[Federal Register Volume 59, Number 150 (Friday, August 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19310]


[[Page Unknown]]

[Federal Register: August 5, 1994]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R-0844]

 

Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule; temporary exceptions.

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SUMMARY: The Board is amending Regulation Z (which implements the Truth 
in Lending Act) to provide relief in areas in the South recently 
affected by major flooding. The amendments provide a temporary 
exception from provisions of the regulation that prohibit a creditor 
from using a preprinted form by a creditor to obtain a consumer's 
waiver of the right to rescind certain home-secured loans when loan 
proceeds are needed immediately to meet a consumer's bona fide personal 
financial emergency. In addition, a consumer's need to obtain funds 
immediately shall be regarded as a bona fide personal financial 
emergency for purposes of Regulation Z for transactions secured by a 
consumer's principal dwelling located in areas of the South recently 
declared to be major disaster areas because of extensive flooding. 
Generally, Regulation Z requires a mandatory three day waiting period 
on rescindable transactions before funds can be disbursed. The special 
exceptions expire one year from the date the area was declared a major 
disaster.

EFFECTIVE DATE: July 29, 1994.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Staff Attorney, or 
Adrienne D. Hurt, Managing Counsel, Division of Consumer and Community 
Affairs, at (202) 452-2412 or (202) 452-3667; for the hearing impaired 
only, contact Dorothea Thompson, Telecommunications Device for the Deaf 
(TDD), at (202) 452-3544, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

I. Background

    Under the Truth in Lending Act (TILA), 15 U.S.C 1601-1666j, and 
Regulation Z, 12 CFR Part 226, with some exceptions, a consumer has the 
right to rescind a credit obligation secured by the consumer's 
principal dwelling for three days after becoming obligated, due to the 
risk of loss of the consumer's home in the event of default. There is a 
mandatory waiting period of three business days before funds can be 
disbursed in order to give consumers an opportunity to reflect on the 
loan terms and to elect to cancel the transaction (12 CFR 226.15 and 
226.23). A consumer may modify or waive this right of rescission to 
meet a bona fide personal financial emergency. The consumer must 
provide the creditor a written, signed and dated waiver statement that 
describes the emergency. Under Regulation Z, 12 CFR 226.15(e) and 
226.23(e), the waiver statement may not be executed on a preprinted 
form.
    The Board has previously adopted an exception to Regulation Z for 
transactions in areas affected by Hurricanes Andrew and Iniki and the 
April 1992 Los Angeles civil unrest (57 FR 53545 (1992)); extensive 
flooding in the Midwest (58 FR 40582 (1993)); and most recently, a 
major earthquake in California (59 FR 6532 (1994)). The Board's 
exception permitted a temporary waiver of the provisions in Regulation 
Z that prohibit an institution's use of a preprinted form to obtain a 
consumer's waiver of the right to rescind certain home-secured loans 
when loan funds were needed immediately to meet a consumer's bona fide 
personal financial emergency. In addition, a consumer's need to obtain 
funds immediately was regarded as a bona fide personal financial 
emergency for purposes of Regulation Z, where the home securing the 
loan was located in the disaster area.

II. Relief for Flood Affected Communities

    During the summer of 1994, extensive flooding has occurred in 
several Southern States, including Alabama, Florida, and Georgia. As a 
result, the President has determined that extensive major disaster 
areas exist in those states. In order to aid consumers in obtaining 
credit speedily to begin repairs in these areas and to ease the 
paperwork burden on banks extending credit in these areas, the Board 
has determined to provide a temporary exception in this situation to 
the restrictions in Secs. 226.15(e) and 23(e) of Regulation Z in flood 
affected areas. This exception will expire one year from the date the 
President determined that an area was a major disaster.
    The Board is amending Regulation Z to permit a temporary exception 
to its provisions that prohibit the use of a preprinted form by an 
institution to obtain a consumer's waiver of the right to rescind 
certain home-secured loans when the home is located in an area that the 
President has determined, pursuant to section 401 of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act , (42 U.S.C. 5170 
(1989)), is a major disaster area as a result of the extensive flooding 
in 1994 in the South. The Board notes, however, that the consumer must 
still sign and date the waiver statement. The following counties in 
Alabama, Florida, and Georgia have been declared major disaster areas.

Alabama: Barbour, Coffee, Covington, Dale, Geneva, Henry, Houston, 
Randolph
Florida: Calhoun, Gulf, Holmes, Jackson, Walton, Washington
Georgia: Baker, Bibb, Butts, Calhoun, Clay, Clayton, Coweta, 
Crawford, Crisp, Decatur, Dooly, Dougherty, Early, Fayette, Fulton, 
Henry, Houston, Jones, Lamar, Lee, Macon, Meriwether, Miller, 
Mitchell, Monroe, Peach, Pike, Pulaski, Randolph, Seminole, 
Spalding, Stewart, Sumter, Talbot, Taylor, Terrell, Troup, Twiggs, 
Upson, Webster, Wilcox, Worth

III. Public Comment and Effective Date

    The Administrative Procedures Act (APA) grants specific exemptions 
from its notice and public comment requirements for rulemakings when 
these requirements are contrary to the public interest (5 U.S.C. 
553(b)(3)(B)). The amendments in the final rule provide a temporary 
exemption to Regulation Z and remove a restriction that may impair the 
availability of loans to consumers who have encountered a bona fide 
personal financial emergency as a result of having a home located in an 
area where a major disaster has occurred. The Board finds that it is in 
the public interest to permit this relief immediately and without 
advance notice and public comment. As explained above, the amendment to 
Regulation Z may reduce the paperwork burden on banks extending credit 
in certain disaster areas and aid in making credit speedily available 
to consumers in these areas. In addition, consumers continue to have 
the right to rescind certain loans unless that right is specifically 
waived. Moreover, the exemption is limited in scope and duration and 
would provide immediate assistance to consumers' and lenders' ongoing 
efforts to reconstruct and rehabilitate only in certain areas that have 
been affected by recent major disasters recognized under the 
appropriate federal relief statutes.
    For reasons explained above, the Board also believes that deferring 
the effective date of this action is contrary to the public interest in 
connection with the adoption of the final rule. The APA grants a 
specific exemption from its requirements relating to this item in these 
instances (5 U.S.C. 553 (d)(3)). Accordingly, the amendments to 
Regulation Z are effective immediately.

IV. Regulatory Flexibility Act Analysis

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 605(b)), the Board does not believe that the adoption of this 
final rule would have a significant adverse impact on a substantial 
number of small entities. The amendment imposes no new requirements and 
temporarily removes a restriction imposed by Regulation Z on entities 
subject to the regulation.

V. Paperwork Reduction Act Analysis

    No collection of information pursuant to section 3504(h) of the 
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) are contained in these 
changes.

List of Subjects in 12 CFR Part 226

    Advertising, Banks, banking, Consumer protection, Credit, Federal 
Reserve System, Finance, Penalties, Rate limitations, Reporting and 
recordkeeping requirements, Truth in lending.
    For the reasons set forth in the preamble, the Board is amending 12 
CFR part 226 as follows:

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for part 226 is revised to read as 
follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).

Subart B--Open-End Credit


Sec. 226.16  [Amended]

    2. In Sec. 226.16 footnotes 36b and 36c are redesignated 36c and 
36d, respectively.
    3. In Sec. 226.15 a new paragraph (e)(3) and footnote 36b are added 
to read as follows:


Sec. 226.15  Right of rescission.

* * * * *
    (e) * * *
    (3) The consumer's need to obtain funds immediately shall be 
regarded as a bona fide personal financial emergency provided that the 
dwelling securing the extension of credit is located in an area 
declared during June through September 1994 to be a major disaster 
area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding 
in the South.36b In this instance, creditors may use printed forms 
for the consumer to waive the right to rescind. This exemption to 
paragraph (e)(1) of this section shall expire one year from the date an 
area was declared a major disaster.
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    \3\6bA list of the affected areas will be maintained and 
published by the Board. Such areas now include parts of Alabama, 
Florida, and Georgia.
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* * * * *

Subpart C--Closed-End Credit

    4. In Sec. 226.23 a new paragraph (e)(3) and footnote 48(b) are 
added to read as follows:


Sec. 226.23  Right of rescission.

* * * * *
    (e) * * *
    (3) The consumer's need to obtain funds immediately shall be 
regarded as a bona fide personal financial emergency provided that the 
dwelling securing the extension of credit is located in an area 
declared during June through September 1994 to be a major disaster 
area, pursuant to 42 U.S.C. 5170, because of severe storms and flooding 
in the South.48b In this instance, creditors may use printed forms 
for the consumer to waive the right to rescind. This exemption to 
paragraph (e)(1) of this section shall expire one year from the date an 
area was declared a major disaster.
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    \4\8bA list of the affected areas will be maintained and 
published by the Board. Such areas now include parts of Alabama, 
Florida, and Georgia.
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* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, July 29, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-19310 Filed 8-4-94; 8:45 am]
BILLING CODE 6210-01-P