ICBA - Publications - Fed Revises Reg Z Commentary

Fed Revises Reg Z Commentary

APRIL 4, 2003


Fed Revises Reg Z Commentary

The Federal Reserve has updated the official staff commentary for Regulation Z (Truth-in-Lending Act) to address certain credit card fees, replacement credit cards, disclosure of PMI premiums, and selection of Treasury security yields for calculating whether a loan is subject to the Home Ownership and Equity Protection Act (HOEPA).

The Fed has determined that fees charged for expediting payments to avoid a late charge, or for expedited delivery of a credit card, are neither a finance charge nor "other" charge under Reg Z, although the Fed encourages issuers to inform customers about the fees when expedited service is requested.

Generally, TILA prohibits creditors from issuing a credit card except on request or as a replacement for an existing card (the "one-for-one" rule). Issuers have begun producing uniquely shaped cards (e.g., key chain cards), they want to issue as supplemental cards, since not all ATMs and merchants can process them. The revised commentary allows creditors to issue a new card as a supplement to an existing card, provided it is issued under the same terms and conditions as the original card, can access only the same line of credit, and does not increase the consumer's liability for unauthorized use.

PMI premiums must be disclosed via a payment schedule that reflects the borrower's legal obligation under applicable state or other law, even though the borrower may have the right to request PMI to terminate earlier. To determine compliance with HOEPA, lenders must compare loan rates to Treasury constant maturities, as reflected in the H-15 schedule of "Selected Interest Rates" published on the Fed's Web site; reference to actual Treasury auctions will no longer be permitted.

When the Fed proposed the commentary revisions last December, it also asked for information on overdraft protection programs. ICBA had told the Fed that overdraft protection programs were popular and beneficial to bank customers and should not be subjected to Reg Z disclosures. The Fed took no action on these programs but plans to continue studying the issue. The other provisions took effect April 1, with compliance optional until October 1, 2003. For more, see www.federalreserve.gov.