Reg Z: Some Changes

The Federal Reserve has published the 2004 changes to Regulation Z and the Official Staff Commentary. The changes take final effect on October 1, 2004 but may be implemented at any time before then.

Not Clear and Conspicuous
The FRB declined to adopt a clear and conspicuous standard for Regulation Z. The Board had proposed guidance or a standard for requiring that TIL disclosures be clear and conspicuous. Together with similar proposals to other consumer protection regulations, the Regulation Z clear and conspicuous standard raised significant industry concerns. Particularly in the context of credit card disclosures, it is difficult to determine what clear and conspicuous means, with all the information that must be disclosed. In the face of persuasive negative comments and concerns, the FRB has withdrawn that proposal and is not issuing any changes to Regulation Z with respect to the clear and conspicuous nature of disclosures.

Debt Cancellation v. Insurance
Another proposal that did not make it into the final rule is the proposal to treat debt cancellation services in the same way as credit insurance. The FRB received two conflicting views in the comments: support by the industry for similar treatment, but an attempt on the part of consumer advocates to change the insurance rule. Although the FRB did not include this issue in its final action, the debate is not over.

Amount
The final rule states clearly that disclosing the amount means using numbers. Verbal descriptions won't suffice. The FRB took this step to contradict court decisions that would have allowed words instead of numbers to disclose the amount. The Commentary now also explains that a numerical amount must be expressed in dollars or percentages.

Rescission
There has been debate about the sequence of events in rescission and whether changes in the sequence affect the rights of the other party. The final rule includes a clarification for both open-end and closed-end rescission that the sequence of events, even if ordered by a court, does not alter the consumer's right to rescind and the right to be made whole.

The revisions also clarify that the consumer need not use the rescission form itself to rescind the transaction. Any notice or format will do. If the creditor fails to provide the consumer with a specific address for rescission notices, the consumer may effectively rescind by using the address for loan payments.

High Cost Loans
The high cost rules contain a technical correction on how lenders should calculate the total loan amount for purposes of 226.32. While the amendment is not substantive, it would be prudent to review the new rule as corrected and compare it to the practices in your institution. Many loans that are in fact high cost go unnoticed - until the examiners arrive.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 4, 5/04