[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30321]


[[Page Unknown]]

[Federal Register: December 9, 1994]


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FEDERAL RESERVE SYSTEM
12 CFR Part 226

[Regulation Z; Docket No. R-0861]

 

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 some relief in areas in Texas recently 
affected by major flooding. The amendments provide a temporary 
exception to its provisions that prohibit the use of 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. Generally, 
Regulation Z requires a mandatory three day waiting period on 
rescindable transactions before funds can be disbursed. The relief also 
provides that 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 Texas recently declared to be major 
disaster areas because of extensive flooding. The exception expires one 
year from the date the area was declared a major disaster.

EFFECTIVE DATE: December 8, 1994.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or Kyung Cho-Miller, 
Staff Attorneys, 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); extensive flooding 
in the Midwest (58 FR 40582); a major earthquake in California (59 FR 
6532); and extensive flooding in Alabama, Florida and Georgia (59 FR 
40203). The Board's exception permitted a temporary waiver of the 
provisions in Regulation Z that prohibited 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 is located in the disaster area.

II. Relief for Flood Affected Communities

    During October 1994, extensive flooding occurred in Texas. As a 
result, the President has determined that major disaster areas exist in 
and around Houston, Texas. 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. This 
exception will expire one year from the date the President determined 
that an area was a major disaster.
    Pursuant to authority granted in section 105 of the TILA, 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 (under section 401 of the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act, 42 U.S.C. 5170) is a major 
disaster area as a result of the extensive flooding in 1994 in Texas. 
The Board notes, however, that the consumer must still sign and date 
the waiver statement. The following counties in Texas thus far have 
been declared major disaster areas: Angelina, Austin, Bastrop, Brazos, 
Brazoria, Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, 
Hardin, Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, 
Madison, Matagorda, Montgomery, Nacagdoches, Orange, Polk, San 
Augustine, San Jacinto, Shelby, Trinity, Victoria, Washington, Waller, 
Walker, and Wharton.

III. Public Comment and Effective Date

    The Administrative Procedures Act (APA), 5 U.S.C. 553, 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 will 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 (12 U.S.C. 553(d)(3)). Accordingly, the amendments to 
Regulation Z are effective immediately.

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 will 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.

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 reason set forth in the preamble, the Board is amending 12 
CFR Part 226 as set forth below.

PART 226--TRUTH IN LENDING (REGULATION Z)

    1. The authority citation for Part 226 continues to read as 
follows:

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

Subpart B--Open-End Credit


Sec. 226.16  [Amended]

    2. In Sec. 226.16, footnotes 36c and 36d are redesignated as 
footnotes 36d and 36e, respectively.
    3. In Sec. 226.15, a new paragraph (e)(4) and footnote 36c are 
added to read as follows:


Sec. 226.15  Right of rescission.

* * * * *
    (e) * * *
    (4) 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 October 1994 to be a major disaster area, pursuant to 
42 U.S.C. 5170, because of severe storms and flooding in Texas.36c 
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\6cA list of the affected areas will be maintained and 
published by the Board. Such areas now include the following 
counties in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, 
Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, 
Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, 
Matagorda, Montgomery, Nacagdoches, Orange, Polk, San Augustine, San 
Jacinto, Shelby, Trinity, Victoria, Washington, Waller, Walker, and 
Wharton.
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* * * * *

Subpart C--Closed-End Credit

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


Sec. 226.23  Right of rescission.

* * * * *
    (e) * * *
    (4) 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 October 1994 to be a major disaster area, pursuant to 
42 U.S.C. 5170, because of severe storms and flooding in Texas.48c 
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\8cA list of the affected areas will be maintained and 
published by the Board. Such areas now include the following 
counties in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, 
Burleson, Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, 
Harris, Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, 
Matagorda, Montgomery, Nacagdoches, Orange, Polk, San Augustine, San 
Jacinto, Shelby, Trinity, Victoria, Washington, Waller, Walker, and 
Wharton.
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* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, dated December 5, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-30321 Filed 12-8-94; 8:45 am]
BILLING CODE 6210-01-P