rate in the credit contract only. This
R e q u ir e m e n ts
paragraph does not govern how interest
rate ceilings should be stated in Truth in
20(b) Assumptions
Lending disclosures. The disclosures are
The proposed amendment to comment governed by provisions found elsewhere
20(b)-6 to add a cross reference to
in the regulation and commentary.
§ 226.19(b) is deleted as unnecessary.
Comment 30-13, concerning footnote
50, is revised to clarify the requirements
20(c) Variable-Rate Adjustments
of the regulation after October 1,1988.
Paragraph 20(c)(4). Comment 20(c)(4)- For purposes of § 226.30, the rate must
1 differs from the proposal in that it
be stated in the credit contract as
replaces the term “balloon payment"
prescribed in comment 30-8. The
with a more specific reference to the
disclosure requirements for limitations
type of transactions covered by the
on rate increases are described
disclosure provisions. The comment is
elsewhere in the regulation and
commentary.
revised to clarify that the provisions of
this paragraph apply to transactions in
Appendix D—Multiple-Advance
which paying the periodic payments will
Construction Loans
not fully amortize the outstanding
Although not reprinted in this notice,
balance at the end of the loan term and
the first sentence of comment app. D-2
where the final payment will equal the
is revised to delete the word “most" and
periodic payment plus the remaining
to change the reference to § 226.18(f)(4)
unpaid balance. The comment explains
to be § 226.18(0(1 )(»v). No substantive
that the creditor should disclose any
change is intended by either revision.
change in such a payment that results
from an interest rate adjustment.
List of Subjects in 12 CFR Part 226
Paragraph 20(c)(5). Comment 20(c)(5)Advertising, Banks, Banking,
1 is revised to clarify that the provisions
Consumer protection. Credit, Federal
of this paragraph apply only when
Reserve System, Finance, Penalties,
negative amortization occurs in a
Rate limitations, Truth in lending.
transaction, and not merely because a
payment is a non-amortizing or partially Text of Revisions
amortizing payment.
Pursuant to authority granted in
section 105 of the Truth in Lending Act
Section 226.24—A dvertising
(15 U.S.C. 1604 as amended) and section
24(b) Advertisement of Rate of Finance
1204 of the Competitive Equality
Charge
Banking Act, Pub. L. 100-86,101 Stat
552, the Board amends the official staff
Although not reprinted in this notice,
commentary to Regulation Z (12 CFR
comment 24(b)— is revised to change
5
Part 226 Supp. I) as follows:
the references to comment 18(f)-8 to be
comment 17(c)(1)— No substantive
10.
PART 266— [AMENDED)
change is intended.
1. The authority citation for Part 228
Subpart D—Miscellaneous
continues to read:
Section 226.25—R ecord Retention
Authority: Sec. 105. Truth in Lending Act,
as amended by sec. 605. Pub. L 96-221, 94
25(a) General Rule
Stat. 170 (15 U.S.C. 1604 e t s e q .] : sea 1204(c),
Comment 25(a)-3 is added to address Competitive Equality Banking Act, Pub. L
100-86,101 Stat. 552.
the record retention requirements for
variable-rate transactions that are
2. The revisions amend the
subject to the disclosure requirements of commentary (TIL-1,12 CFR Part 228
§ 226.19(b). The comment explains that
Supp. I) by adding comment 2(a)(25)—
6:
maintaining written procedures for
adding a sentence and a bullet at the
compliance with the disclosure
end of comment 4(a)— revising the
3;
provisions as well as retaining a sample heading and text of comment 4(b) (7)
disclosure form for each loan program
and (8)-2; adding a bullet at the end of
will be adequate evidence of
comment 17(a)(l}-5; adding two
compliance. The comment also states
sentences after the first sentence, and
that creditors may rely on the methods
revising the second and third sentences
for reconstructing the required
and the parenthetical material in
4

>

comment 17(c)(l}-8; re designating
comments 17(cKl>-14 and >15 to be
comments 17(c)(t )-15 end -1ft,
respectively; adding comment 17(c)(1)14; adding parenthetical material at the
end of comment 18(fK2)-l; adding three
sentences at the end of comment 19(b)1; revising the first, third and fourth
sentences, adding a sentence after the
third sentence, and removing the last
three sentences of comment 19(b)(2)—
1;
revising the third sentence and the
opening clause of the second and fifth
sentences of comment 19(b)(2)—
2
redesignating comments 19(b)(2)—
3
and -4 to be comments 19(b)(2)-4 and 5, respectively; adding comment
19(b)(2)— adding three sentences after
3;
the second sentence in comment
19fb)(2J(m}-l; adding a new sentence
before the parenthetical material at the
end of comment 19(b](2)(v)-l; adding
four sentences and parenthetical
material at the end of comment
19(b)(2)(vi)-l; adding five sentences and
parenthetical material at the end of
comment 19(b)(2)(vii)-l; revising the
third sentence in the parenthetical
material after the first sentence in
comment 19(h)(2](viii)-l; adding
comments 19{b)(2)(viii)-5, -ft and -7;
adding a sentence after the second
sentence in comment 19(b)(2)(ix)-l;
adding comments 19(b#2}(x)-2, -3 a n d 4; adding a sentence after die second
sentence in comment 20fc)f4)-l; revising
comment 20(c)(5)— changing the
1;
references to "comment 13(f)— in the
8”
first sentence and in the first bullet of
comment 24{b)-5 to be “comment
17(c)(1)— adding comment 25(a)-3;
10”;
revising the first sentence of comment
30-8; revising the last sentence in
comment 30-13; removing the word
“most" and changing the reference to
“§ 226.18(f)(4)” in comment app. D-2 to
be “§ 226.18(f)(l)(iv)” to read as follows:
* * * * *
Supplement 1—[Amended)

S b u A Gem
upt —
ni
* * * * *

aew security interest is taken m connection
with the transaction.
* * * * *
Section 226.4—Finance Charge

4(a) Definition.
*

*

*

3. C h a r g e s

*

*

by

th ir d

parties. * * *

In contrast, charges imposed on the
consumer by someone other than the creditor
are finance charges (unless otherwise
excluded) if the creditor requires the services
of the third party. For example:
• A fee charged by a loan broker if the
consumer cannot obtain the same credit
terms from the creditor without using a
broker.
*

*

*

*

*

4(b) Example o f Finance
*
*
*
*
*

Charges.

Paragraphs 4(b) (7) and (8)
*
*
*
*
*
2* I n s u r a n c e w ritten in connection with a
transaction. Insurance sold after

consummation m cLosed-end credit
transactions or after the opening of a plan in
open-end credit transactions is not “written
in connection with” the credit transaction if
the insurance is written because of the
consumer’s default (for example, by failing to
obtain or maintain required property
insurance) or because the consumer requests
insurance after consummation or the opening
of a plan (although credit sale disclosures
may be required for the insurance sold after
consummation if it is financed).
* * * * *
Subpart C—Closed End Credit
Section 226.17—General Disclosure
Requirements
17(a) Form o f Disclosures
Paragraph 17(a)(1)
*
*
*
*
*
5. D irectly related. * * *

• The disclosures set forth under section
228.18(f)ft) for variable-rate transactions
subject to section 228.18(f)(7)17(c) Basis o f Disclosures and Use o f
Estimates. Paragraph 17(c)(1)
*
*
*
*
*

8.
Basis o f disclosures in variable-rote
transactions. * * * Creditors should base the

disclosures only on the initial rate and should
not assume that this rate will increase. For
example, in a loan with an initial rate of 10
Section 22&J2— D e f i n i t i o n s a n d R u l e s o f
percent and a 5 percentage paints rate cap,
Construction
creditors should base the disclosures on the
2(a) Definitions.
initial rate and should not assume that this
*
*
*
*
*
rate will increase 5 percentage points.
However, in a variable-rate transaction with
2(a)(25) "Security Interest"
a seller buydown that is reflected in the
*
*
*
*
*
credit contract, a consumer buydown, or a
discounted or preminam rate, disclosures
6.
S p e c i f i c i t y o f d i s c l o s u r e . A creditor need
should not be based solely on the initial
not separately disclose multiple security
terms. In those transactions, the disclosed
interests that it may hold in the same
annual percentage rate should be a composite
collateral The creditor need only disclose
rate based on the rate in effect during the
that the transaction is secured by the
initial period and the rate that is the basis of
collateral even when security interests from the variable-rate feature far the remainder of
prior transactions remain o£ record sad s
the term. (See the commentary to &228.17(c)




5

for a discussion of buydown, discounted, and
premium transactions and the commentary to
section 228.19(a)(2) for a discussion of the
redisclosure in certain residential mortgage
transactions with a variable-rate feature).
*
*
*
*
*
14. R e v e r s e m o r t g a g e s . Reverse mortgages,
also known as reverse annuity or home
equity conversion mortgages, tpyically
involve the disbursement of monthly
advances to the consumer for a fixed period
or until the occurrence of an event such as
the consumer’s death. Repayment of the loan
(generally a single payment of principal and
accrued interest) may be required to be made
at the end of the disbursements or, for
example, upon the death of the consumer. In
disclosing these transactions, creditors must
apply the following rules, as applicable:
• If the reverse mortgage has a specified

period for disbursements but repayment is
due only upon the occurrence of a future
event such as the death of the consumer, the
creditor must assume that disbursements will
be made until they are scheduled to end. The
creditor must assume repayment will occur
when disbursements end (or within a period
following the final disbursement which is not
longer than the regular interval between
disbursements). Ibis assumption should be
used even though repayment may occur
before or after the disbursements are
scheduled to end. In such cases, the creditor
may include a statement such as “The
disclosures assume that you will repay the
loan at the time our payments to you end. As
provided in your agreement, your repayment
may be required at a different time.’’
• If the reverse mortgage has neither a
specified period for disbursements nor a
specified repayment date and these terms
will be determined solely by reference to
future events including the consumer’s death,
the creditor may assume that the
disbursements will end upon the consumer's
death (estimated by using actuarial tables, for
example) and that repayment will be required
at the same time (or within a period following
the date of the final disbursement which is
not longer than the regular interval for
disbursements). Alternatively, the creditor
may base the disclosures upon another future
event it estimates will be most likely to occur
first. (If terms will be determined by
reference to future events which do not
include the consumer's death, the creditor
must base the disclosures upon the occurence
of the event estimated to be most likely to
occur first.)
• In making the disclosures, the creditor
must assume that all disbursements and
accrued interest will be paid by the
consumer. For example, if the the note has a
nonrecourse provision providing that the
consumer is not obligated for an amount
greater than the value of the house, the
creditor must nonetheless assume that the
full amount to be disbursed will be repaid. In
this case, however, the creditor may include
a statement such as “The disclosures assume
full repayment of the amount advanced plus
secured interest, although the amount you
may be required to pay is limited by your
agreement”
• Some reverse mortgages provide that
some or all of the appreciation in the value of

provide appropriate disclosures as soon as
reasonably possible. * * *
2. V a r i a b l e - r a t e J o a n p r o g r a m d e f i n e d .
* * * For example, separate loan programs
would exist based on differences in any of
the following loan features: * * * In addition,
if a loan feature must be taken into account
in preparing the disclosures required by
6 226.19(b)(2)(viii) and (x), variable-rate loans
that differ as to that feature constitute
separate programs under 8 226.19(b)(2). * * *
For example, separate programs would not
exist based on differences in the following
Section 226.18—Content o f D isclosures
loan features: * * *
* * * * *
3. F o r m o f p r o g r a m d i s c l o s u r e s . A creditor
may provide separate program disclosure
18(f) Variable R ate
forms for each ARM program it offers or a
* * * * *
single disclosure form that describes multiple
programs. A disclosure form may consist of
Paragraph 18(f)(2)
more than one page. For example, a creditor
1. D isclosure required. * * * (See the
may attach a separate page containing the
commentary to $ 226.17(a)(1) regarding the
historical payment example for a particular
disclosure of certain directly related
program. A disclosure form describing more
information in addition to the variable-rate
than one program need not repeat
disclosures required under 8 226.18(f)(2).)
information applicable to each program that
* * * * *
is described. For example, a form describing
multiple programs may disclose the
Section 226.19—Certain R esiden tial
M ortgage Transactions
information applicable to all of the programs
* * * * *
in one place with the various program
features (such as options permitting
19(b) Certain V ariable-Rate Transactions
conversion to a fixed rate) disclosed
separately. The form, however, must state if
1.
Coverage. * * * In determining whether
a construction loan that may be permanently any program feature that is described is
available only in conjunction with certain
financed by the same creditor is covered
under this section, the creditor may treat the other program features. Both the separate and
construction and the permanent phases as
multiple program disclosures may illustrate
separate transactions with distinct terms to more than one loan maturity or payment
maturity or as a single combined transaction. amortization—for example, by including
For purposes of the disclosures required
multiple payment and loan balance columns
under section 226.18, the creditor may
in the historical payment example.
nevertheless treat the two phases either as
Disclosures may be inserted or printed in the
separate transactions or as a single combined C o n s u m e r H a n d b o o k (or a suitable
transaction in accordance with section
substitute) as long as they are identified as
226.17(c)(6). Finally, in any assumption of a
the creditor’s loan program disclosures.
variable-rate transaction secured by the
* * * * *
consumer’s principal dwelling with a term
greater than one year, disclosures need not
Paragraph 1 9 ( b ) ( 2 ) ( i i i )
be provided under sections 226.18(f)(2)(ii) or
1. D e t e r m i n a t i o n o f i n t e r e s t r a t e a n d
226.19(b).
the property will be shared between the
consumer and the creditor. Such loans are
considered variable-rate mortgages, as
described in comment 17(c)(1)— and the
11.
appreciation feature must be disclosed in
accordance with § 226.18(f)(1). If the reverse
mortgage has a variable interest rate, is
written for a term greater than one year, and
is secured by the consumer's principal
dwelling, the shared appreciation feature
must be described under 8 226.19(b)(2)(vii).
* * * * *

*

*

*

*

*

Paragraph 19(b)(2)

1. D isclosure fo r each variable-rate
program. A creditor must provide disclosures
to the consumer that fully describe each of
the creditor’s variable-rate loan programs in
which the consumer expresses an interest
* * * Disclosures must be given at the time
an application form is provided or before the
consumer pays a nonrefundable fee,
whichever is earlier. If program disclosures
cannot be provided because a consumer
expresses an interest in individually
negotiating loan terms that are not generally
offered, disclosures reflecting those terms
may be provided as soon as reasonably
possible after the terms have been decided
upon, but not later than the time a non­
refundable fee is paid. If a consumer who has
received program disclosures subsequently
expresses an interest in other available
variable-rate programs subject to 226.19(b)(2),
or the creditor and consumer decide on a
program for which the consumer has not
received disclosures, the creditor must




In transactions w here paying
the periodic paym ents will not fully am ortize
the outstanding balance a t the end of the loan
term and w here the final paym ent will equal
the periodic paym ent plus the rem aining
unpaid balance, the creditor m ust disclose
this fact. For exam ple, the disclosure might
read, "Your periodic paym ents will not fully
am ortize your loan and you will be required
to m ake a single paym ent of the periodic
paym ent plus the rem aining unpaid balance
at the end of the loan term .” The creditor,
however, need not reflect any irregular final
paym ent in the historical exam ple or in the
disclosure of the initial and m axim um rates
and paym ents. * * *
*
*
*
*
*

paym ent * * *

Paragraph

1 9 (b )(2 )(v )

1. D i s c o u n t e d a n d p r e m i u m i n t e r e s t r a t e .
* * *In a transaction with a consumer
buydown or with a third-party buydown that
will be incorporated in the legal obligation,
the creditor should disclose the program as a
discounted variable-rate transaction, but
need not disclose additional information
6

regarding the buydew a ta ils program
disclosures. r • r
Paragraph 19(b)(2)(vi)

1. Frequency. * * * fe certain ARM
n
transactions, the interval between loan
closing and the initial adjustment is not
known and may be different from the regular
interval for adjustments. In such cases, the
creditor may disclose the initial adjustment
period as a range of the minimum and
maximum amount of time from
consummation or closing. For example, the
creditor might state: ‘The first adjustment to
your interest rate and payment will occur no
sooner than 6 months and no later than 18
months after closing. Subsequent adjustments
may occur once each year after the first
adjustment.” (See comments 19(bj(2)(viii)-7
and 19{b)(2)(x}-4 for guidance on other
disclosures when this alternative disclosure
rule is used.)
Paragraph 19(b)(2)(vii)
1. Rate and paym ent caps. * * * The
creditor need not disclose each periodic or
overall rate limitation that is currently
available. As an alternative, the creditor may
disclose the range of the lowest and highest
periodic and overall rate limitations that may
be applicable to the creditor's ARM
transactions. For example, the creditor might
state: “The limitation on increases to your
interest rate at each adjustment will be set at
an amount in the following range: Between 1
and 2 percentage points at each adjustm ent
The limitation on increases to your interest
rate over the term of the loan will be set at an
amount in the following range: Between 4 and
7 percentage points above the initial interest
rate.” A creditor using this alternative rale
must include • statement in its program
disclosures suggesting that the consumer ask
about the overall rate limitations currently
offered for the creditor’s ARM programs. (See
comments 19(b)(2)(viii)-6 and 19(b)(2)(x}-3
for an explanation of the additional
requirements for a creditor using this
alternative rule for disclosure of periodic and
overall rate limitations.) * * *
Paragraph 19(b)(2)(viii)

1.
Index movement. * * * For the
remaining ten years. 1982-1991. the
creditor need only show the remaining
index values, margin and interest rate
and must continue to reflect all
significant loan program terms such as
rate limitations affecting them.) * * *
♦

*

*

*

♦

5.
Term o f the loan. In calculating the
payments and loan balances in the historical
example, a creditor need not base the
disclosures on each term to maturity or
payment amortization that it offers. Instead,
disclosures for ARMs may be based upon
terms to maturity or payment amortizations
of 5, 15 and 30 years, as follows: ARMs with
terms or amortizations from over 1 year to 10
years may be based on a 5-year term or
amortization: ARMs with terms or
amortizations from over 10 years to 20 years
may be based on a 15-year term or
amortization: and ARMs with terms or
amortizations over 20 years may be based on
a 30-year term or amortization. Thus,

disclosure* far ARM* offered with any terra
from over 1 year to 40 years may be based
solely on term* of 5,15 and 30 years. Of
course, a creditor may always base the
disclosures on the actual terms or
amortization* offered. If the creditor bases
the disclosure* on 5-, 15- or 30-year term* or
payment amortization as provided above, the
term or payment amortization used in making
tha disclosure must be stated.
8. Rate caps. A creditor using the
alternative rule described in comment
I9(b)(2)(vii}-1 for disclosure of rate
limitations must base the historical example
upon the highest periodic and overall rate
limitations disclosure under section
226.19(b)(2)vii). In addition, the creditor must
state the limitations used in the historical
example. (See comment 19(b)(2)(x)-3 for an
explanation of the use of the highest rate
limitation in other disclosures.)
7. Frequency o f adjustments. In certain
transactions, creditors may use the
alternative rule described in comment
19{b)(2)(vi)-l for disclosure of the frequency
of rate and payment adjustments. In such
cases, the creditor may assume for purposes
of the historical example that the first
adjustment occurred at the end of the first full
year in which the adjustment could occur. For
example, in an ARM in which the first
adjustment may occur between 6 and 18
months after closing and annually thereafter,
the creditor may assume that the first
adjustment occurred at the end of the first
year in the historical example. (See comment
19(b)(2Kx)-4 for an explanation of how to
compute the maximum interest rate and
payment when the initial adjustment period
is now known.)
Paragraph 19(b)(2)(ix)
1. Calculation o f payments. * * *
However, in transactions in which the latest
payment shown in the historical example is
not for the latest year of index values shown
(such a* in a five-year loan), a creditor may
provide additional examples based on the
initial and maximum payments disclosed
under S 228.19(b)(x). * * *
Paragraph 19(hj(2j(x)
*

*

*

*

*

2. Term o f the ban. In calculating the
initial and maximum payments the creditor
need not base the disclosures an each term to
maturity or payment amortization offered
under the program. Instead, the creditor may
follow the rules set out in comment
19(bX2)(viii}-5. In calculating the initial and
maximum payment, the terms to maturity or




payment amortizations selected for the
purpose of making disclosures under
§ 226.19(bK2KvTii) must be used. In addition,
creditors mast state the term or payment
amortization used in making the disclosures
under this section.
3. Rate caps. A creditor using the
alternative rule for disclosure of interest rata
limitations described in comment
19(b)(2)(vii)-l must calculate the maximum
interest rate and payment based upon the
highest periodic and overall rate limitations
disclosed under f 228.19{b)(2)(vii). In
addition, the creditor must state the rate
limitations used in calculating the maximum
interest rate and payment. (See comment
19(b)(2)(viiiH>fbr an explanation of the use
of the highest rate limitation in other
dsclosures.)
4. Frequency o f adjustments. In certain
transactions, a creditor may use the
alternative rule for disclosure of the
frequency of rate and payment adjustments
described in comment 19(b)(2)(vi)-l. In such
case*, the creditor must base the calculations
of the initial and maximum rates and
payment upon the earliest possible first
adjustment disclosed under { 228.19(b)(2)(vi).
(See comment 19jb)(2)(vtii>-7 for an
explanation of bow to disclose the historical
example when the initial adjustment period is
not known.)
*

t

*

*

#

Section 226-20—Subsequent Disclosure
Requirements
*

*

*

•

*

20(c) Variable-Rate Adjustments
*
*
*
*
*
Paragraph 20(c)(4).
1. Contractual effects o f the adjustment.
* In transactions where paying the
periodic payments will not fully amortize the
outstanding balance at the end of the loan
term and where the final payment will equal
the periodic payment plus the remaining
unpaid balance, the amount of the adjusted
payment must be disclosed if such payment
has changed as a result of the rate
adjustm ent * * *
Paragraph 20(c)(5).
1. Fully-amortizing payment. This
paragraph requires a disclosure only when
negative amortization occurs as a result of
the adjustment. A disclosure is not required
simply because a loan calls for non­
amortizing or partially amortizing payments.
For example, in a transaction with a five-year

7

term and payments based on a longer
amortization schedule, and where the final
payment will equal the periodic payment plus
the remaining unpaid balance, the creditor
would not have to disclose the payment
necessary to fully amortize the loan in the
remainder of the five-year term. A disclosure
is required, however, if the payment
disclosed under 5 226.20(c)(4) is not sufficient
to prevent negative amortization in the loan.
The adjustment notice must state the
payment required to prevent negative
amortization. (This paragraph does not apply
if the payment disclosed in 9 228.20(c)(4) is
sufficient to prevent negative amortization in
the loan but the final payment will be a
different amount due to rounding.)
♦
♦
♦
*
*
Subpart D—Miscellaneous
•

•

#

t

*

Section 228.25—Record Retention
25(a) General Rule

*

*

*

*

*

3.
Certain variable-rate transactions In
variable-rate transactions that are subject to
the disclosure requirements of $ 228.19(b),
w ritten procedure* for compliance with those
requirements as well as a sample disclosure
form for each loan program represent
adequate evidence of compliance. (See
comment 25(a}-2 pertaining to permissible
methods of retaining the required
disclosures.)
*
*
*
*
*
Section 226.30—Limitation on Rates
*
*
*
*
*
8. M anner o f stating the maximum interest
rate. The maximum interest rate must be
stated in the credit contract either as a
specific amount or in any other manner that
would allow the consumer to easily ascertain,
at the time of entering into the obligation,
what the rate ceiling will be over the term of
the obligation. * * *
*
*
*
*
*
13. Transition rules. * * * On or after that
date, creditors must have the maximum rate
set forth in their credit contracts and, where
applicable, as part of their truth in lending
disclosures in the manner prescribed in the
applicable sections of the regulation.

Board of Governors of the Federal
Reserve System, February 28,1989.
William W. W iles,
Secretary o f the Board.
[FR Doc. 89-5161 Filed 3-6-89; 8:45 am]
BtLUNO COOt 6210-01-*