March 28, 2006

Laura N. Pringle, Esquire

Pringle & Pringle

4101 North Classen Boulevard, Suite A

Oklahoma City, OK 73118-2432

Re: Skip-A-Payment Disclosures.

Dear Ms. Pringle:

You requested guidance regarding the disclosure requirements under the
Truth in Lending Act (TILA) and Regulation Z for a credit union that
offers its eligible members the option to skip a payment on their loans.
15 U.S.C. §1601 *et seq.*; 12 C.F.R. part 226. The Board of Governors
for the Federal Reserve System (the Federal Reserve) promulgates the
rules that implement TILA. As the enforcement authority under Regulation
Z for federal credit unions, and after consultation with the Federal
Reserve, we provide the following guidance.

A credit union you represent intends to offer a "Skip-A-Payment" option
on loans to its members. The option will be available to some members
based on their credit and payment history and other criteria, and will
cost a fee for eligible members who use it.[^1] Additionally, the credit
union plans to market the option to eligible members and allow them to
accept the offer in person or online.

The disclosure rules for open-end credit differ from the disclosure
rules for closed-end credit. Subpart B of Regulation Z contains the
disclosure rules for open-end credit. 12 C.F.R. §§226.5-226.16. Subpart
C contains the disclosure rules for closed-end credit. 12 C.F.R.
§§226.17-226.24.

A credit union's addition of an option to defer or skip a payment to an
open-end loan after giving the initial disclosures may trigger
additional disclosure requirements. No additional disclosures are
necessary if the credit union adds the feature within 30 days after
providing the initial disclosures, and the finance charge is the same.
12 C.F.R. §226.9(b)(1). The member must receive additional disclosures
before using the option for the first time if the credit union adds the
option after the 30 days, and it is not part of a renewal, resupply, or
the original extension of credit. *Id.* The credit union may combine
these disclosures

with the skip payment offer. *See* 12 C.F.R. Part 226, Supp. I,
§226.9(c)(2). A fee charged for a member's use of the option is
generally not a finance charge, but, if the finance charge terms are
different from the initial disclosures, a credit union must give
disclosures regarding the finance charges applicable to the option. 12
C.F.R. §§226.4(c)(4), 226.9(b).

Skip payment offers for closed-end credit after the initial extension of
credit do not require additional disclosures. Regulation Z only requires
subsequent disclosures if: (1) initial disclosures are rendered
inaccurate before the consummation of the loan; (2) the loan involves
certain residential mortgages and variable rate transactions; or (3) a
member refinances, assumes, or incurs a variable rate adjustment to
closed-end credit. 12 C.F.R. §§ 226.17, 226.19, 226.20. While the
disclosure rules for closed-end credit do not specifically address
supplemental features or changes in its terms, the official staff
interpretations to Regulation Z state that deferral of individual
installments will not constitute a refinancing, for which subsequent
disclosures are required, unless it is accomplished by the cancellation
of the original obligation and the substitution of a new one. 12 C.F.R.
Part 226, Supp. I, §226.20(a)(1). Additionally, an appellate court has
held that "\[n\]o specific duty arises \[with closed-end credit\] to
make post-consummation disclosures under the statute or regulations, and
each payment deferral cannot be construed as a new credit transaction,
triggering TILA's disclosure requirements." *Begala v. PNC Bank*, 163
F.3d 948, 951 (6th Cir. 1998).

We hope you find this guidance helpful. If you have additional questions
on this matter, please feel free to contact Staff Attorney Tonya Green
or me.

Sincerely,

/S/

Sheila A. Albin

Associate General Counsel

OGC/MIG:bhs

05-0903

[^1]: We understand the credit union is currently developing the
    criteria to determine a member's eligibility to use the option and
    caution you that the credit union must comply with fair lending
    requirements in the Equal Credit Opportunity Act and other
    applicable laws. 15 U.S.C. §1691 *et seq*.