|
|
Regulation
Z
Truth in Lending Act
Subpart A--General
Section 226.1 - Authority, purpose, coverage,
organization, enforcement and liability.
Section 226.2 - Definitions and rules of construction.
Section 226.3 - Exempt transactions.
Section 226.4 - Finance charge.
Sec. 226.1 Authority, purpose, coverage,
organization, enforcement and liability.
(a) Authority. This regulation, known
as Regulation Z, is issued by the Board of Governors of the Federal
Reserve System to implement the Federal Truth in Lending Act,
which is contained in title I of the Consumer Credit Protection
Act, as amended (15 U.S.C. 1601 et seq.). This regulation also
implements title XII, section 1204 of the Competitive Equality
Banking Act of 1987 (Pub. L. 100-86, 101 Stat. 552). Information-collection
requirements contained in this regulation have been approved by
the Office of Management and Budget under the provisions of 44
U.S.C. 3501 et seq. and have been assigned OMB number 7100-0199.
(b) The purpose of this regulation is
to promote the informed use of consumer credit by requiring disclosures
about its terms and cost. The regulation gives consumers the right
to cancel certain credit transactions that involve a lien on a
consumer's principal dwelling, regulates certain credit card practices,
and provides a means for fair and timely resolution of credit
billing disputes. The regulation does not govern charges for consumer
credit. The regulation requires a maximum interest rate to be
stated in variable-rate contracts secured by the consumer's dwelling.
It also imposes limitations on home equity plans that are subject
to the requirements of Sec. 226.5b and mortgages that are subject
to the requirements of Sec. 226.32.
(c) Coverage. (1) In general, this regulation
applies to each individual or business that offers or extends
credit when four conditions are met: (i) The credit is offered
or extended to consumers; (ii) the offering or extension of credit
is done regularly;1 (iii) the credit is subject to
a finance charge or is payable by a written agreement in more
than 4 installments; and (iv) the credit is primarily for personal,
family, or household purposes.
1 The meaning of regularly is explained
in the definition of creditor in Sec. 226.2(a).
(2) If a credit card is involved, however,
certain provisions apply even if the credit is not subject to
a finance charge, or is not payable by a written agreement in
more than 4 installments, or if the credit card is to be used
for business purposes.
(3) In addition, certain requirements
of Sec. 226.5b apply to persons who are not creditors but who
provide applications for home equity plans to consumers.
(d) Organization. The regulation is divided
into subparts and appendices as follows:
(1) Subpart A contains general information.
It sets forth: (i) The authority, purpose, coverage, and organization
of the regulation; (ii) the definitions of basic terms; (iii)
the transactions that are exempt from coverage; and (iv) the method
of determining the finance charge.
(2) Subpart B contains the rules for
open-end credit. It requires that initial disclosures and periodic
statements be provided, as well as additional disclosures for
credit and charge card applications and solicitations and for
home equity plans subject to the requirements of Secs. 226.5a
and 226.5b, respectively.
(3) Subpart C relates to closed-end credit.
It contains rules on disclosures, treatment of credit balances,
annual percentage rate calculations, rescission requirements,
and advertising.
(4) Subpart D contains rules on oral
disclosures, Spanish language disclosure in Puerto Rico, record
retention, effect on state laws, state exemptions, and rate limitations.
(5) Subpart E relates to mortgage transactions
covered by Sec. 226.32 and reverse mortgage transactions. It contains
rules on disclosures, fees, and total annual loan cost rates.
(6) Several appendices contain information
such as the procedures for determinations about state laws, state
exemptions and issuance of staff interpretations, special rules
for certain kinds of credit plans, a list of enforcement agencies,
and the rules for computing annual percentage rates in closed-end
credit transactions and total annual loan cost rates for reverse
mortgage transactions.
(e) Enforcement and liability. Section
108 of the act contains the administrative enforcement provisions.
Sections 112, 113, 130, 131, and 134 contain provisions relating
to liability for failure to comply with the requirements of the
act and the regulation. Section 1204(c) of title XII of the Competitive
Equality Banking Act of 1987, Pub. L. 100-86, 101 Stat. 552, incorporates
by reference administrative enforcement and civil liability provisions
of sections 108 and 130 of the act.
Sec. 226.2 Definitions and rules of construction.
(a) Definitions. For purposes of this
regulation, the following definitions apply:
(1) Act means the Truth in Lending Act
(15 U.S.C. 1601 et seq.).
(2) Advertisement means a commercial
message in any medium that promotes, directly or indirectly, a
credit transaction.
(3) [Reserved]
(4) Billing cycle or cycle means the
interval between the days or dates of regular periodic statements.
These intervals shall be equal and no longer than a quarter of
a year. An interval will be considered equal if the number of
days in the cycle does not vary more than 4 days from the regular
day or date of the periodic statement.
(5) Board means the Board of Governors
of the Federal Reserve System.
(6) Business day means a day on which
the creditor's offices are open to the public for carrying on
substantially all of its business functions. However, for purposes
of rescission under Secs. 226.15 and 226.23, and for purposes
of Sec. 226.31, the term means all calendar days except Sundays
and the legal public holidays specified in 5 U.S.C. 6103(a), such
as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans Day, Thanksgiving Day, and Christmas Day.
(7) Card issuer means a person that issues
a credit card or that person's agent with respect to the card.
(8) Cardholder means a natural person
to whom a credit card is issued for consumer credit purposes,
or a natural person who has agreed with the card issuer to pay
consumer credit obligations arising from the issuance of a credit
card to another natural person. For purposes of Sec. 226.12(a)
and (b), the term includes any person to whom a credit card is
issued for any purpose, including business, commercial, or agricultural
use, or a person who has agreed with the card issuer to pay obligations
arising from the issuance of such a credit card to another person.
(9) Cash price means the price at which
a creditor, in the ordinary course of business, offers to sell
for cash the property or service that is the subject of the transaction.
At the creditor's option, the term may include the price of accessories,
services related to the sale, service contracts and taxes and
fees for license, title, and registration. The term does not include
any finance charge.
(10) Closed-end credit means consumer
credit other than open-end credit as defined in this section.
(11) Consumer means a cardholder or a
natural person to whom consumer credit is offered or extended.
However, for purposes of rescission under Secs. 226.15 and 226.23,
the term also includes a natural person in whose principal dwelling
a security interest is or will be retained or acquired, if that
person's ownership interest in the dwelling is or will be subject
to the security interest.
(12) Consumer credit means credit offered
or extended to a consumer primarily for personal, family, or household
purposes.
(13) Consummation means the time that
a consumer becomes contractually obligated on a credit transaction.
(14) Credit means the right to defer
payment of debt or to incur debt and defer its payment.
(15) Credit card means any card, plate,
coupon book, or other single credit device that may be used from
time to time to obtain credit. Charge card means a credit card
on an account for which no periodic rate is used to compute a
finance charge.
(16) Credit sale means a sale in which
the seller is a creditor. The term includes a bailment or lease
(unless terminable without penalty at any time by the consumer)
under which the consumer:
(i) Agrees to pay as compensation for
use a sum substantially equivalent to, or in excess of, the total
value of the property and services involved; and
(ii) Will become (or has the option to
become), for no additional consideration or for nominal consideration,
the owner of the property upon compliance with the agreement.
(17) Creditor means: (i) A person (A)
who regularly extends consumer credit3 that is subject
to a finance charge or is payable by written agreement in more
than 4 installments (not including a downpayment), and (B) to
whom the obligation is initially payable, either on the face of
the note or contract, or by agreement when there is no note or
contract.
3
A person regularly extends consumer credit only if it extended
credit (other than credit subject to the requirements of Sec.
226.32) more than 25 times (or more than 5 times for transactions
secured by a dwelling) in the preceding calendar year. If a person
did not meet these numerical standards in the preceding calendar
year, the numerical standards shall be applied to the current
calendar year. A person regularly extends consumer credit if,
in any 12-month period, the person originates more than one credit
extension that is subject to the requirements of Sec. 226.32 or
one or more such credit extensions through a mortgage broker.
(ii) For purposes of Secs. 226.4(c)(8)
(discounts), 226.9(d) (Finance charge imposed at time of transaction),
and 226.12(e) (Prompt notification of returns and crediting of
refunds), a person that honors a credit card.
(iii) For purposes of subpart B, any
card issuer that extends either open-end credit or credit that
is not subject to a finance charge and is not payable by written
agreement in more than 4 installments.
(iv) For purposes of subpart B (except
for the credit and charge card disclosures contained in Secs.
226.5(a) and 226.9 (e) and (f), the finance charge disclosures
contained in Secs. 226.6(a) and 226.7 (d) through (g) and the
right of rescission set forth in Sec. 226.15) and subpart C, any
card issuer that extends closed-end credit that is subject to
a finance charge or is payable by written agreement in more than
4 installments.
(18) Downpayment means an amount, including
the value of any property used as a trade-in, paid to a seller
to reduce the cash price of goods or services purchased in a credit
sale transaction. A deferred portion of a downpayment may be treated
as part of the downpayment if it is payable not later than the
due date of the second otherwise regularly scheduled payment and
is not subject to a finance charge.
(19) Dwelling means a residential structure
that contains 1 to 4 units, whether or not that structure is attached
to real property. The term includes an individual condominium
unit, cooperative unit, mobile home, and trailer, if it is used
as a residence.
(20) Open-end credit means consumer credit
extended by a creditor under a plan in which:
(i) The creditor reasonably contemplates
repeated transactions;
(ii) The creditor may impose a finance
charge from time to time on an outstanding unpaid balance; and
(iii) The amount of credit that may be
extended to the consumer during the term of the plan (up to any
limit set by the creditor) is generally made available to the
extent that any outstanding balance is repaid.
(21) Periodic rate means a rate of finance
charge that is or may be imposed by a creditor on a balance for
a day, week, month, or other subdivision of a year.
(22) Person means a natural person or
an organization, including a corporation, partnership, proprietorship,
association, cooperative, estate, trust, or government unit.
(23) Prepaid finance charge means any
finance charge paid separately in cash or by check before or at
consummation of a transaction, or withheld from the proceeds of
the credit at any time.
(24) Residential mortgage transaction
means a transaction in which a mortgage, deed of trust, purchase
money security interest arising under an installment sales contract,
or equivalent consensual security interest is created or retained
in the consumer's principal dwelling to finance the acquisition
or initial construction of that dwelling.
(25) Security interest means an interest
in property that secures performance of a consumer credit obligation
and that is recognized by State or Federal law. It does not include
incidental interests such as interests in proceeds, accessions,
additions, fixtures, insurance proceeds (whether or not the creditor
is a loss payee or beneficiary), premium rebates, or interests
in after-acquired property. For purposes of disclosure under Secs.
226.6 and 226.18, the term does not include an interest that arises
solely by operation of law. However, for purposes of the right
of rescission under Secs. 226.15 and 226.23, the term does include
interests that arise solely by operation of law.
(26) State means any state, the District
of Columbia, the Commonwealth of Puerto Rico, and any territory
or possession of the United States.
(b) Rules of construction. For purposes
of this regulation, the following rules of construction apply:
(1) Where appropriate, the singular form
of a word includes the plural form and plural includes singular.
(2) Where the words obligation and transaction
are used in this regulation, they refer to a consumer credit obligation
or transaction, depending upon the context. Where the word credit
is used in this regulation, it means consumer credit unless the
context clearly indicates otherwise.
(3) Unless defined in this regulation,
the words used have the meanings given to them by state law or
contract.
(4) Footnotes have the same legal effect
as the text of the regulation.
Sec. 226.3 Exempt transactions.
This regulation does not apply to the following:4
4
The provisions in Sec. 226.12 (a) and (b) governing the issuance
of credit cards and the liability for their unauthorized use apply
to all credit cards, even if the credit cards are issued for use
in connection with extensions of credit that otherwise are exempt
under this section.
(a) Business, commercial, agricultural,
or organizational credit. (1) An extension of credit primarily
for a business, commercial or agricultural purpose.
(2) An extension of credit to other than
a natural person, including credit to government agencies or instrumentalities.
(b) Credit over $25,000 not secured by
real property or a dwelling. An extension of credit not secured
by real property, or by personal property used or expected to
be used as the principal dwelling of the consumer, in which the
amount financed exceeds $25,000 or in which there is an express
written commitment to extend credit in excess of $25,000.
(c) Public utility credit. An extension
of credit that involves public utility services provided through
pipe, wire, other connected facilities, or radio or similar transmission
(including extensions of such facilities), if the charges for
service, delayed payment, or any discounts for prompt payment
are filed with or regulated by any government unit. The financing
of durable goods or home improvements by a public utility is not
exempt.
(d) Securities or commodities accounts.
Transactions in securities or commodities accounts in which credit
is extended by a broker-dealer registered with the Securities
and Exchange Commission or the Commodity Futures Trading Commission.
(e) Home fuel budget plans. An installment
agreement for the purchase of home fuels in which no finance charge
is imposed.
(f) Student loan programs. Loans made,
insured, or guaranteed pursuant to a program authorized by title
IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.).
Sec. 226.4 Finance charge.
(a) Definition. The finance charge is
the cost of consumer credit as a dollar amount. It includes any
charge payable directly or indirectly by the consumer and imposed
directly or indirectly by the creditor as an incident to or a
condition of the extension of credit. It does not include any
charge of a type payable in a comparable cash transaction.
(1) Charges by third parties. The finance
charge includes fees and amounts charged by someone other than
the creditor, unless otherwise excluded under this section, if
the creditor:
(i) requires the use of a third party
as a condition of or an incident to the extension of credit, even
if the consumer can choose the third party; or
(ii) retains a portion of the third-party
charge, to the extent of the portion retained.
(2) Special rule; closing agent charges.
Fees charged by a third party that conducts the loan closing (such
as a settlement agent, attorney, or escrow or title company) are
finance charges only if the creditor:
(i) Requires the particular services
for which the consumer is charged;
(ii) Requires the imposition of the charge;
or
(iii) Retains a portion of the third-party
charge, to the extent of the portion retained.
(3) Special rule; mortgage broker fees.
Fees charged by a mortgage broker (including fees paid by the
consumer directly to the broker or to the creditor for delivery
to the broker) are finance charges even if the creditor does not
require the consumer to use a mortgage broker and even if the
creditor does not retain any portion of the charge.
(b) Example of finance charge. The finance
charge includes the following types of charges, except for charges
specifically excluded by paragraphs (c) through (e) of this section:
(1) Interest, time price differential,
and any amount payable under an add-on or discount system of additional
charges.
(2) Service, transaction, activity, and
carrying charges, including any charge imposed on a checking or
other transaction account to the extent that the charge exceeds
the charge for a similar account without a credit feature.
(3) Points, loan fees, assumption fees,
finder's fees, and similar charges.
(4) Appraisal, investigation, and credit
report fees.
(5) Premiums or other charges for any
guarantee or insurance protecting the creditor against the consumer's
default or other credit loss.
(6) Charges imposed on a creditor by
another person for purchasing or accepting a consumer's obligation,
if the consumer is required to pay the charges in cash, as an
addition to the obligation, or as a deduction from the proceeds
of the obligation.
(7) Premiums or other charges for credit
life, accident, health, or loss-of-income insurance, written in
connection with a credit transaction.
(8) Premiums or other charges for insurance
against loss of or damage to property, or against liability arising
out of the ownership or use of property, written in connection
with a credit transaction.
(9) Discounts for the purpose of inducing
payment by a means other than the use of credit.
(10) Debt cancellation fees. Charges
or premiums paid for debt cancellation coverage written in connection
with a credit transaction, whether or not the debt cancellation
coverage is insurance under applicable law.
(c) Charges excluded from the finance
charge. The following charges are not finance charges:
(1) Application fees charged to all applicants
for credit, whether or not credit is actually extended.
(2) Charges for actual unanticipated
late payment, for exceeding a credit limit, or for delinquency,
default, or a similar occurrence.
(3) Charges imposed by a financial institution
for paying items that overdraw an account, unless the payment
of such items and the imposition of the charge were previously
agreed upon in writing.
(4) Fees charged for participation in
a credit plan, whether assessed on an annual or other periodic
basis.
(5) Seller's points.
(6) Interest forfeited as a result of
an interest reduction required by law on a time deposit used as
security for an extension of credit.
(7) Real-estate related fees. The following
fees in a transaction secured by real property or in a residential
mortgage transaction, if the fees are bona fide and reasonable
in amount:
(i) Fees for title examination, abstract
of title, title insurance, property survey, and similar purposes.
(Ii) Fees for preparing loan-related
documents, such as deeds, mortgages, and reconveyance or settlement
documents.
(Iii) Notary and credit report fees.
(Iv) Property appraisal fees or fees
for inspections to assess the value or condition of the property
if the service is performed prior to closing, including fees related
to pest infestation or flood hazard determinations.
(v) Amounts required to be paid into
escrow or trustee accounts if the amounts would not otherwise
be included in the finance charge.
(8) Discounts offered to induce payment
for a purchase by cash, check, or other means, as provided in
section 167(b) of the Act.
(d) Insurance and debt cancellation coverage.--(1)
Voluntary credit insurance premiums. Premiums for credit life,
accident, health or loss- of-income insurance may be excluded
from the finance charge if the following conditions are met:
(i) The insurance coverage is not required
by the creditor, and this fact is disclosed in writing.
(Ii) The premium for the initial term
of insurance coverage is disclosed. If the term of insurance is
less than the term of the transaction, the term of insurance also
shall be disclosed. The premium may be disclosed on a unit-cost
basis only in open-end credit transactions, closed-end credit
transactions by mail or telephone under Sec. 226.17(g), and certain
closed-end credit transactions involving an insurance plan that
limits the total amount of indebtedness subject to coverage.
(Iii) The consumer signs or initials
an affirmative written request for the insurance after receiving
the disclosures specified in this paragraph. Any consumer in the
transaction may sign or initial the request.
(2) Premiums for insurance against loss
of or damage to property, or against liability arising out of
the ownership or use of property,5 may be excluded
from the finance charge if the following conditions are met:
5
This includes single interest insurance if the insurer waives
all right of subrogation against the consumer.
(i) The insurance coverage may be obtained
from a person of the consumer's choice,6 and this fact
is disclosed.
6
A creditor may reserve the right to refuse to accept, for reasonable
cause, an insurer offered by the consumer.
(Ii) If the coverage is obtained from
or through the creditor, the premium for the initial term of insurance
coverage shall be disclosed. If the term of insurance is less
than the term of the transaction, the term of insurance shall
also be disclosed. The premium may be disclosed on a unit-cost
basis only in open-end credit transactions, closed-end credit
transactions by mail or telephone under Sec. 226.17(g), and certain
closed-end credit transactions involving an insurance plan that
limits the total amount of indebtedness subject to coverage.
(3) Voluntary debt cancellation fees.
(i) Charges or premiums paid for debt cancellation coverage of
the type specified in paragraph (d)(3)(ii) of this section may
be excluded from the finance charge, whether or not the coverage
is insurance, if the following conditions are met:
(A) The debt cancellation agreement or
coverage is not required by the creditor, and this fact is disclosed
in writing;
(B) The fee or premium for the initial
term of coverage is disclosed. If the term of coverage is less
than the term of the credit transaction, the term of coverage
also shall be disclosed. The fee or premium may be disclosed on
a unit-cost basis only in open-end credit transactions, closed-end
credit transactions by mail or telephone under Sec. 226.17(g),
and certain closed-end credit transactions involving a debt cancellation
agreement that limits the total amount of indebtedness subject
to coverage;
(C) The consumer signs or initials an
affirmative written request for coverage after receiving the disclosures
specified in this paragraph. Any consumer in the transaction may
sign or initial the request.
(Ii) Paragraph (d)(3)(i) of this section
applies to fees paid for debt cancellation coverage that provides
for cancellation of all or part of the debtor's liability for
amounts exceeding the value of the collateral securing the obligation,
or in the event of the loss of life, health, or income or in case
of accident.
(e) Certain security interest charges.
If itemized and disclosed, the following charges may be excluded
from the finance charge:
(1) Taxes and fees prescribed by law
that actually are or will be paid to public officials for determining
the existence of or for perfecting, releasing, or satisfying a
security interest.
(2) The premium for insurance in lieu
of perfecting a security interest to the extent that the premium
does not exceed the fees described in paragraph (e)(1) of this
section that otherwise would be payable.
(3) Taxes on security instruments. Any
tax levied on security instruments or on documents evidencing
indebtedness if the payment of such taxes is a requirement for
recording the instrument securing the evidence of indebtedness.
(f) Prohibited offsets. Interest, dividends,
or other income received or to be received by the consumer on
deposits or investments shall not be deducted in computing the
finance charge.
SubPart B - Open-End Credit
- (Large File - May Load Slowly)
Subpart C - Closed-End Credit
Subpart D - Miscellaneous
Subpart E - Special Rules
for Certain Home Mortgage Transactions
Appendices A - L
Credit And Banking
Laws Menu
Top
Of Page
|
|