Are Your Disclosures "Keepsakes"?
by Mary Beth Guard, BOL Guru
I doubt your customers will ever place their lending disclosures in a scrapbook. Nonetheless, the Truth in Lending Act requires that TILA disclosures be provided in a form the consumer may keep. Recently, the Federal Reserve Board amended the Official Staff Commentary to Regulation Z to address this requirement and make two other substantive Commentary modifications.
Business Day Clarification
The term "business day" means two different things under Regulation Z. Most important is the definition of business day for purposes of calculating the rescission period. The regulation states that, for purposes of rescission, "business day" means all calendar days except l) Sundays; and 2) the federal legal holidays listed in 5 U.S.C. Section 6103(a).
Ten specific holidays are listed under that statute. Four of them are denoted by a particular date:
New Year's Day January 1
Independence Day July 4
Veterans Day November 11
Christmas Day December 25
The six others are considered to occur when the federal government says they are to be observed. Those six are:
- Birthday of Martin Luther King, Jr., the third Monday in January;
- Washington's Birthday, the third Monday in February;
- Memorial Day, the last Monday in May;
- Labor Day, the first Monday in September;
- Columbus Day, the second Monday in October;
- Thanksgiving Day, the fourth Thursday in November
The rule is different, however, for the four date-specific holidays.
Under the revised Commentary, if any of those four date-specific holidays fall on a weekend, only the date specified in the statute is considered a legal holiday, even if government offices are closed on the previous Friday or the following Monday to observe the holiday. The "observed holidays" don't count for purposes of these four. The only thing that counts is the actual date, and if it is on a weekend, the holiday will have no effect on business day computations under Reg Z.
When you are closing a rescindable loan in a time period that includes one of those four holidays falling on a weekend, you may end up with the last day to rescind falling on a Monday when the holiday is actually being observed. Even though the Post Office and other federal offices will be closed, the day is still considered a business day for purposes of the right of rescission and you will want to take special care to determine whether your customer exercised his rescission right. If the completed form was placed in a U.S. mailbox on the right date, the customer has taken the necessary action.
Don't sweat it now, however. The first time this is an issue - if I'm reading the calendar correctly - is July 4, 2004.
Insurance and Debt Cancellation Coverage
The Commentary has been revised to permit unit-cost disclosures on credit insurance or debt cancellation coverage.
Charges for credit insurance or debt cancellation coverage are excludable from the finance charge so long as the creditor discloses the fee or premium for the initial term of coverage and makes certain other disclosures. Under the revision to Commend 4(d)(-12(I), creditors are given the option of providing disclosures on the basis of one year of coverage where the fee or premium for the coverage is assessed periodically and the consumer is under no obligation to continue the coverage.
This option applies when the consumer can cancel the coverage, whether or not the consumer has made an initial payment.
Disclosures in a Form the Consumer Can Keep
When you extend consumer credit covered by Reg Z, you must provide the TILA disclosures to the consumer before consummation in a form the consumer may keep. How can this be done when a single document is used for the credit contract and TILA disclosures?
Under the revised Commentary, when the disclosures are placed on the same document with the credit contract:
- The creditor satisfies the requirement by giving a copy of the document containing the unexecuted credit contract and disclosures to the consumer to read and sign (including any required information that may be on the reverse side or continued on the next page) AND by providing a copy to keep at the time the consumer becomes obligated;
- The consumer must be free to take possession of and review the document in its entirety before signing;
- Creditors are not required to give the consumer two separate copies of the document before consummation, one for the consumer to keep and a second copy for the consumer to execute.
The original version appeared in the April 2002 edition of the Oklahoma Bankers Association Compliance Informer.
First published on BankersOnline.com 8/26/02
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