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Request for Comment on a Proposal to Revise the Official Staff Commentary to Regulation Z - District

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Federal Reserve Bankll Kof DallasDALLAS, TEXAS 75265-5906December 21, 2001Notice 01-92TO: The Chief Executive Officer of eachfinancial institution and others concernedin the Eleventh Federal Reserve DistrictSUBJECTRequest for Comment on a Proposalto Revise the Official Staff Commentary to Regulation ZDETAILSThe Board of Governors of the Federal Reserve System has requested public com-ment on proposed revisions to the Official Staff Commentary to Regulation Z, which implementsthe Truth in Lending Act. The commentary applies and interprets the requirements of RegulationZ. The proposed update would clarify how creditors that place Truth in Lending Act disclosureson the same document with the credit contract may satisfy the requirement for providing thedisclosures in a form the consumer may keep before consummation.In addition, the proposed revisions provide guidance on disclosing costs for certaincredit insurance policies and on the definition of “business day” for purposes of the right torescind certain home-secured loans.The Board must receive comments by February 1, 2002. Please address comments toJennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Streetand Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments elec-tronically to regs.comments@federalreserve.gov. All comments should refer to DocketNo. R-1118.ATTACHMENTA copy of the Board’s notice as it appears on pages 64381–83, ...
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Federal Reserve Bank
ll K
of Dallas
DALLAS, TEXAS
75265-5906
December 21, 2001
Notice 01-92
TO: The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Request for Comment on a Proposal
to Revise the Official Staff Commentary to Regulation Z
DETAILS
The Board of Governors of the Federal Reserve System has requested public com-
ment on proposed revisions to the Official Staff Commentary to Regulation Z, which implements
the Truth in Lending Act. The commentary applies and interprets the requirements of Regulation
Z. The proposed update would clarify how creditors that place Truth in Lending Act disclosures
on the same document with the credit contract may satisfy the requirement for providing the
disclosures in a form the consumer may keep before consummation.
In addition, the proposed revisions provide guidance on disclosing costs for certain
credit insurance policies and on the definition of “business day” for purposes of the right to
rescind certain home-secured loans.
The Board must receive comments by February 1, 2002. Please address comments to
Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street
and Constitution Avenue, N.W., Washington, DC 20551. Also, you may mail comments elec-
tronically to regs.comments@federalreserve.gov. All comments should refer to Docket
No. R-1118.
ATTACHMENT
A copy of the Board’s notice as it appears on pages 64381–83, Vol. 66, No. 240 of the
Federal Register dated December 13, 2001, is attached.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
- 2 -
MORE INFORMATION
For more information, please contact Eugene Coy, (214) 922-6201, in the Banking
Supervision Department. For additional copies of this Bank’s notice, contact the Public Affairs
Department at (214) 922-5254 or access District Notices on our web site at
http://www.dallasfed.org/banking/notices/index.html.64381
Federal RegisterProposed Rules
Vol. 66, No. 240
Thursday, December 13, 2001
Regarding Availability of Information, II. Proposed Revisions
12 CFR 261.12 and 261.14. Subpart A—General
FOR FURTHER INFORMATION CONTACT: Section 226.2—Definitions and Rules of
David A. Stein, Senior Attorney, or Dan Construction
S. Sokolov, Attorney; Division of
2(a) DefinitionsConsumer and Community Affairs,
Board of Governors of the Federal 2(a)(6) Business Day
Reserve System, at (202) 452–3667 orFEDERAL RESERVE SYSTEM Generally, when consumers have a
452–2412; for users of right to rescind a home-secured loan,
Telecommunications Device for the Deaf12 CFR Part 226 they may exercise the right until
(‘‘TDD’’) only, contact (202) 263–4869. midnight of the third business day
[Regulation Z; Docket No. R–1118] following consummation or the deliverySUPPLEMENTARY INFORMATION:
of certain disclosures, whichever occurs
Truth in Lending I. Background last. Comment 2(a)(6)–2 provides that
for purposes of rescission, ‘‘business
AGENCY: Board of Governors of the The purpose of the Truth in Lending day’’ means all calendar days exceptFederal Reserve System. Act (TILA; 15 U.S.C. 1601 et seq.) is to Sundays and the federal legal holidays
ACTION: Proposed rule; official staff promote the informed use of consumer listed in 5 U.S.C. 6103(a). Four legal
commentary. credit by providing for disclosures about holidays are identified in that statute by
its terms and cost. The act requires a specific date. Independence Day, JulySUMMARY: The Board is publishing for
creditors to disclose the cost of credit as 4, is one example. The comment wouldcomment proposed revisions to the
a dollar amount (the finance charge) and be revised to clarify that only the dateofficial staff commentary to Regulation
as an annual percentage rate. Uniformity specified in the statute is considered aZ, which implements the Truth in
legal holiday for purposes of rescission.in creditors’ disclosures is intended toLending Act. The commentary applies
The proposed comment identifies theassist consumers in comparisonand interprets the requirements of
four legal holidays in 5 U.S.C. 6103(a)shopping for credit. TILA requiresRegulation Z. The proposed update
that are defined by a specific date, andadditional disclosures for loans securedwould clarify how creditors that place
provides an example to aid inby consumers’ homes and permitsTruth in Lending Act disclosures on the
compliance. The comment also wouldconsumers to rescind certainsame document with the credit contract
be amended to include a cross-referencetransactions that involve their principalmay satisfy the requirement for
to comment 31(c)(1)–1, which states thatproviding the disclosures in a form the dwelling. In addition, the act regulates
creditors may rely on the definition of
consumer may keep before certain practices of creditors.
‘‘business day’’ used for the rescission
consummation. In addition, the TILA is implemented by the Board’s rule for purposes of complying with the
proposed revisions provide guidance on Regulation Z (12 CFR part 226). The timing requirements in furnishing
disclosing costs for certain credit Board’s official staff commentary (12 disclosures for high-cost loans covered
insurance policies and on the definition CFR part 226 (Supp. I)) interprets the by § 226.32.
of ‘‘business day’’ for purposes of the
regulation, and provides guidance to
right to rescind certain home-secured Section 226.4—Finance Charge
creditors in applying the regulation to
loans.
4(d) Insurance and Debt Cancellationspecific transactions. Good faith
DATES: Comments must be received on Coveragecompliance with the commentary
or before February 1, 2002. affords protection from liability under Under § 226.4(d), amounts paid for
ADDRESSES: Comments should refer to section 130(f) of TILA. The commentary credit insurance or debt cancellation
Docket No. R–1118 and should be is a substitute for individual staff coverage may be excluded from the
mailed to Ms. Jennifer J. Johnson, finance charge if the creditor disclosesinterpretations; it is updated
Secretary, Board of Governors of the the fee or premium for the initial termperiodically to address significant
Federal Reserve System, 20th Street and of coverage, among other conditions.questions that arise. The Board expects
Constitution Avenue, NW., Washington, Comment 4(d)–11 provides that theto adopt final revisions to the
DC 20551, or mailed electronically to initial term is based on the period forcommentary in March 2002; to the
regs.comments@federalreserve.gov. which the insurer or creditor is initiallyextent the revisions impose new
Comments addressed to Ms. Johnson obligated to provide coverage. Commentrequirements on creditors, compliance
may also be delivered, between 8:45 4(d)–12 provides that creditors have thewould be optional until October 1, 2002,
a.m. and 5:15 p.m., to the Board’s mail option of providing disclosures on thethe effective date for mandatory
facility in the West Courtyard, located basis of one year of coverage, where thecompliance.
on 21st Street between Constitution fee or premium for the coverage is
Avenue and C Street, NW. Members of assessed periodically and the consumer
the public may inspect comments in is under no obligation to continue the
Room MP–500 of the Martin Building coverage after making the initial
between 9 a.m. and 5 p.m. on weekdays payment. Comment 4(d)–12 would be
pursuant to § 261.12, except as provided revised to clarify that this option applies
in § 261.14, of the Board’s Rules even if the consumer can cancel the
VerDate 11<MAY>2000 15:11 Dec 12, 2001 Jkt 197001 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 E:\FR\FM\13DEP1.SGM pfrm04 PsN: 13DEP164382 Federal Register/Vol. 66, No. 240/Thursday, December 13, 2001/Proposed Rules
coverage prior to making the initial and how the Board might make the entities may observe the holiday on the
payment. commentary easier to understand. preceding Friday, July 3. The observed
holiday, July 3, is a business day for
List of Subjects in 12 CFR Part 226Subpart C—Closed-End Credit purposes of rescission or the delivery of
Consumer protection, Disclosures, disclosures for certain high-costSection 226.17—General Disclosure
Federal Reserve System, Truth in mortgages covered by § 226.32fi øisRequirements
lending. involved¿.
17(b) Time of Disclosures
* * * * *Text of Proposed Revisions
Creditors must give the required
Certain conventions have been used § 226.4—Finance Chargedisclosures to the consumer in writing,
to highlight the proposed revisions toin a form that the consumer may keep,
the text of the staff commentary. Newbefore consummation of the transaction.
4(d) Insurance and debt cancellationlanguage is shown inside bold-facedSee § 226.17(a)(1) and (b). Comment
coverage.arrows while language that would be17(b)–3 would be added to clarify how
deleted is set off with bold-faced * * * * *creditors satisfy this timing requirement
brackets. Comments are numbered to 12. Initial term; alternative. i. General.when TILA disclosures are placed on
comply with Federal Register A creditor has the option of providingthe same document with the credit
publication rules. cost disclosures on the basis of flancontract, as permitted under comment
For the reasons set forth in the assumed initial term offi one year of17(a)(1)–3.
preamble, the Board proposes to amend insurance or debt-cancellation coverageQuestions have been raised about 12 CFR part 226 as follows: instead of a longer initial term (providedwhether creditors must provide
the premium or fee is clearly labeled asconsumers with a separate copy of the PART 226—TRUTH IN LENDING
being for one year) if:document to keep before providing a (REGULATION Z)
A. The initial term is indefinite or notsecond copy that the consumer may
1. The authority citation for part 226 clear, orexecute to become obligated on the
B. The consumer has agreed to pay acontinues to read as follows:credit contract. The proposed comment
premium or fee that is assessedwould clarify that creditors are not Authority: 12 U.S.C. 3806; 15 U.S.C. 1604
periodically but the consumer is underand 1637(c)(5).required to provide two separate copies
no obligation to continue the coverageto the consumer. A creditor satisfies the 2. In Supplement I to Part 226:
after flconsummationfi ømaking thetiming requirements by giving the a. Under Section 226.2—Definitions
initial payment¿.consumer one copy of the unexecuted and Rules of Construction, under 2(a)(6)
ii. Open-end plans. For open-endcredit contract containing the Business Day, paragraph 2. is revised.
plans, a creditor also has the option ofb. Under Section 226.4—Financedisclosures to read and sign. The
providing unit-cost disclosure on theCharge, under 4(d) Insurance and Debtproposed comment would also clarify
basis of a period that is less than oneCancellation Coverage, paragraph 12. isthat it is not sufficient, however, if the
year if the consumer has agreed to payrevised.document containing the TILA
a premium or fee that is assessedc. Under Section 226.17—Generaldisclosures is merely shown to the
periodically, for example monthly, butDisclosure Requirements, under 17(b)consumer (and not given to the
the consumer is under no obligation toTime of Disclosures, a new paragraph 3.consumer) before the consumer signs
continue the coverage.is added.and becomes obligated.
iii. Examples. To illustrate:
Supplement I to Part 226—Official StaffIII. Form of Comment Letters A. A credit life insurance policy
Interpretations providing coverage for a 30-year
Comment letters should refer to
mortgage loan has an initial term of 30* * * * *Docket No. R–1118, and, when possible,
years even though premiums are paid
should use a standard typeface with a
Subpart A—General monthly and the consumer is not
font size of 10 or 12. This will enable
required to continue the coverage after
the Board to convert text submitted in flconsummationfi ømaking the initial
paper form to machine-readable form
payment¿. The creditor has the option§ 226.2—Definition and Rules ofthrough electronic scanning, and will
of making disclosures on the basis ofConstructionfacilitate automated retrieval of
coverage for flan assumed initial term
comments for review. Also, if * * * * *
offi one year.2(a)(6) Business day.accompanied by an original document
* * * * *in paper form, comments may be
1submitted on 3 ⁄2 inch computer 2. Rescission rule. A more precise rule
Subpart C—Closed-End Credit
diskettes in any IBM-compatible DOS-or for what is a business day (all calendar
Windows-based format. Comments may days except Sundays and the federal
also be mailed electronically to legal holidays listed in 5 U.S.C. 6103(a))
§ 226.17—General Disclosureregs.comments@federalreserve.gov. applies when the right of rescission
Requirementsflor mortgages subject to § 226.32 are
IV. Solicitation of Comments Regarding
involved. See also comment 31(c)(1)–1. * * * * *
the Use of ‘‘Plain Language’’ 17(b) Time of disclosures.Four federal legal holidays are
Section 722 of the Gramm-Leach- identified in 5 U.S.C. 6103(a) by a
Bliley Act of 1999 requires the Board to specific date: New Year’s Day, January fl3. Disclosures provided on credit
use ‘‘plain language’’ in all proposed 1; Independence Day, July 4; Veteran’s contracts. Creditors must give the
and final rules published after January Day, November 11; and Christmas Day, required disclosures to the consumer in
1, 2000. The Board invites comments on December 25. When one of these writing, in a form that the consumer
whether the proposed commentary is holidays falls on a Saturday, July 4 for may keep, before consummation of the
clearly stated and effectively organized, example, federal offices and other transaction. See § 226.17(a)(1) and (b).
VerDate 11<MAY>2000 15:11 Dec 12, 2001 Jkt 197001 PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\13DEP1.SGM pfrm04 PsN: 13DEP1Federal Register/Vol. 66, No. 240/Thursday, December 13, 2001/Proposed Rules 64383
Sometimes the disclosures are placed on
the same document with the credit
contract, as permitted under comment
17(a)(1)–3. In such cases, the timing
requirement is satisfied if the creditor
gives a copy of the document containing
the unexecuted credit contract and the
disclosures to the consumer to read and
sign, and the consumer is free to take
possession of and review the document
in its entirety before signing. It is not
sufficient, however, if the document
containing the disclosures is merely
shown to the consumer before the
consumer signs and becomes obligated;
the creditor must give the document to
the consumer. If after receiving the
document, the consumer signs it and
becomes obligated, the consumer may
return it to the creditor to execute or
process, provided the consumer is also
given a copy at that time to keep.fi
* * * * *
By order of the Board of Governors of the
Federal Reserve System, acting through the
Director of the Division of Consumer and
Community Affairs under delegated
authority, December 7, 2001.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 01–30781 Filed 12–12–01; 8:45 am]
BILLING CODE 6210–01–P
CFR parts 17 an18, require reports from firms and