CUNA Regulatory Comment Call


December 12, 2001

Fed Proposes Revisions to the Regulation Z Official Staff Commentary

(NOT A MAJOR RULE)

EXECUTIVE SUMMARY

Comments on the proposal are due by February 1, 2002. Please submit your comments to CUNA by January 28, 2002. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at dunn@cuna.com or to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the proposed rule or you may access it on the Internet at the following address: http://www.federalreserve.gov/boarddocs/press/boardacts/2001/20011207/attachment.pdf

BACKGROUND

TILA is intended to promote the informed use of consumer credit by providing for disclosures about its terms and cost. TILA requires lenders to disclose the cost of credit as a dollar amount and as an annual percentage rate in a uniform manner. This uniformity is intended to assist consumers in comparison shopping for credit. Regulation Z implements TILA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions.

BRIEF DESCRIPTION OF THE PROPOSED CHANGES

Closed-end Credit – Timing of Disclosures

Regulation Z requires lenders to give the disclosures to consumers in writing and in a form that the consumer may keep, prior to the consummation of the transaction. The official staff commentary currently allows these disclosures to be placed on the same document with the credit contract, as long as they segregated from the contract.

When disclosures are placed on the same document as the credit contract, the official staff commentary will now clarify that lenders do not need to provide two separate copies to the consumer. This requirement can be satisfied by giving the consumer one copy of an unexecuted credit contract, containing the disclosures, for him or her to read and sign. The consumer must be given the opportunity to take possession of this document to review it before signing. It is not sufficient if the lender merely shows the document to the consumer before the contract is signed. If the consumer then signs the contract, he or she may return the document to the lender and the consumer must then be given a copy to keep.

Insurance and Debt Cancellation Coverage

Under Regulation Z, amounts paid for credit insurance or debt cancellation coverage may be excluded from the finance charge if, among other conditions, the lender discloses the fee or premium for the initial term of coverage. The official staff commentary currently provides lenders the option of providing these disclosures on the basis of one year of coverage, if the fee or premium is assessed periodically and the consumer is under no obligation to continue coverage after making the initial payment. The official staff commentary will be changed to clarify that the consumer can also cancel the coverage prior to making the initial payment.

Definition of “Business Day”

Consumers generally have the right to rescind certain home-secured loans until midnight of the third business day following the consummation or delivery of certain disclosures, whichever occurs last. Home equity loans are a common example of when these rescission rights apply.

For these transactions and for the delivery of disclosures for certain high-priced loans that are covered under the Home Ownership and Equity Protection Act (HOEPA), “business day” is currently defined as all calendar days, except for Sundays and federal legal holidays. Federal law lists ten federal holidays, but only four are identified by a specific date, such as July 4 for Independence Day. (The others are identified by certain days of the week, such as “the third Monday in January.”) In addition to Independence Day, the holidays identified by a specific date are New Year’s Day (January 1), Veterans Day (November 11), and Christmas Day (December 25).

The official staff commentary will be revised to clarify that for the four holidays identified by a specific date, only the date specified will be considered a legal holiday for purposes of rescission. For example, if July 4 falls on a Saturday, government offices often observe the holiday on July 3. However, for purposes of rescission for home-secured loans, July 3 will be considered a “business day,” not a holiday.

This revision to the commentary regarding “business day” will also apply to the delivery of disclosures for certain high-priced loans that are covered under HOEPA.

QUESTIONS TO CONSIDER REGARDING THE FED’S CHANGES TO THE REGULATION Z OFFICIAL STAFF COMMENTARY

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com