[Federal Register Volume 60, Number 123 (Tuesday, June 27, 1995)]
[Proposed Rules]
[Pages 33151-33152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15681]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 60, No. 123 / Tuesday, June 27, 1995 /
Proposed Rules
[[Page 33151]]
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-0883]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Request for comments.
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SUMMARY: The Board is soliciting comment on how rules for credit
advertising could be modified to increase consumer benefit and decrease
creditor costs. Comment is also requested on how current rules could be
modified, if at all, for radio and television advertisements without
diminishing consumer protection. The Riegle Community Development and
Regulatory Improvement Act of 1994 directs the Board to submit a report
to the Congress regarding these issues. Under present law, creditors
that state a rate in an advertisement must state the annual percentage
rate (APR). Stating the APR or other terms triggers additional
disclosure requirements such as annual fees imposed on a credit line or
the repayment terms for an installment loan.
DATES: Comments must be received on or before August 11, 1995.
ADDRESSES: Comments should refer to Docket No. R-0883, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street NW.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's
rules regarding the availability of information.
FOR FURTHER INFORMATION CONTACT: Jane E. Ahrens, Senior Attorney, or
Jose M. Gabilondo, Staff Attorney, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, at (202)
452-3667 or 452-2412; for the hearing impaired only, Dorothea Thompson,
Telecommunications Device for the Deaf, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
Section 336 of the Riegle Community Development and Regulatory
Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160, enacted into
law on September 23, 1994, directs the Board to submit a report to the
Congress on existing rules for credit advertising and how current rules
could be modified in a way that increases consumer benefit and
decreases, specifically for radio advertisements.
II. Current Rules for Credit Advertising
The Truth in Lending Act (15 U.S.C. 1601 et seq.) contains rules
about consumer credit advertisements. The act is implemented by the
Board's Regulation Z (12 CFR part 226). Regulation Z defines an
advertisement as a commercial message in any medium that promotes a
credit transaction, directly or indirectly. Examples of advertisements
include direct mail literature, messages in newspapers or on computer
screens, and telephone solicitations. Direct personal contacts, such as
cost estimates for a specific transaction being negotiated, are not
advertisements.
Regulation Z covers advertisements for all consumer credit
transactions. Creditors advertising specific credit terms must state
those actually offered to consumers. Stating certain credit terms
triggers the disclosure of additional terms. The specific requirements
differ somewhat for closed-end loans (typically, installment loans) and
open-end plans (for example, credit card plans or home-secured credit
lines).
Special rules govern multi-page advertisements. If a multi-page
advertisement contains a term that triggers additional disclosures, the
advertisement may clearly state the additional disclosures in a table
or schedule on one page, so long as the pages where the triggering term
appears refers to the page where the table or schedule is printed. The
table or schedule must represent the creditor's more commonly sold
higher-price property or services.
Closed-end Credit
If creditors advertise a rate, it must be stated as the APR. A
simple annual interest rate also may be stated, but not more
conspicuously than the APR.
The following terms in an advertisement trigger additional
disclosures: (1) The amount or percentage of a downpayment (in an
advertisement for a credit sale), (2) the number of payments or period
of repayment, (3) the amount of any payment, and (4) the amount of any
finance charge. If an advertisement contains a trigger term, creditors
must also state the following: (1) The APR, using that term (and if the
rate may increase, that fact), (2) the terms of repayment, and (3) in
an advertisement for a credit sale, the amount or percentage of a
downpayment. Creditors need not state every loan available--creditors
may advertise an example of one or more typical loans, as long as all
the terms for the example are listed.
Open-end Credit
General
Disclosures are triggered for open-end plans if creditors advertise
any of the terms required to be furnished in account-opening
disclosures, such as how the finance charge on an open-end plan may be
determined. For example, a creditor advertising ``service charge on
balances'' describes how the finance charge will be determined and
triggers the following additional disclosure requirements: (1) Any
minimum or fixed charge, (2) the periodic rate used to compute the
finance charge (expressed as an APR), (3) if the rate may increase,
that fact, and (4) any membership fee, such as an annual fee.
Home Equity Lines of Credit
Creditors advertising home-secured credit lines have extra
responsibilities. Advertisements cannot refer to home equity plans as
``free money'' (or similar terms) or cannot discuss the tax
consequences of interest deductions in a misleading way.
Creditors trigger additional disclosures if they advertise--
affirmatively or negatively--account-opening disclosures relating to
finance charges and other significant charges or
[[Page 33152]] repayment terms for the plan. If a home equity plan
advertisement contains a trigger term, creditors must also state the
following: (1) the periodic rate used to compute the finance charge
(expressed as an APR), (2) loan fees that are a percentage of the
credit limit along with an estimate of other plan fees, and (3) the
maximum APR that could be imposed in a variable-rate plan.
If a minimum payment for the home equity line is stated, the
advertisement must also state if a balloon payment will result. And if
an advertisement for a variable-rate plan states a rate other than one
based on the contract's index and margin, the advertisement must also
state how long the introductory rate will be in effect. The APR figured
on the current index and margin must be disclosed with equal prominence
to the introductory rate.
III. Request for Comments
The Board requests comment on how existing credit advertising rules
could be modified to increase consumer benefit and decrease creditor
costs. Comment is also requested if the current rules could be
modified, if at all, for radio advertisements without diminishing
consumer protection. For example, Section 336 of the Riegle Community
Development and Regulatory Improvement Act of 1994 provides for an
abbreviated disclosure scheme for radio leasing advertisements. Before
the statutory revisions, if a trigger term (such as a payment amount)
were used in a leasing advertisement, as many as six additional
disclosures were required to be given. Under the statutory amendments,
lessors may substitute a reference to a toll-free telephone number or
to a specified print advertisement for the disclosures about purchase
options and end of term liability. If consumers call the toll-free
number, they must receive all the required disclosures (not simply the
ones omitted from the radio advertisement). Alternatively, all of the
disclosures could be provided in a publication of general circulation
in the community served by the radio station.
Comment is requested on whether the use of toll-free numbers in
lieu of providing specific disclosures is warranted. Comment is also
requested on whether changes to radio advertisements should be extended
to other broadcast media (such as television), given similar time
constraints for delivering disclosures.
The Board will submit its report to the Congress in early fall
1995, based on the comments of interested parties and its own analysis.
By order of the Board of Governors of the Federal Reserve
System, June 21, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-15681 Filed 6-26-95; 8:45 am]
BILLING CODE 6210-01-P
