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Compliance Corner: First Quarter 2005

Regulation Z - Points to Ponder

Federal Reserve Issues
Advance Notice of Proposed Rulemaking

The Federal Reserve Board (Board) is conducting a comprehensive review of Regulation Z, Truth in Lending, which implements the Truth in Lending Act (TILA). This multi-stage review is expected to span several years. The Board will focus its first stage of review on open-end (i.e., revolving) credit, chiefly general-purpose credit cards and merchant-specific credit plans.

As part of the first stage of its review, on December 3, 2004 the Board issued an advance notice of proposed rulemaking (ANPR) announcing a review of the regulation’s rules on open-end credit, excluding home-secured revolving credit. The complete ANPR is available on the Board’s website.External Link The ANPR states, in part, that “in reviewing Regulation Z, the Board’s primary goal is to improve, if possible, the effectiveness and usefulness of open-end disclosures and substantive protections.”

The ANPR seeks public comment on a variety of specific issues in the following three broad areas.

  • Would format changes enhance consumers’ ability to notice and understand disclosures by making them more clear and conspicuous?
  • How can the content of disclosures be improved or simplified to enhance consumers’ understanding of the cost of credit?
  • Is there a need to modify the rules that implement TILA’s substantive protections for open-end accounts?

In addition to seeking comments on the foregoing, the Board has also requested comments regarding other issues that it should consider addressing in its review of open-end credit provisions. Readers of Compliance Corner are encouraged to comment on the Board’s ANPR. All comments should be submitted in accordance with the instructions provided in the ANPR, and the deadline for submitting comments is March 28, 2005.

All public comments received by the Board are made available on the Board’s website External Link as submitted, except as necessary for technical reasons. Comments are not edited to remove identifying or contact information.

Federal Reserve Adjusts HOEPA Dollar Trigger
Section 32 of Regulation Z implements the Home Ownership and Equity Protection Act of 1994 (HOEPA), a federal statute that provides consumer protections regarding comparatively high cost home-secured loans. In particular, section 32(a)(ii) of Regulation Z contains a triggering threshold that invokes certain consumer protections for such loans. The threshold is the greater of a certain dollar amount, which was initially set at $400 at the time the statute became effective, or 8 percent of the total loan amount.

As required under HOEPA, the Board has annually adjusted the initial $400 dollar threshold, based on the annual percentage change in the Consumer Price Index that is in effect on June 1. For 2005, the Board has adjusted HOEPA’s dollar trigger to $510, effective January 1, 2005.

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.

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