Final rule--amendment to regulation Z. (Legal Developments).The Board of Governors is amending 12 C.F.R. Part 226, its Regulation Z (Truth in Lending). The Board is publishing revisions to the official staff commentary to Regulation Z, which implements the Truth in Lending Act The Truth in Lending Act is contained in Title I of the Consumer Credit Protection Act (15 U.S.C.A. § 1601 et seq.). The CCPA is designed to assure that every customer who needs Consumer Credit is given meaningful information concerning the cost of such credit. . The commentary applies and interprets the requirements of Regulation Z. The revisions 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 CONSUMMATION. The completion of a thing; as the consummation of marriage; (q.v.) the consummation of a contract, and the like. 2. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. . In addition, the 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 To declare a contract void—of no legal force or binding effect—from its inception and thereby restore the parties to the positions they would have occupied had no contract ever been made. rescind v. certain home-secured loans. The Board is also publishing technical corrections technical correction A temporary downturn in the price of a stock or in the market itself following a period of extensive price increases. A technical correction takes place in a generally increasing market when there is no particular reason that the to the commentary and regulation. Effective April 9, 2002, 12 C.F.R. Part 226 is amended as follows: Part 226--Truth in Lending (Regulation Z) 1. The authority citation Citation (foaled 1945) U.S. Thoroughbred racehorse. In four seasons he won 32 of 45 races, finished second in ten, and third in two. He won the 1948 Triple Crown, and became the first horse to win $1 million. He set a world record in 1950 by running a mile in 1:33 3/5. for Part 226 continues to read as follows: Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5). Section 226.17--[Amended] 2. Section 226.17, in paragraph (a)(1), footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 38, is amended by removing "[section] 226.18(f)(4)" and adding "[section] 226.18(f)(1)(iv)" in its place. 3. In Supplement I to Part 226: a. Under Section 226.2--Definitions and Rules of Construction, under 2(a)(6) Business Day, paragraph 2. is revised. b. Under Section 226.4--Finance Charge, under 4(d) Insurance and Debt Cancellation Coverage, paragraph 12. is revised. c. Under Section 226.6--Initial Disclosure Requirements, under Paragraph 6(b), paragraph 1.vi. is amended by removing "comment 4(a)-5" and adding "comment 4(a)-4" in its place. d. Under Section 226.17--General Disclosure Requirements, under 17(b) Time of Disclosures, a new paragraph 3. is added. e. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, under Paragraph 32(c)(3), paragraph 1. is revised; and under Paragraph 32(c)(4), paragraph 1. is amended by removing "[section] 226.19(b)(2)(x)" and adding "[section] 226.19(b)(2)(viii)(B)" in its place. Supplement I to Part 226--Official Staff Interpretations Subpart A--General Section 226.2--Definition and Rules of Construction 2(a)(6) Business day. 2. Rescission The abrogation of a contract, effective from its inception, thereby restoring the parties to the positions they would have occupied if no contract had ever been formed. By Agreement rule. A more precise rule for what is a business day (all calendar days except Sundays and the federal legal holidays listed in 5 U.S.C. 6103(a)) applies when the right of rescission Right of rescission The right to void a contract without any penalty within three days as provided in the Consumer Credit Protection Act of 1968. or mortgages subject to section 226.32 are involved. (See also comment 31 (c)(1)-1.) Four federal legal holidays are identified in 5 U.S.C. 6103(a) by a specific date: New Year's Day New Year's Day, among ancient peoples the first day of the year frequently corresponded to the vernal or autumnal equinox, or to the summer or winter solstice. In the Middle Ages it was celebrated among Christians usually on Mar. 25. , January 1; Independence Day, July 4; Veterans Day, November 11; and Christmas Day, December 25. When one of these holidays (July 4, for example) falls on a Saturday, federal offices and other entities might observe the holiday on the preceding Friday (July 3). The observed holiday (in the example, July 3) is a business day for purposes of rescission or the delivery of disclosures for certain high-cost mortgages covered by Section 226.32. Section 226.4--Finance Charge 4(d) Insurance and debt cancellation coverage. 12. Initial term; alternative, i. General. A creditor An individual to whom an obligation is owed because he or she has given something of value in exchange. One who may legally demand and receive money, either through the fulfillment of a contract or due to injury sustained as a result of another's Negligence has the option of providing cost disclosures on the basis of an assumed initial term of one year of insurance or debt- cancellation coverage instead of a longer initial term (provided the premium or fee is clearly labeled as being for one year) if: A. The initial term is indefinite INDEFINITE. That which is undefined; uncertain. INDEFINITE, NUMBER. A number which may be increased or diminished at pleasure. 2. When a corporation is composed of an indefinite number of persons, any number of them consisting of a majority of those or not clear, or B. The consumer has agreed to pay a premium or fee that is assessed periodically but the consumer is under no obligation to continue the coverage, whether or not the consumer has made an initial payment. ii. Open-end plans. For open-end plans, a creditor also has the option of providing unit-cost disclosure on the basis of a period that is less than one year if the consumer has agreed to pay a premium or fee that is assessed periodically, for example monthly, but the consumer is under no obligation to continue the coverage. iii. Examples. To illustrate: A. A credit life insurance policy providing coverage for a 30-year mortgage loan has an initial term of 30 years, even though premiums are paid monthly and the consumer is not required to continue the coverage. Disclosures may be based on the initial term, but the creditor also has the option of making disclosures on the basis of coverage for an assumed initial term of one year. Subpart C--Closed-End Credit Section 226.17--General Disclosure Requirements 17(b) Time of disclosures. 3. Disclosures provided on credit contracts. Creditors must give the required disclosures to the consumer in writing, in a form that the consumer may keep, before consummation of the transaction. See section 226.17(a)(1) and (b). Sometimes the disclosures are placed on the same document with the credit contract. Creditors are not required to give the consumer two separate copies of the document before consummation, one for the consumer to keep and a second copy for the consumer to execute. The disclosure requirement is satisfied if the creditor gives a copy of the document containing the unexecuted credit contract and disclosures to the consumer to read and sign; and the consumer receives a copy to keep at the time the consumer becomes obligated ob·li·gate tr.v. ob·li·gat·ed, ob·li·gat·ing, ob·li·gates 1. To bind, compel, or constrain by a social, legal, or moral tie. See Synonyms at force. 2. To cause to be grateful or indebted; oblige. . It is not sufficient for the creditor merely to show the consumer the document containing the disclosures before the consumer signs and becomes obligated. The consumer must be free to take possession of and review the document in its entirety before signing. i. Example. To illustrate: A. A creditor gives a consumer a multiple-copy form containing a credit agreement and TILA TILA Truth In Lending Act disclosures. The consumer reviews and signs the form and returns it to the creditor, who separates the copies and gives one copy to the consumer to keep. The creditor has satisfied the disclosure requirement. Subpart E--Special Rules for Certain Home Mortgage Transactions Section 226.32--Requirements for Certain Closed, End Home Mortgages Paragraph 32(c)(3) Regular payment; balloon payment The final installment of a loan to be paid in an amount that is disproportionately larger than the regular installment. When a loan is made, repayment of the principal, which is the amount of the loan, plus the interest that is owed on it, is divided into installments due at . 1. General. The regular payment is the amount due from the borrower at regular intervals, such as monthly, bimonthly bi·month·ly adj. 1. Happening every two months. 2. Happening twice a month; semimonthly. adv. 1. Once every two months. 2. Twice a month; semimonthly. n. pl. , quarterly, or annually. There must be at least two payments, and the payments must be in an amount and at such intervals that they fully amortize amortize To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. the amount owed. In disclosing the regular payment, creditors may rely on the rules set forth in section 226.18(g); however, the amounts for voluntary items, such as credit life insurance, may be included in the regular payment disclosure only if the consumer has previously agreed to the amounts. i. If the loan has more than one payment level, the regular payment for each level must be disclosed. For example: A. In a 30-year graduated payment Graduated payment Repayment terms calling for gradual increases in the payments on a closed-end obligation. A graduated payment loan usually involves negative amortization. mortgage where there will be payments of $300 for the first 120 months, $400 for the next 120 months, and $500 for the last 120 months, each payment amount must be disclosed, along with the length of time that the payment will be in effect. B. If interest and principal are paid at different times, the regular amount for each must be disclosed. C. In discounted or premium variable-rate transactions where the creditor sets the initial interest rate and later rate adjustments are determined by an index or formula, the creditor must disclose both the initial payment based on the discount or premium and the payment that will be in effect thereafter. Additional explanatory ex·plan·a·to·ry adj. Serving or intended to explain: an explanatory paragraph. ex·plan material which does not detract from detract from verb 1. lessen, reduce, diminish, lower, take away from, derogate, devaluate << OPPOSITE enhance verb 2. the required disclosures may accompany the disclosed amounts. For example, if a monthly payment is $250 for the first six months and then increases based on an index and margin, the creditor could use language such as the following: "Your regular monthly payment will be $250 for six months. After six months your regular monthly payment will be based on an index and margin, which currently would make your payment $350. Your actual payment at that time may be higher or lower." |
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