Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations 10193

the date the State or area was classified

Class Free; and (4) have a specified

surveillance system, as described above,

including an approved individual herd

plan in effect within 15 days of locating

the source herd or recipient herd.

After reviewing the brucellosis

program records for Tennessee, we have

concluded that this State meets the

standards for Class Free status.

Therefore, we are removing Tennessee

from the list of Class A States in

§ 78.41(b) and adding it to the list of

Class Free States in § 78.41(a). This

action relieves certain restrictions on

moving cattle interstate from Tennessee.

Immediate Action

The Administrator of the Animal and

Plant Health Inspection Service has

determined that there is good cause for

publishing this interim rule without

prior opportunity for public comment.

Immediate action is warranted to

remove unnecessary restrictions on the

interstate movement of cattle from

Tennessee.

Because prior notice and other public

procedures with respect to this action

are impracticable and contrary to the

public interest under these conditions,

we find good cause under 5 U.S.C. 553

to make it effective upon signature. We

will consider comments that are

received within 60 days of publication

of this rule in the Federal Register.

After the comment period closes, we

will publish another document in the

Federal Register. It will include a

discussion of any comments we receive

and any amendments we are making to

the rule as a result of the comments.

Executive Order 12866 and Regulatory

Flexibility Act

This rule has been reviewed under

Executive Order 12866. For this action,

the Office of Management and Budget

has waived its review process required

by Executive Order 12866.

Cattle moved interstate are moved for

slaughter, for use as breeding stock, or

for feeding. Changing the brucellosis

status of Tennessee from Class A to

Class Free will promote economic

growth by reducing certain testing and

other requirements governing the

interstate movement of cattle from this

State. Testing requirements for cattle

moved interstate for immediate

slaughter or to quarantined feedlots are

not affected by this change. Cattle from

certified brucellosis-free herds moving

interstate are not affected by this

change.

The groups affected by this action will

be herd owners in Tennessee, as well as

buyers and importers of cattle from this

State.

There are an estimated 66,000 cattle

herds in Tennessee that would be

affected by this rule. All of these are

owned by small entities. Test-eligible

cattle offered for sale interstate from

other than certified-free herds must

have a negative test under present Class

A status regulations, but not under

regulations concerning Class Free status.

If such testing were distributed equally

among all herds affected by this rule,

Class Free status would save

approximately $5 to $10 per head.

Therefore, we believe that changing

the brucellosis status of Tennessee will

not have a significant economic impact

on the small entities affected by this

interim rule.

Under these circumstances, the

Administrator of the Animal and Plant

Health Inspection Service has

determined that this action will not

have a significant economic impact on

a substantial number of small entities.

Executive Order 12372

This program/activity is listed in the

Catalog of Federal Domestic Assistance

under No. 10.025 and is subject to

Executive Order 12372, which requires

intergovernmental consultation with

State and local officials. (See 7 CFR part

3015, subpart V.)

Executive Order 12988

This rule has been reviewed under

Executive Order 12988, Civil Justice

Reform. This rule: (1) Preempts all State

and local laws and regulations that are

in conflict with this rule; (2) has no

retroactive effect; and (3) does not

require administrative proceedings

before parties may file suit in court

challenging this rule.

Paperwork Reduction Act

This document contains no

information collection or recordkeeping

requirements under the Paperwork

Reduction Act of 1995 (44 U.S.C. 3501

et seq.).

List of Subjects in 9 CFR Part 78

Animal diseases, Bison, Cattle, Hogs,

Quarantine, Reporting and

recordkeeping requirements,

Transportation.

Accordingly, 9 CFR part 78 is

amended as follows:

PART 78—BRUCELLOSIS

1. The authority citation for part 78

continues to read as follows:

Authority: 21 U.S.C. 111–114a-1, 114g,

115, 117, 120, 121, 123–126, 134b, and 134f;

7 CFR 2.22, 2.80, and 371.2(d).

§ 78.41 [Amended]

2. In § 78.41, paragraph (a) is

amended by adding ‘‘Tennessee,’’

immediately after ‘‘South Carolina,’.

3. In § 78.41, paragraph (b) is

amended by removing ‘‘Tennessee’’.

Done in Washington, DC, this 28th day of

February 1997.

Terry L. Medley,

Administrator, Animal and Plant Health

Inspection Service.

[FR Doc. 97–5519 Filed 3–5–97; 8:45 am]

BILLING CODE 3410–34–P

FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Regulation Z; Docket No. R–0942]

Truth in Lending

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule; official staff

interpretation.

SUMMARY: The Board is publishing

revisions to the official staff

commentary to Regulation Z (Truth in

Lending). The commentary applies and

interprets the requirements of

Regulation Z. The update provides

guidance on issues relating to the

treatment of certain fees paid in

connection with mortgage loans. It

addresses new tolerances for accuracy

in disclosing the amount of the finance

charge and other affected cost

disclosures. In addition, the update

discusses issues such as the treatment of

debt cancellation agreements and a

creditor’s duties if providing periodic

statements via electronic means.

DATES: This rule is effective February

28, 1997. Compliance is optional until

October 1, 1997.

FOR FURTHER INFORMATION CONTACT: Jane

E. Ahrens or James A. Michaels, Senior

Attorneys, or Sheilah A. Goodman or

Manley Williams, Staff Attorneys,

Division of Consumer and Community

Affairs, Board of Governors of the

Federal Reserve System, at (202) 452–

3667 or 452–2412; for users of

Telecommunications Device for the Deaf

(TDD) only, contact Dorothea Thompson

at (202) 452–3544.

SUPPLEMENTARY INFORMATION:

I. Background

The purpose of the Truth in Lending

Act (TILA; 15 U.S.C. 1601 et seq.) is to

promote the informed use of consumer

credit by requiring disclosures about its

terms and cost. The act requires

creditors to disclose the cost of credit as
10194 Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations

a dollar amount (the finance charge) and

as an annual percentage rate (the APR).

Uniformity in creditors’ disclosures is

intended to assist consumers in

comparison shopping. The TILA

requires additional disclosures for loans

secured by a consumer’s home and

permits consumers to rescind certain

transactions that involve their principal

dwelling. The act is implemented by the

Board’s Regulation Z (12 CFR Part 226).

The Board’s official staff commentary

(12 CFR Part 226 (Supp. I)) interprets

the regulation, and provides guidance to

creditors in applying the regulation to

specific transactions. The commentary

is updated periodically to address

significant questions that arise; it is a

substitute for individual staff

interpretations.

In November, the Board published

proposed amendments to the

commentary to Regulation Z (61 FR

60223, November 27, 1996). The Board

received about 30 comments. Most of

the comments were from financial

institutions, mortgage lenders,

insurance providers, and other creditors

(or their representatives); about a half

dozen were from consumer

representatives and lawyers. Overall,

commenters generally supported the

proposed amendments. Views were

mixed on a few comments, and some

commenters expressed concerns about

issues not addressed in the proposal.

Except as discussed below, the

commentary is being adopted as

proposed; some technical suggestions or

concerns raised by commenters are

addressed. Compliance is optional until

October 1, 1997, the effective date for

mandatory compliance.

The revisions mainly incorporate

guidance given in the supplementary

information that accompanied

September 1996 amendments to

Regulation Z implementing the Truth in

Lending Act Amendments of 1995 (Pub.

L. 104–29, 109 Stat. 271). The

rulemaking clarified the treatment of

fees typically associated with real

estate-related lending, and revised

tolerances for finance charge

calculations for loans secured by real

estate or dwellings (61 FR 49237,

September 19, 1996). It also addressed

the treatment of fees charged in

connection with debt cancellation

agreements.

II. Commentary Revisions

Supplement I—Official Staff

Interpretations

Subpart A—General

Section 226.4—Finance Charge

4(a) Definition

4(a)(1) Charges by Third Parties

Comment 4(a)(1)–1 illustrates the

general rule that amounts charged by a

third party are included in the finance

charge if the creditor requires the use of

a third party, even if the consumer may

choose the service provider.

Comment 4(a)(1)–2 addresses the

treatment of annuity premiums

associated with some reverse mortgages.

The proposal treated the cost of the

premiums as a finance charge when the

purchase of an annuity is effectively

required incident to the credit.

Commenters expressed concern about

uncertainties that could result from

such a test; the ‘‘effectively required’’

standard has been deleted for clarity.

4(a)(2) Special Rule; Closing Agent

Charges

Comment 4(a)(2)–1 is revised and a

new comment 4(a)(2)–2 is added to

address commenters requests for further

guidance about the treatment of charges

by third-party closing agents when the

creditor requires the use of a closing

agent. Comment 4(a)(2)–2 provides

examples of the types of fees charged by

a closing agent that may be excluded

from the finance charge, even though

the creditor requires the use of a closing

agent.

4(a)(3) Special Rule; Mortgage Broker

Fees

Two comments addressing the

treatment of mortgage broker fees were

proposed. These comments are adopted

with some modification for clarity, and

a third comment is added. Under the

1995 Amendments, mortgage broker fees

paid by the borrower are finance charges

unless otherwise excluded. Comment

4(a)(3)–1 clarifies that mortgage brokers

fees may be excluded from the finance

charge if the fee would be excluded

when charged by the creditor. To

illustrate the rule, the comment

discusses certain application fees as an

example of fees charged by mortgage

brokers that could be excluded from the

finance charge.

New comment 4(a)(3)–2 addresses the

scope of the special rule for mortgage

broker fees. Commenters requested that

the scope be clarified; some suggested

defining the term ‘‘mortgage broker.’’

Instead, the Board has clarified that the

special rule for mortgage broker fees

applies to consumer credit transactions

secured by real property or a dwelling.

The Board believes this interpretation

carries out the purposes of the 1995

Amendments, and simplifies

compliance by using existing definitions

in the regulation rather than adding a

new one.

Comment 4(a)(3)–3, redesignated from

the proposal and revised for clarity,

addresses the treatment of

compensation paid by the creditor to a

mortgage broker.

4(c) Charges Excluded From the Finance

Charge

Paragraph 4(c)(5)

Comment 4(c)(5)–2, adopted

substantially as proposed, addresses the

treatment of finance charges paid by a

noncreditor seller on a consumer’s

behalf before loan closing; it clarifies

that disclosures should reflect the

payment if the consumer is not legally

bound to the creditor for the amount

paid.

4(d) Insurance and Debt Cancellation

Coverage

4(d)(3) Voluntary Debt Cancellation

Fees

The comments are adopted as

proposed, with minor revisions for

clarity. Several commenters, including a

credit insurance provider, disagreed

with the Board’s interpretation of

section 226.4(d)(3), which in their view

is not consistent with the TILA. These

commenters objected to the proposed

comments on the same grounds.

Comment 4(d)(3)–2 clarifies that

although debt cancellation coverage and

credit insurance are treated similarly for

purposes of cost disclosures under the

TILA, state law governs whether a

creditor may represent that debt

cancellation coverage is insurance. A

provider of credit insurance commented

that creditors should be permitted to

disclose debt cancellation fees as

insurance premiums only if the

coverage is regulated by the state as

insurance. Regulation Z does not

provide a definition of insurance for

purposes of the TILA, and under

§ 226.2(b)(3) the term’s meaning is

determined by state law—which may or

may not take account of the extent to

which the particular product is

regulated by the state. Consequently, the

comments are adopted substantially as

proposed.

4(e) Certain Security Interest Charges

Section 226.4(e) excludes certain

security interest charges paid to public

officials from the finance charge if the

amounts are itemized and disclosed. A
Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations 10195

new § 226.4(e)(3) was added to

implement a provision in the 1995

Amendments which excludes from the

finance charge taxes levied on security

instruments or on documents

evidencing indebtedness that must be

paid to record the security instrument.

Comments 4(e)–1 (adopted substantially

as proposed) and –2 are revised to

reflect the recent amendment to

§ 226.4(e)(3).

Subpart B—Open-end Credit

Section 226.5—General Disclosure

Requirements

5(b) Time of Disclosures

5(b)(2) Periodic Statements

Paragraph 5(b)(2)(ii)

An addition to comment 5(b)(2)(ii)–3

is made to clarify that periodic

statements may be provided

electronically, for example, via home

banking systems. Commenters generally

supported the proposal and encouraged

the Board to provide further guidance

on how to adapt current rules to the way

electronic disclosures may be used. A

review is now underway that will seek

to adapt current rules under the Board’s

Truth in Lending and other consumer

protection regulations to the way

electronic disclosures may be provided

and retained, responding to

technological developments in the way

financial service transactions are

conducted via electronic means.

Subpart C—Closed-end Credit

Section 226.17—General Disclosure

Requirements

17(c) Basis of Disclosures and Use of

Estimates

Paragraph 17(c)(2)(ii)

Comment 17(c)(2)(ii)–1 addresses the

new rule applicable to the disclosure of

per-diem interest charges. Under the

rule, the disclosure of any numerical

amount affected by the per-diem interest

charge is considered accurate if it is

based on the information known to the

creditor at the time the disclosure is

prepared, whether or not the disclosure

of per-diem interest is accurate when it

is received by the consumer. The

comment clarifies that, in such cases,

the resulting finance charge is

considered accurate without regard to

the tolerance for errors under

§ 226.18(d)(1). In response to requests

for guidance, the comment clarifies that

disclosures may be considered accurate

under this rule without regard to

whether they were labeled as estimates.

Section 226.18—Content of Disclosures

18(c) Itemization of Amount Financed

Comment 18(c)–4 is adopted

substantially as proposed. Some

commenters expressed concern that this

comment imposed additional disclosure

requirements. This is not the case. The

comment is meant to streamline

disclosure requirements for transactions

that are also covered by Real Estate

Settlement Procedures Act (RESPA) by

allowing—not requiring—creditors to

substitute the good faith estimate or the

HUD–1 settlement statement for the

itemization of the amount financed.

Guidance is added regarding the format

requirements for these disclosures.

A proposed revision to comment

18(c)(1)(iv)–2 responded to a proposal

by the Department of Housing and

Urban Development (HUD) to change

the way that the amount collected at

closing for escrow items is reflected on

the HUD–1 for RESPA purposes (61 FR

46511, September 3, 1996). The Board is

withdrawing the proposed revision

given that HUD has not yet taken final

action on its proposal.

Section 226.22—Determination of the

Annual Percentage Rate

22(a) Accuracy of the Annual

Percentage Rate

Paragraphs 22(a)(4) and 22(a)(5)

Section 226.22(a)(4) and 22(a)(5)

provide APR tolerances for mortgage

loans when the finance charge has been

misstated but is considered accurate.

The comments provide specific

examples of these tolerances. Minor

revisions have been made for clarity.

Section 226.23—Right of Rescission

23(h) Special rules for foreclosures

Paragraph 23(h)(1)(i)

Section 226.23(h), which implements

section 125(i) of the TILA, contains

special rescission rules that apply after

a foreclosure action has been initiated.

Section 226.23(h)(1) allows a consumer

to rescind a loan in foreclosure if a

mortgage broker fee that should have

been included in the finance charge

under the laws in effect at

consummation was not included.

Section 226.23(h)(2) contains a separate

finance charge tolerance of $35 for loans

in foreclosure; such loans may be

rescinded if the finance charge was

understated by more than $35.

Comment 23(h)(1)(i)–1 is intended to

clarify the relationship between these

two provisions.

As proposed, the comment

interpreted § 226.23(h)(1) to allow

rescission if a mortgage broker fee was

omitted from the finance charge entirely

or if it was understated, without regard

to the dollar amount involved. Under

that interpretation, any finance charge

understatement traceable to a

misstatement of a mortgage broker fee

would allow rescission of a loan in

foreclosure; the $35 finance charge

tolerance in § 226.23(h)(2) would not

apply. Several commenters objected to

this interpretation and expressed the

view that the $35 finance charge

tolerance should also apply to the

rescission rights granted under

§ 226.23(h)(1)(i). They believed that the

$35 tolerance in § 226.23(h)(2) provides

the applicable rule for determining

whether a mortgage broker fee has been

included ‘‘in accordance with the laws

and regulations in effect’’ at the time the

loan was consummated. They noted that

otherwise, creditors would be liable for

inadvertent and technical errors—for

example, if a mortgage broker fee was

rounded down from fractional to whole

dollar amounts. The commenters argued

that this would be inconsistent with the

purpose of the 1995 Amendments as a

whole, which was to reduce lender

liability for small technical errors.

Upon further analysis and after

consideration of the comments received,

a narrower interpretation of

§ 226.23(h)(1)(i) has been adopted. The

Board believes that this narrower

interpretation is consistent with the

intent of section 125(i) of the TILA. The

$35 tolerance in § 226.23(h)(2) reduces

creditors’ potential liability by replacing

the $10 tolerance that applied before the

1995 Amendments became effective.

Accordingly, comment 23(h)(1)(i)–1

clarifies that for loans in foreclosure, a

right of rescission exists under

§ 226.23(h)(1)(i) only if the entire

mortgage broker fee has been omitted

from the finance charge. If the amount

of a mortgage broker fee is misstated, the

consumer’s right to rescind is based on

the rule in § 226.23(h)(2). A new

comment 23(h)(2)-1 has been added to

clarify that the $35 tolerance is based on

the total finance charge and not its

component charges.

Subpart E—Special Rules for Certain

Home Mortgage Transactions

Section 226.31—General Rules

31(d) Basis of Disclosures and Use of

Estimates

31(d)(3) Per-diem Interest

Several commenters noted that a

comment to paragraph 31(d)(3) like the

comment to 17(c)(2)(ii) would be useful;

a conforming comment has been added.
10196 Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations

Section 33—Requirements for Reverse

Mortgages

33(a) Definition

Paragraph 33(a)(2)

Comment 33(a)(2)–2, which addresses

reverse mortgages, is adopted

substantively as proposed.

List of Subjects in 12 CFR Part 226

Advertising, Banks, banking,

Consumer protection, Credit, Federal

Reserve System, Mortgages, Reporting

and recordkeeping requirements, Truth

in lending.

For the reasons set forth in the

preamble, the Board amends 12 CFR

Part 226 as follows:

PART 226—TRUTH IN LENDING

(REGULATION Z)

1. The authority citation for part 226

continues to read as follows:

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604

and 1637(c)(5).

2. In Supplement I to Part 226, under

Introduction, the last sentence in

paragraph 5. is revised to read as

follows:

Supplement I—Official Staff

Interpretations

Introduction

* * * * *

5. Comment designations. * * *

Comments to the appendices may be cited,

for example, as Comment app. A–1.

* * * * *

3. Supplement I to Part 226, under

§ 226.2—Definitions and Rules of

Construction, paragraph 2(a)(25) is

amended by removing the last two

sentences of the second paragraph of

paragraph 6.

4. In Supplement I to Part 226, under

§ 226.4—Finance Charge, the following

amendments are made:

a. Under 4(a) Definition., paragraphs

3. and 4. are removed and paragraphs 5.

through 7. are redesignated as

paragraphs 3. through 5., respectively,

and new paragraphs 4(a)(1), 4 (a)(2), and

4(a)(3) are added after the end of the text

of 4(a);

b. Under 4(b) Examples of finance

charges., a new paragraph 4(b)(10) is

added;

c. Under 4(c) Charges excluded from

the finance charge., under paragraph

4(c)(5)., paragraph 2. is revised;

d. Under 4(d), the heading is revised,

and a new paragraph 4(d)(3) is added;

and

e. Under 4(e) Certain security interest

charges., paragraphs 1.i. and 2. are

revised.

The additions and revisions read as

follows:

* * * * *

Subpart A—General

* * * * *

§ 226.4—Finance Charge

4(a) Definition.

* * * * *

4(a)(1) Charges by third parties.

1. Choosing the provider of a required

service. An example of a third-party charge

included in the finance charge is the cost of

required mortgage insurance, even if the

consumer is allowed to choose the insurer.

2. Annuities associated with reverse

mortgages. Some creditors offer annuities in

connection with a reverse mortgage

transaction. The amount of the premium is a

finance charge if the creditor requires the

purchase of the annuity incident to the

credit. Examples include the following:

i. The credit documents reflect the

purchase of an annuity from a specific

provider or providers.

ii. The creditor assesses an additional

charge on consumers who do not purchase an

annuity from a specific provider.

iii. The annuity is intended to replace in

whole or in part the creditor’s payments to

the consumer either immediately or at some

future date.

4(a)(2) Special rule; closing agent charges.

1. General. This rule applies to charges by

a third party serving as the closing agent for

the particular loan. An example of a closing

agent charge included in the finance charge

is a courier fee where the creditor requires

the use of a courier.

2. Required closing agent. If the creditor

requires the use of a closing agent, fees

charged by the closing agent are included in

the finance charge only if the creditor

requires the particular service, requires the

imposition of the charge, or retains a portion

of the charge. Fees charged by a third-party

closing agent may be otherwise excluded

from the finance charge under § 226.4. For

example, a fee that would be paid in a

comparable cash transaction may be

excluded under § 226.4(a); a lump-sum fee

for real-estate closing costs may be excluded

under § 226.4(c)(7).

4(a)(3) Special rule; mortgage broker fees.

1. General. A fee charged by a mortgage

broker is excluded from the finance charge if

it is the type of fee that is also excluded

when charged by the creditor. For example,

to exclude an application fee from the

finance charge under § 226.4(c)(1), a

mortgage broker must charge the fee to all

applicants for credit, whether or not credit is

extended.

2. Coverage. This rule applies to

charges paid by consumers to a

mortgage broker in connection with a

consumer credit transaction secured by

real property or a dwelling.

3. Compensation by lender. The rule

requires all mortgage broker fees to be

included in the finance charge. Creditors

sometimes compensate mortgage brokers

under a separate arrangement with those

parties. Creditors may draw on amounts paid

by the consumer, such as points or closing

costs, to fund their payment to the broker.

Compensation paid by a creditor to a

mortgage broker under an agreement is not

included as a separate component of a

consumer’s total finance charge (although

this compensation may be reflected in the

finance charge if it comes from amounts paid

by the consumer to the creditor that are

finance charges, such as points and interest).

4(b) Examples of finance charges.

* * * * *

4(b)(10) Debt cancellation fees.

1. Definition. Debt cancellation coverage

provides for payment or satisfaction of all or

part of a debt when a specified event occurs.

The term includes guaranteed automobile

protection or ‘‘GAP’’ agreements, which pay

or satisfy the remaining debt after property

insurance benefits are exhausted.

4(c) Charges excluded from the finance

charge.

* * * * *

Paragraph 4(c)(5).

* * * * *

2. Other seller-paid amounts. Mortgage

insurance premiums and other finance

charges are sometimes paid at or before

consummation or settlement on the

borrower’s behalf by a noncreditor seller. The

creditor should treat the payment made by

the seller as seller’s points and exclude it

from the finance charge if, based on the

seller’s payment, the consumer is not legally

bound to the creditor for the charge. A

creditor who gives disclosures before the

payment has been made should base them on

the best information reasonably available.

* * * * *

4(d) Insurance and debt cancellation

coverage.

* * * * *

4(d)(3) Voluntary debt cancellation fees.

1. General. Fees charged for the specialized

form of debt cancellation agreement known

as guaranteed automobile protection (‘‘GAP’’)

agreements must be disclosed according to

§ 226.4(d)(3) rather than according to

§ 226.4(d)(2) for property insurance.

2. Disclosures. Creditors can comply with

§ 226.4(d)(3) by providing a disclosure that

refers to debt cancellation coverage whether

or not the coverage is considered insurance.

Creditors may use the model credit insurance

disclosures only if the debt cancellation

coverage constitutes insurance under state

law.

4(e) Certain security interest charges.

1. Examples.

i. Excludable charges. Sums must be

actually paid to public officials to be

excluded from the finance charge under

§ 226.4(e) (1) and (3). Examples are charges

or other fees required for filing or recording

security agreements, mortgages, continuation

statements, termination statements, and

similar documents, as well as intangible

property or other taxes even when the

charges or fees are imposed by the state

solely on the creditor and charged to the

consumer (if the tax must be paid to record

a security interest). (See comment 4(a)–5

regarding the treatment of taxes, generally.)

* * * * *
Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations 10197

2. Itemization. The various charges

described in § 226.4(e) (1) and (3) may be

totaled and disclosed as an aggregate sum, or

they may be itemized by the specific fees and

taxes imposed. If an aggregate sum is

disclosed, a general term such as security

interest fees or filing fees may be used.

* * * * *

5. In Supplement I to Part 226, under

§ 226.5—General Disclosure

Requirements, under Paragraph

5(b)(2)(ii)., paragraph 3. is revised to

read as follows:

* * * * *

Subpart B—Open-End Credit

§ 226.5—General Disclosure Requirements

* * * * *

5(b) Time of disclosures.

* * * * *

5(b)(2) Periodic statements.

* * * * *

Paragraph 5(b)(2)(ii).

* * * * *

3. Calling for periodic statements. The

creditor may permit consumers to call for

their periodic statements, but may not

require them to do so. If the consumer wishes

to pick up the statement and the plan has a

free-ride period, the statement (including a

statement provided by electronic means)

must be made available in accordance with

the 14-day rule.

* * * * *

6. In Supplement I to Part 226, under

§ 226.17—General Disclosure

Requirements, the following

amendments are made:

a. Under 17(c) Basis of disclosures

and use of estimates., text is added

under paragraph 17(c)(2)(ii); and

b. Under 17(f) Early disclosures.,

paragraphs 1. introductory text, 1.i., the

last sentence of 1.ii. and 1.iii. are

revised and a heading is added to

paragraph 1.ii; and a new paragraph

17(f)(2) is added preceding 17(g).

The additions and revisions read as

follows:

* * * * *

Subpart C—Closed-End Credit

§ 226.17—General Disclosure Requirements

* * * * *

17(c) Basis of disclosures and use of

estimates.

* * * * *

Paragraph 17(c)(2)(ii).

1. Per-diem interest. This paragraph

applies to any numerical amount (such as the

finance charge, annual percentage rate, or

payment amount) that is affected by the

amount of the per-diem interest charge that

will be collected at consummation. If the

amount of per-diem interest used in

preparing the disclosures for consummation

is based on the information known to the

creditor at the time the disclosure document

is prepared, the disclosures are considered

accurate under this rule, and affected

disclosures are also considered accurate,

even if the disclosures are not labeled as

estimates. For example, if the amount of perdiem interest used to prepare disclosures is

less than the amount of per-diem interest

charged at consummation, and as a result the

finance charge is understated by $200, the

disclosed finance charge is considered

accurate even though the understatement is

not within the $100 tolerance of

§ 226.18(d)(1), and the finance charge was

not labeled as an estimate. In this example,

if in addition to the understatement related

to the per-diem interest, a $90 fee is

incorrectly omitted from the finance charge,

causing it to be understated by a total of

$290, the finance charge is considered

accurate because the $90 fee is within the

tolerance in § 226.18(d)(1).

* * * * *

17(f) Early disclosures.

1. Change in rate or other terms.

Redisclosure is required for changes that

occur between the time disclosures are made

and consummation if the annual percentage

rate in the consummated transaction exceeds

the limits prescribed in this section, even if

the initial disclosures would be considered

accurate under the tolerances in §§ 226.18(d)

or 226.22(a). To illustrate:

i. General. A. If disclosures are made in a

regular transaction on July 1, the transaction

is consummated on July 15, and the actual

annual percentage rate varies by more than

1⁄8 of 1 percentage point from the disclosed

annual percentage rate, the creditor must

either redisclose the changed terms or

furnish a complete set of new disclosures

before consummation. Redisclosure is

required even if the disclosures made on July

1 are based on estimates and marked as such.

B. In a regular transaction, if early

disclosures are marked as estimates and the

disclosed annual percentage rate is within 1⁄8

of 1 percentage point of the rate at

consummation, the creditor need not

redisclose the changed terms (including the

annual percentage rate).

ii. Nonmortgage loan. * * * (See

§ 226.18(d)(2) of this part.)

iii. Mortgage loan. At the time TILA

disclosures are prepared in July, the loan

closing is scheduled for July 31 and the

creditor does not plan to collect per-diem

interest at consummation. Consummation

actually occurs on August 5, and per-diem

interest for the remainder of August is

collected as a prepaid finance charge.

Assuming there were no other changes

requiring redisclosure, the creditor may rely

on the disclosures prepared in July that were

accurate when they were prepared. However,

if the creditor prepares new disclosures in

August that will be provided at

consummation, the new disclosures must

take into account the amount of the per-diem

interest known to the creditor at that time.

* * * * *

Paragraph 17(f)(2).

1. Irregular transactions. For purposes of

this paragraph, a transaction is deemed to be

‘‘irregular’’ according to the definition in

footnote 46 of § 226.22(a)(3).

* * * * *

7. In Supplement I to Part 226, under

§ 226.18—Content of Disclosures, the

following amendments are made:

a. Under 18(c) Itemization of amount

financed., paragraph 4. is revised;

b. Under 18(d) Finance charge., a new

paragraph 18(d)(2) is added; and

c. 18(n) is amended by revising the

heading and adding a new paragraph 2.

The additions and revisions read as

follows:

* * * * *

§ 226.18—Content of Disclosures

* * * * *

18(c) Itemization of amount financed.

* * * * *

4. RESPA transactions. The Real Estate

Settlement Procedures Act (RESPA) requires

creditors to provide a good faith estimate of

closing costs and a settlement statement

listing the amounts paid by the consumer.

Transactions subject to RESPA are exempt

from the requirements of § 226.18(c) if the

creditor complies with RESPA’s

requirements for a good faith estimate and

settlement statement. The itemization of the

amount financed need not be given, even

though the content and timing of the good

faith estimate and settlement statement under

RESPA differ from the requirements of

§§ 226.18(c) and 226.19(a)(2). If a creditor

chooses to substitute RESPA’s settlement

statement for the itemization when

redisclosure is required under § 226.19(a)(2),

the statement must be delivered to the

consumer at or prior to consummation. The

disclosures required by §§ 226.18(c) and

226.19(a)(2) may appear on the same page or

on the same document as the good faith

estimate or the settlement statement, so long

as the requirements of § 226.17(a) are met.

* * * * *

18(d) Finance charge.

* * * * *

18(d)(2) Other credit.

1. Tolerance. When a finance charge error

results in a misstatement of the amount

financed, or some other dollar amount for

which the regulation provides no specific

tolerance, the misstated disclosure does not

violate the act or the regulation if the finance

charge error is within the permissible

tolerance under this paragraph.

* * * * *

18(n) Insurance and debt cancellation.

* * * * *

2. Debt cancellation. Creditors may use the

model credit insurance disclosures only if

the debt cancellation coverage constitutes

insurance under state law. Otherwise, they

may provide a parallel disclosure that refers

to debt cancellation coverage.

* * * * *

8. In Supplement I to Part 226, under

§ 226.19—Certain Residential Mortgage

and Variable-Rate Transactions, under

19(a)(2) Redisclosure required., the first

sentence of paragraph 1. is revised to

read as follows:

* * * * *
10198 Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations

§ 226.19—Certain Residential Mortgage and

Variable-Rate Transactions

* * * * *

Paragraph 19(a)(2) Redisclosure required.

1. Conditions for redisclosure. Creditors

must make new disclosures if the annual

percentage rate at consummation differs from

the estimate originally disclosed by more

than 1⁄8 of 1 percentage point in regular

transactions or 1⁄4 of 1 percentage point in

irregular transactions, as defined in footnote

46 of § 226.22(a)(3). * * *

* * * * *

9. In Supplement I to Part 226,

§ 226.22—Determination of the Annual

Percentage Rate, is amended by adding

new paragraphs 22(a)(4) and 22(a)(5) to

read as follows:

* * * * *

§ 226.22—Determination of the Annual

Percentage Rate

22(a) Accuracy of the annual percentage

rate.

* * * * *

22(a)(4) Mortgage loans.

1. Example. If a creditor improperly omits

a $75 fee from the finance charge on a regular

transaction, the understated finance charge is

considered accurate under § 226.18(d)(1), and

the annual percentage rate corresponding to

that understated finance charge also is

considered accurate even if it falls outside

the tolerance of 1⁄8 of 1 percentage point

provided under § 226.22(a)(2). Because a $75

error was made, an annual percentage rate

corresponding to a $100 understatement of

the finance charge would not be considered

accurate.

22(a)(5) Additional tolerance for mortgage

loans.

1. Example. This paragraph contains an

additional tolerance for a disclosed annual

percentage rate that is incorrect but is closer

to the actual annual percentage rate than the

rate that would be considered accurate under

the tolerance in § 226.22(a)(4). To illustrate:

in an irregular transaction subject to a 1⁄4 of

1 percentage point tolerance, if the actual

annual percentage rate is 9.00 percent and a

$75 omission from the finance charge

corresponds to a rate of 8.50 percent that is

considered accurate under § 226.22(a)(4), a

disclosed APR of 8.65 percent is within the

tolerance in § 226.22(a)(5). In this example of

an understated finance charge, a disclosed

annual percentage rate below 8.50 or above

9.25 percent will not be considered accurate.

* * * * *

10. In Supplement I to Part 226,

§ 226.23—Right of Rescission is

amended by adding new 23(g) and 23(h)

preceding the References to read as

follows:

* * * * *

§ 226.23—Right of Rescission

* * * * *

23(g) Tolerances for accuracy.

23(g)(2) One percent tolerance.

1. New advance. The phrase ‘‘new

advance’’ has the same meaning as in

comment 23(f)–4.

23(h) Special Rules for Foreclosures.

1. Rescission. Section 226.23(h) applies

only to transactions that are subject to

rescission under § 226.23(a)(1).

Paragraph 23(h)(1)(i).

1. Mortgage broker fees. A consumer may

rescind a loan in foreclosure if a mortgage

broker fee that should have been included in

the finance charge was omitted, without

regard to the dollar amount involved. If the

amount of the mortgage broker fee is

included but misstated the rule in

§ 226.23(h)(2) applies.

23(h)(2) Tolerance for disclosures.

1. General. This section is based on the

accuracy of the total finance charge rather

than its component charges.

* * * * *

11. In Supplement I to Part 226, under

§ 226.31—General Rules, the following

amendments are made:

a. Under Paragraph 31(c)(1) paragraph

1. is redesignated as paragraph 1. under

Paragraph 31(c)., and paragraph 2.,

under Paragraph 31 (c)(1) is

redesignated as paragraph 1; and

b. Under 31(d), a new paragraph

31(d)(3), is added.

The revisions and additions read as

follows:

* * * * *

Subpart E—Special Rules for Certain Home

Mortgage Transactions

§ 226.31—General Rules

* * * * *

31(d) Basis of disclosures and use of

estimates.

* * * * *

31(d)(3) Per-diem interest.

1. Per-diem interest. This paragraph

applies to the disclosure of any numerical

amount (such as the finance charge, annual

percentage rate, or payment amount) that is

affected by the amount of the per-diem

interest charge that will be collected at

consummation. If the amount of per-diem

interest used in preparing the disclosures for

consummation is based on the information

known to the creditor at the time the

disclosure document is prepared, the

disclosures are considered accurate under

this rule, and affected disclosures are also

considered accurate, even if the disclosures

were not labeled as estimates. (See comment

17(c)(2)(ii)–1 generally.)

* * * * *

12. In Supplement I to Part 226, under

§ 226.32—Requirements for Certain

Closed-End Home Mortgages, the

following amendments are made:

a. Under Paragraph 32(b)(1)(i).,

paragraph 1. is revised; and

b. Under Paragraph 32(c)(3)., a new

paragraph 2. is added.

The revisions and additions read as

follows:

* * * * *

§ 226.32—Requirements for Certain ClosedEnd Home Mortgages

* * * * *

32(b) Definitions.

Paragraph 32(b)(1)(i).

1. General. Section 226.32(b)(1)(i) includes

in the total ‘‘points and fees’’ items defined

as finance charges under §§ 226.4(a) and

226.(4)(b). Items excluded from the finance

charge under other provisions of § 226.4 are

not included in the total ‘‘points and fees’’

under paragraph 32(b)(1)(i), but may be

included in ‘‘points and fees’’ under

paragraphs 32(b)(1)(ii) and 32(b)(1)(iii).

Interest, including per-diem interest, is

excluded from ‘‘points and fees’’ under

§ 226.32(b)(1).

* * * * *

32(c) Disclosures.

* * * * *

Paragraph 32(c)(3) Regular payment.

* * * * *

2. Balloon payments. If a loan with a term

of five years or more provides for a balloon

payment, the balloon payment must be

disclosed. For a loan with a term of less than

five years, a balloon payment is prohibited.

* * * * *

13. In Supplement I to Part 226, under

§ 226.33—Requirements for Reverse

Mortgages, under Paragraph 33(a)(2), in

paragraph 2., the third and fourth

sentences are revised and a new

sentence is added at the end of the

paragraph to read as follows:

* * * * *

§ 226.33—Requirements for Reverse

Mortgages

33(a) Definition.

* * * * *

Paragraph 33(a)(2).

* * * * *

2. Definite term or maturity date. * * * An

obligation may state a definite maturity date

or term of repayment and still meet the

definition of a reverse-mortgage transaction if

the maturity date or term of repayment used

would not operate to cause maturity prior to

the occurrence of any of the maturity events

recognized in the regulation. For example,

some reverse mortgage programs specify that

the final maturity date is the borrower’s

150th birthday; other programs include a

shorter term but provide that the term is

automatically extended for consecutive

periods if none of the other maturity events

has yet occurred. These programs would be

permissible.

* * * * *

14. In Supplement I to Part 226, under

Appendices G and H—Open-End and

Closed-End Model Forms and Clauses, a

new paragraph 2. is added to read as

follows:

* * * * *

Appendices G and H—Open-End and ClosedEnd Model Forms and Clauses

* * * * *

2. Debt cancellation coverage. This

regulation does not authorize creditors to

characterize debt cancellation fees as

insurance premiums for purposes of this

regulation. Creditors may provide a

disclosure that refers to debt cancellation
Federal Register / Vol. 62, No. 44 / Thursday, March 6, 1997 / Rules and Regulations 10199

coverage whether or not the coverage is

considered insurance. Creditors may use the

model credit insurance disclosures only if

the debt cancellation coverage constitutes

insurance under state law.

* * * * *

15. In Supplement I to Part 226, under

Appendix H—Closed-End Model Forms

and Clauses, a new sentence is added to

the end of paragraph 11. to read as

follows:

* * * * *

Appendix H—Closed-End Model Forms and

Clauses

* * * * *

11. Models H–8 and H–9. * * * The prior

version of model form H–9 is substantially

similar to the current version and creditors

may continue to use it, as appropriate.

Creditors are encouraged, however, to use the

current version when reordering or reprinting

forms.

* * * * *

By order of the Board of Governors of the

Federal Reserve System, acting through the

Secretary of the Board under delegated

authority, February 28, 1997.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 97–5447 Filed 3–5–97; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL DEPOSIT INSURANCE

CORPORATION

12 CFR Part 350

RIN 3064–AB98

Disclosure of Financial and Other

Information by FDIC-Insured State

Nonmember Banks

AGENCY: Federal Deposit Insurance

Corporation (FDIC or Corporation).

ACTION: Final rule.

SUMMARY: As part of the FDIC’s

systematic review of its regulations and

written policies under section 303(a) of

the Riegle Community Development and

Regulatory Improvement Act of 1994

(CDRI), the FDIC is revising its

regulation entitled ‘‘Disclosure of

Financial and Other Information by

FDIC-Insured State Nonmember Banks’’

(the Rule). The revision removes

references to the obsolete savings bank

Call Report. It also permits the annual

report required by the Corporation’s

regulation on annual independent

audits and reporting requirements to be

used as the annual disclosure statement

in certain circumstances, and updates

and clarifies certain other references in

the Rule.

EFFECTIVE DATE: April 7, 1997.

FOR FURTHER INFORMATION CONTACT:

Doris L. Marsh, Examination Specialist,

Division of Supervision, (202) 898–

8905; or Sandra Comenetz, Counsel,

Legal Division, (202) 898–3582, FDIC,

550 17th Street N.W., Washington, DC

20429.

SUPPLEMENTARY INFORMATION:

Background

The FDIC is conducting a systematic

review of its regulations and written

policies. Section 303(a) of the CDRI (12

U.S.C. 4803(a)) requires each federal

banking agency to streamline and

modify its regulations and written

policies in order to improve efficiency,

reduce unnecessary costs, and eliminate

unwarranted constraints on credit

availability. Section 303(a) also requires

each federal agency to remove

inconsistencies and outmoded and

duplicative requirements from its

regulations and written policies. Part

350 contains outdated and unnecessary

language that needs to be revised or

removed.

Part 350 was adopted by the FDIC

Board of Directors on December 17,

1987, and published on December 31,

1987, 52 FR 49379, effective February 1,

1988. The Rule requires FDICsupervised banks and branches of

foreign banks to prepare, and make

available on request, annual disclosure

statements consisting of: (1) Required

financial data comparable to specified

schedules in Call Reports filed for the

previous two year-ends; (2) information

that the FDIC may require of particular

organizations; and (3) other optional

information. The annual disclosure

statement must be prepared by March

31 of the following year, or the fifth day

after an organization’s annual report

covering the year is sent to

shareholders, whichever occurs first. In

place of Call Report data, a bank may

use audited financial statements or

reports prepared pursuant to other

regulations by the bank or a parent onebank holding company.

Discussion

The contents of the annual disclosure

statement listed in § 350.4(a)(1)(iv) and

(v) refer in part to schedules in the Call

Report for FDIC-supervised savings

banks. The FDIC eliminated the separate

savings bank Call Report in 1989.

Therefore, these outdated references are

being deleted.

The FDIC has proposed amending 12

CFR part 335 by incorporating by

reference the rules and regulations

promulgated by the Securities and

Exchange Commission under the

Securities Exchange Act of 1934 rather

than having its own detailed rules and

regulations. (61 FR 33696) Therefore,

§ 350.5(a) is revised to refer simply to

part 335 rather than to specific

subsections of this regulation.

The Federal Deposit Insurance

Corporation Improvement Act of 1991

added section 36 to the Federal Deposit

Insurance Act. Section 36 and its

implementing regulation, 12 CFR part

363, require all insured depository

institutions with $500 million or more

in total assets at the beginning of their

fiscal year to have an annual audit of

their financial statements performed by

an independent public accountant. The

audited financial statements are part of

an annual report that institutions

subject to section 36 must prepare and

submit to the FDIC. A new paragraph (d)

is added to § 350.5 permitting the use of

these annual reports as annual

disclosure statements in certain

situations.

In addition, several other wording

changes have been made to improve the

clarity of the regulations.

Public Comment Waiver and Effective

Date

This regulation is being issued as a

final rule. The Administrative

Procedure Act, 5 U.S.C. 551 et seq.

(APA) requires that general notice of a

proposed rulemaking be published in

the Federal Register. 5 U.S.C. 553(b).

However, the revision of part 350 is

exempt from the Federal Register

publication requirement pursuant to

subsection 553(b)(B). This section of the

APA creates a publication exemption

‘‘when the agency for good cause finds

* * * that notice and public procedure

thereon are impracticable, unnecessary,

or contrary to the public interest.’’ 5

U.S.C. 553(b)(B). The revisions to part

350 are minor and technical; therefore

the notice and public comment

requirements of section 553(b) are

unnecessary. Id. In addition, the APA

provides that the required publication of

a substantive rule in the Federal

Register shall be made not less than 30

days before its effective date. 5 U.S.C.

553(d). Part 350 would be exempt from

this requirement also for good cause.

The amendments are of such a nature

that the public does not need a delayed

period of time to conform or adjust to

them. 5 U.S.C. 553(d)(3).

Paperwork Reduction Act

No collection of information pursuant

to section 3504(h) of the Paperwork

Reduction Act (44 U.S.C. 3501 et seq.)

is required by the amendments.

Therefore, no information has been

submitted to the Office of Management

and Budget for review.