PROPOSED UNIFORM “CLEAR AND CONSPICUOUS” DISCLOSURE STANDARD WITHDRAWN
The Federal Reserve Board (FRB) originally published proposed rules to establish more uniform standards for providing disclosure under Regulation B, Regulation E, Regulation M, Regulation Z and Regulation DD in December 2003. When the FRB issued final revisions to Regulation Z and the official staff commentary on March 26, 2004, the FRB did not include any new or revised “clear and conspicuous” standard for providing disclosures under Regulation Z and revisions to other regulations were not addressed. The FRB has now officially withdrawn its proposal to establish more uniform standards, but does plan to issue other proposed rules in 2004, 2005 and 2006.
Under the consumer financial services and fair lending laws administered by the FRB, consumers must be provided with disclosures that they will notice and understand. Disclosures must be “clear and conspicuous” under Regulations B (Equal Credit Opportunity), M (Consumer Leasing), P (Privacy of Consumer Financing Information), Z (Truth in Lending) and DD (Truth in Savings), and “clear and readily understandable” under Regulation E (Electronic Fund Transfers). The “clear and conspicuous” standard is currently defined using similar but not identical language in the various regulations.
The FRB determined in proposed rules published on December 10, 2003 that the standard in Regulation P (i.e., that a disclosure is “reasonably understandable and designed to call attention to the nature and significance of the information” in the disclosure) is “articulate[d] with greater precision” than the standards set forth in the other regulations. In the proposed rules, the FRB proposed adding the Regulation P definition of “clear and conspicuous” to the other regulations to provide consistent guidance among the regulations including examples of how to meet the standard (e.g., type size greater than 8-point type).
In its March 26, 2004 final revisions to Regulation Z, the FRB noted that most of the comment letters received by the FRB were from creditors strongly opposed to the FRB’s proposal. Thus, the FRB explicitly did not adopt the proposed revisions to the Regulation Z standard.
The FRB has now determined that the goal of ensuring that customers receive noticeable and understandable information in connection with obtaining consumer financial products and services should be achieved by focusing on improving the effectiveness of individual disclosures. Thus, the FRB announced that it expects to issue proposed rules in 2004 focused on disclosures for open-end credit under Regulation Z, in 2005 focused on Regulation DD and in 2006 focused on Regulation E. In addition, the FRB stated that it believes that the withdrawn proposals still “reflect principles that institutions may find useful in developing disclosures that are clear and conspicuous” and will help inform the FRB’s review of individual disclosures in connection with its periodic review of its regulations. Thus, while the uniform standards proposal may be withdrawn, the principles behind the standards should not be ignored and may yet arise in future rulemaking.
The withdrawal is effective June 22, 2004.
Mike Tomkies and Deborah Freye