FRB SEEKS COMMENTS ON OPEN-END CREDIT RULES OF REGULATION Z
On December 3, 2004, the Board of Governors of the Federal Reserve System published for comment an Advance Notice of Proposed Rulemaking to commence a review of the open-end revolving) credit rules of Regulation Z. The Board seeks comment on a variety of specific issues relating to the following three broad categories: (i) the format of open-end credit disclosures, (ii) the content of the disclosures and (iii) the substantive protections provided under the regulation. The Board also solicits comments on the scope of the review and requests persons commenting to identify other issues that the Board should consider addressing in the review.
Scope of Review. Because of the length and complexity of Regulation Z, the Board plans to review the Regulation in stages over the next few years, focusing first on requirements for open-end credit accounts that are not home-secured, which are primarily general-purpose credit cards and merchant-specific credit plans. The Board indicates that its primary goal in reviewing Regulation Z is to improve the effectiveness and usefulness of open-end disclosures and substantive protections. Additionally, the review will consider ways (i) to address concerns about information overload and (ii) that the rules can be clarified for creditors to facilitate compliance and promote consistency in disclosures. The Board also intends to study alternatives for improving the format of disclosures, including revising the model forms and clauses.
Format of Disclosures. The Board notes that open-end disclosures are subject to few formatting rules. In June 2004, the Board withdrew regulatory proposals that would have established a uniform standard for “clear and conspicuous” disclosures. The ANPR states that although the proposals defining “clear and conspicuous” were withdrawn, they reflected principles that will guide the Board in reviewing individual disclosures and revising the regulation and the Board’s model forms and clauses. In its questions relating to format of disclosures, the Board seeks comments on ways to make disclosures more understandable and noticeable. Persons commenting are requested to identify concerns specifically related to electronic disclosures.
Content of Disclosures. The Board requests comment on a variety of issues that have come to the Board’s attention as needing clarification or perhaps additional or different disclosures. These issues include the classification of fees as “finance charges” or “other charges;” the utility of the effective APR; notice of increased rates; information regarding how balance calculation methods, the size of minimum payments and a creditor’s allocation of payments affect the cost of credit; tolerances for numerical disclosures other than the APR; and special disclosures for certain types of credit like subprime or secured credit card accounts.
Substantive Protections. The Board notes that although Regulation Z provides protections to consumers who obtain open-end credit, certain protections only apply to transactions involving credit cards. At the same time, the Board notes that credit card accounts are accessed more and more often with account numbers or convenience checks and not the card. Thus, the Board requests comment on whether protections for open-end credit generally need to be revised and whether credit card protections need to be extended to transactions made without use of a credit card. Finally, the Board solicits comments on issues concerning creditor’s cut-off hours for receipt of payments.
Additional Issues. The Board invites the public to suggest ways to improve Regulation Z and specific implementation ideas. The Board specifically mentions in this context the formalizing of informal, oral advice given by the Board; the adjustment of de-minimus and other dollar amounts; definitions of terms used in Regulation Z; and exempt transactions.
Comment Deadline. Comments must be received on or before March 28, 2005. If you would like additional information or assistance in drafting comments, please do not hesitate to contact us.
Judith Scheiderer and Margaret Stolar