[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
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 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