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& % 7 ?d BOARD OF G O V E R N O R S OF THE * //■ - ‘ • * 'r • * v * * .3l<8 i l i [ ® f e ' FEDERAL RESERVE SYSTEM W A S H I N G T O N , D. C . 2 0 5 5 1 O FFICE OF THE VICE CHAIRMAN July 21, 1971. TO CHIEF EXECUTIVE OFFICERS OF ALL STATE M E M B E R BANKS R ecently hearings were held by the National Commission on Consumer Finance w h i c h was established by Title IV of the Consumer Credit Protection Act. The Commission is charged with m a k i n g a broad inquiry into consumer credit problems. It was suggested by several \7itnesses and Commission members that some banks are not paying sufficient attention to some of the basic requirements of R e gulation Z. The following points in particular wer e mentioned. We agreed wit h the Commission to send a r e minder circular to all State member banks as to the following requirements of the law. Similar letters are being sent to National banks and nonmember insured banks by the Comptroller of the Currency and the Federal Deposit Insurance Corporation. 1. Banks should take appropriate measures to see that they do not purchase or accept as collateral dealer paper concerning w h ich the consumer has not received a complete and accurate disclosure statement and rescission notice w h e r e applicable. The bank may be subject to w hatever defenses or damage claims the customer may have under the Truth in Lending Act with regard to such paper. 2. No use should be made in adve r t i s i n g or in other communications wit h consumers of the add-on or discount rates (whether in percentages or d o l l a r s - p e r - h u n d r e d ) . Under the Act and Re gul a t i o n only the annual percentage rate may be used in a dvert ising the cost of consumer credit, and Truth in Lending contemplates that the annual percentage rate should be used in all oral or w r i t t e n c o m munication to consumers rather than the add-on or discount rate. 3. Open end credit billing statements should not over emphasize the m i n i m u m payment in relation to the total balance owed (the "new balance"). Overemphasis on the m i n i m u m payment can mislead the customer and detract attention from both the total outstanding balance and the disclosure, where applicable, that its payment w i t h i n a certain period of time will avoid additional finance charges. Sincerely,