226.7(b) [FC-0134] Previous balance and balance on which finance charge was computed for purchases and checks can be disclosed separately from previous balance and balance on which finance charge was computed disclosures for cash advances. NOVEMBER 16, 1977. This is in response to your letter of in which you request official staff interpretations regarding the open end credit disclosure requirements of §§ 226.7(b)(1)(i) and 226.7(b)(1)(viii). You state that your client, in disclosing the "previous balance" required by § 226.7(b)(1)(i), discloses a “previous balance" for purchases and checks and a separate “previous balance" for cash advances. No total previous balance is reflected on the periodic statement. You indicate that the periodic statement does reflect, however, the total outstanding balance ("new balance") for that particular billing cycle, as well as a "new balance" applicable to purchases and checks and a "new balance" applicable to cash advances. You also state that your client, in disclosing the balance on which the finance charge was computed as required by § 226.7(b)(1)(viii), furnishes the balance on which the finance charge was computed for purchases and checks separately from the disclosure of the balance on which the finance charge was computed for cash advances. You argue that your client's disclosures as described above are in accordance with the provisions of §§ 226.7(b)(1)(i) and 226.7(b)(1)(viii) in light of Official Staff Interpretation FC-0086. In FC-0086 staff stated that it is permissible for purposes of § 226.7(b)(1)(iv) to disclose separately the purchase and cash advance portions of the finance charge without disclosing a total of the two figures. You also argue that the disclosures described above should be considered to be in compliance with the requirements of the regulation because purchases and checks are often treated differently from cash advances under the terms of credit programs (e.g., different periodic rates are applied to the two categories). It is the staff's opinion that the regulation permits disclosure of the previous balance for purchases and checks separately from the previous balance disclosure for cash advances. Moreover, it would be permissible for Regulation Z purposes to disclose the balance on which the finance charge was computed for purposes of purchases and checks separately from the balance which the finance charge was computed for cash advance transactions. on This is an official staff interpretation of Regulation Z, issued in accordance with $226.1(d)(3) of the regulation. It is limited to the facts and issues presented herein. Furthermore, nothing in this letter is to be construed as a review or approval of the disclosure form which you enclosed with your letter. I note that you may represent creditors subject to the laws of the State of Connecticut. Since Connecticut has been granted an exemption under the applicable portions of the Truth in Lending Act, you may wish to contact the office of Mr. David H. Neiditz, Bank Commissioner of the State of Connecticut, for his views. I trust that this is responsive to your inquiry. Sincerely, JERAULD C. KLUCKMAN, [42 FR 64106, Dec. 22, 1977] [FC-0135] § 226.4(i) A discount offered in accordance with § 226.4(i) is not a finance charge nor a discount for prompt payment as described in § 226.8(0). § 226.8(0) A discount offered in accordance with § 226.4(i) is not a finance charge nor a discount for prompt payment as described in § 226.8(0). § 226.8(c) Disclosure of a cash discount in credit sales must be made pursuant to § 226.8(c). NOVEMBER 17, 1977. This is in response to your letter of ⚫ in which you ask several questions about the applicability of §§ 226.4(i) and 226.8(0) of Regulation Z. Your client, a farmer's cooperative, desires to offer cash discounts to its customers in accordance with § 226.4(i). You ask staff to assume that in addition to paying for goods by cash, check, or similar means, a customer may elect to pay by use of (1) an open end credit card account; (2) an open end account that involves no credit card; or (3) a closed end credit transaction (e.g., a retail instalment contract). Based upon those factual assumptions you pose three questions, which will be answered in turn. 1. If a creditor offers a 5 percent discount only to those customers who purchase property or services by cash, check or similar means, and the creditor complies with all of the disclosure and other requirements of § 226.4(i) of Regulation Z, should the creditor exclude the discount from the finance charge as to those customers who choose to make a purchase by use of an open-end credit account without a credit card (i.e., no credit card has been issued to the customer for the account used in the purchase) or by use of a closed-end credit account? Yes. The language of both § 167(b) of the Truth in Lending Act and § 226.4(1)(1) of the regulation states that such a discount shall not constitute a finance charge. The effect of these statutory and regulatory provisions is not limited to a particular type of credit transaction. 2. If the answer to the foregoing question is "yes" how should the creditor disclose the cash discount in a closed-end credit sale? Section 226.8(c) governs disclosures for credit sales. The 5 percent discount must be deducted from the "regular price" of the merchandise as defined by § 226.2(tt), in order to arrive at the "cash price" required to be disclosed by § 226.8(c)(1). (Staff has previously taken this position in Public Information Letter 1070.) In addition, the discount will be an "other charge" which is inIcluded in the amount financed, but is not part of the finance charge. Consequently, it must be individually itemized pursuant to § 226.8(c)(4). 3. Is the full difference between the cash price and the credit price in any credit transaction, including a cash discount under § 226.4(i), a 'discount for payment on or before a specified date' under § 226.8(0), thereby necessitating the additional disclosures prescribed by the latter section? As staff understands this question, you are asking whether a cash discount as described in § 226.4(i) may simultaneously be a discount for prompt payment as meant by § 226.8(0). You state that a literal reading of the language of § 226.8(0), including the examples set forth in footnote 13a to § 226.8(0)(2), suggests such a conclusion. Staff believes that the prompt payment discount contemplated by § 226.8(o) is distinguishable from the cash discount described in § 226.4(i). As stated in Public Information Letter 999: Section 226.8(0) is intended to apply to transactions where the consumer receives an extension of credit and has the option of either paying within a specified period of time and receiving a discount off the full credit price or repaying the full credit price over the period specified in the contract. In either case, the consumer receives an extension of credit * * *. Public Information Letter 1039 reiterates that § 226.8(0) applies to situations in which prompt, rather than immediate payment is contemplated. Staff's conclusion is based largely upon a reading of the initial phrase in § 226.8(0)(1) which states, "For the purpose of this paragraph, a 'transaction subject to § 226.8(0)' is a credit sale transaction ** which is subject to a discount for payment on or before a specified date ***." (Emphasis added.) The italic words are describing a particular and alternative payment date, subsequent to the date of purchase, that is designated by the creditor-seller as the time before which receipt of payment will entitle the buyer to a reduced price. Section 226.4(i), on the other hand, contemplates a disc which is generally given at the time at point of sale (except, perhaps, when sa are transacted via telephone or mail which is offered to all prospective custom for the purpose of encouraging paymen cash, check, or similar means, rather by use of a credit card. This is an official staff interpretation Regulation Z, issued pursuant § 226.1(d)(3) and limited in its application the facts and issues discussed herein I. it is responsive to your inquiry. Sincerely, JERAULD C. KLUCKMAN [42 FR 64107, Dec. 22, 19771 [FC-0136] § 226.8(b) Addition to customer's which may arise as result of customer original obligation and be secured original collateral is not "future in edness" within meaning of § 226.8-5 NOVEMBER 22, 197′′ This is in response to your letter of *** in which you request an official staff inte pretation of § 266.8(b)(5) of Regulation Your letter raises two questions, the firs: which staff deems appropriate for an ct cial staff interpretation of Regulation That question is answered herein. You second question will be dealt with in a sep rate and unofficial staff interpretation Regulation Z. Your letter indicates that your client cures extensions of credit with a security terest and stated collateral in the form cf. chattel mortgage. You state that your cle does not use the chattel mortgage to secu undesignated future advances. However, y: indicate that the customer may becom liable to repay the kinds of "advances > cussed below. You ask whether any disclosure is re quired under the "future indebtedness" pr vision of § 226.8(b)(5) of Regulation Z= reason of the fact that, in accordance the terms of an extension of credit, a ma tomer may become liable for advances mad by your client to cover: 1. Interest (accruing after the date of ca ing); 2. Delinquency charges; 3. Deferral charges (if any or if availab under State law); 4. Attorney's fees for collection; 5. Premiums for insurance if the customer fails to provide insurance; 6. Advances for taxes if the customer fa to pay taxes; 7. Advances for repairs; and 8. Advances for collection expenses. Apparently the chattel mortgage taken by Your client would secure such advances as vell as the underlying debt. In addition to requiring that a Truth in ending disclosure statement provide “[a] lescription or identification of the type of ny security interest held or to be retained or acquired by the creditor in connection with the extension of credit and a clear dentification of the property to which the ecurity interest relates **" § 226.8(b) (5) lso mandates that "if other or future inlebtedness is or may be secured by any such roperty, this fact shall be clearly set forth n connection with the description or identiication of the type of security interest held, etained or acquired." In staff's opinion, the future indebtedness" provision 226.8(b)(5) does not require any additional isclosure where, by the terms of an extenion of credit, a customer is obligated for he types of charges listed above, and the reditor properly discloses that the customr's obligations in connection with the exension of credit are secured by adequately dentified collateral. Such charges do not onstitute "future indebtedness" as that erm is used in § 226.8(b)(5) but are, rather, imply additions to the indebtedness which esult from the original obligations of the ustomer. of The view expressed above, as you note, is upported by our Public Information Letter 44, which states: The term "future indebtedness" in Secion § 226.8(b)(5) was not intended to encompass mere additions to the indebtedness s a result of tax payments by the mortgage if the mortgagor failed to make the required payments. Only further amounts diectly loaned by the (mortgagee), as for eximple where a security interest in property vill secure any other obligations which the lebtor may have with the creditor, were inended to be included in the term "future Endebtedness." Although the fact that collateral may secure a customer's potential obligation for he items listed above necessitates no disclosure under the "future indebtedness" provision of § 226.8(b)(5), staff does not intend to ndicate that none of these items requires any disclosure under Regulation Z. Because the disclosures required would depend on the facts of each particular transaction, staff is not in a position to prescribe the disclosures your client should make. However, we would suggest that you refer to §§ 226.4, 226.8(c)(8)(i) and/or § 226.8(d)(3) relating co disclosure of interest as a finance charge; 226.8(b)(4) regarding delinquency charges; §226.8(1) regarding deferrals or extensions; Official Staff Interpretation FC-0054 (a copy of which is enclosed) dealing with the possible necessity of disclosure of attorney's ees and collection costs as default, delinquency or late payment charges under This is in response to your letter of * requesting an official staff interpretation of Regulation Z to the effect that the cost of each component of required insurance which is offered as a package need not be itemized in order to exclude it from the finance charge under § 226.4(a)(6). Section 4(a)(6) permits the exclusion from the finance charge of "charges or premiums for insurance, written in connection with any credit transaction, against loss of or damage to property or against liability arising out of the ownership or use of property" when the creditor discloses the cost of the insurance if obtained from or through the creditor and that the customer may choose the person through whom the insurance will be obtained. Your client offers an insurance package in connection with credit sales of automobiles which includes several kinds of required insurance of the type described in § 226.4(a)(6). These include collision, personal liability and vendor's single interest insurance (the last with waiver of subrogation). You inquire whether or not the disclosure of the aggregate cost of the required insurance package, if purchased through the creditor, complies with § 226.4(a)(6). It is the staff's opinion that the creditor need disclose only the aggregate cost of the insurance in order to exclude the premium amount from the finance charge: Provided, That the other requirements of § 226.4(a)(6) and the interpretations thereof are met. There is no requirement in the regulation that the cost of each component of the insurance package be itemized. This is an official staff interpretation of Regulation Z and is limited in its application to the facts stated herein. We note that your client may be a creditor subject to the laws of the Commonwealth of Massachusetts. Since Massachusetts has been granted 90-035 0-82--51 an exemption from the relevant provisions of the Federal Truth in Lending Act, you may wish to obtain the views of the Commissioner of Banks of the Commonwealth of Massachusetts regarding this matter. I trust this is responsive to your inquiry. Sincerely, JERAULD C. KLUCKMAN, [42 FR 64108, Dec. 22, 1977] [FC-0138] § 226.3(d) Financing of home improvements by public utilities are not exempt transactions. § 226.3(0) Provisions concerning discounts for prompt payment apply only to sale transactions, not to loans. NOVEMBER 28, 1977. This will respond to your letter of *** concerning the applicability of certain provisions of Regulation Z to a proposed home financing insulation plan adopted by a State public utility commission. Under this plan, the gas and electric utilities would provide financing for certain home improvements designed to conserve energy. The home improvement work is to be done by an independent contractor chosen by the customer from among those licensed or approved by the State to do such work. After the work is accepted by the utility, the utility pays the contractor for the work, and the customer reimburses the utility for his payment. The customer is given a period of up to 3 years to repay the loan, and will be charged 1 percent interest per month on the unpaid balance. If, however, the customer repays the entire loan within 90 days, no interest will be charged. It is our understanding that there are no finance charges other than interest involved in these loans. You ask first whether such credit transactions are exempted from Regulation Z by virtue of § 226.3(d). Section 226.3(d) exempts from coverage of the regulation certain public utility transactions which involve services provided through pipe, wire, or other connected facilities. It is staff's opinion that this exception is inapplicable to the plan you describe because, although the plan does involve public utilities, it does not involve "services provided through pipe, wire, or other connected facilities." Therefore, financing by a public utility of home insulation for its customers is not the type of transaction exempted from the regulation's coverage by § 226.3(d). You ask further whether § 226.8(o) is applicable to such transactions. Section 226.8(0) concerns discounts for prompt payment of sales transactions. It is staff's opinion that this section does not apply to the plan you describe. Section 226.8(o) concerns only credit sales transactions in which goods or services are purchased and a discount offered for payment within a specified period; it does not apply to plans such yours which involve direct loans to cust.cm ers. It is staff's belief that the home financin insulation plan under consideration in you letter should be considered and disclosed as a normal instalment loan with a term of: years (or such other period as is agreed tc This is an official staff interpretation of Regulation Z, issued in accordance with § 226.1(d)(3) of the regulation. It is limited to the facts and issues as discussed here: and I trust that it proves to be of assista to you. Sincerely, JERAULD C. KLUCKMAN. Associate Director. [42 FR 64108, Dec. 22, 1977] [FC-0139] § 226.4(i) Preemption of State laws regard ing usury, credit cost disclosure and per missible credit charges granted by the Act for "qualified" cash discounts applies t nonconsumer credit card transactions. § 171 Preemption of State laws regarding usuary, credit cost disclosure and permiss ble credit charges granted by the Act for "qualified" cash discounts applies to not consumer credit card transactions. DECEMBER 5, 1977 This is in response to your letter of ・ in which you inquire about the scope of the preemption from State law that is provided by § 171(c) of the Truth in Lending Act to encourage and facilitate the offering of cast discounts in accordance with § 167(b) of the Act. Your question, specifically is whether the preemptive effect of § 171(c) extends : transactions which have been otherwise excluded from the scope of Federal Truth Lending law by § 104(1) of the Act (eg transactions involving the extension of busi ness credit or credit to a governmental agency). The circumstances prompting your re quest are as follows: Your company operates a substantial number of retail outlets throughout the country and is studying the feasibility of offering discounts to custom ers who pay by cash, check, or similar means. As a part of that study you have discovered several State laws which, in your opinion, would characterize such a discoun! as a cost of credit for usury and disclosure purposes in business, as well as in consumer credit transactions. You further explain that, as a practical matter, it is often impos sible to distinguish at the point of sale whether a particular purchase, paid for by use of a credit card, involves an extension of business or consumer credit. As a result you believe that if the preemptive provisions of § 171(c) were only to apply to consumer credit transactions, sellers in a number of States, particularly some of the large commercial States, will be reluctant to offer cash discounts. Section 226.4(i)(5) of Regulation Z, which essentially mirrors the language of § 171(c) of the Act, reads as follows: "(5) Notwithstanding any other provisions of this Part, any discount which, pursuant to paragraph (1) (§ 226.4(i)(1)) is not a finance charge for purposes of this Part shall not be considered a finance charge or other charge for credit under the laws of any State relating to: (i) Usury; or (ii) Disclosure of information in connection with credit extensions; or (iii) The types, amounts, or rates of charges or the element or elements of charges permissible in connection with the extension or use of credit." (Emphasis added.) Staff believes that Congress' purpose in adopting § 171(c) was to facilitate the implementation of discount programs pursuant to § 167(b) of the Act. Staff believes it would be inconsistent with that purpose to read the preemptive provisions of § 171(c) to apply only to State laws regarding consumer credit and not to State laws regarding business credit. To interpret this section so as not to preempt State laws regarding business credit would result in requiring a merchant who wished to implement such a program to ascertain which credit transactions are for business purposes and which are for consumer purposes. In light of the fact that many credit cards are used for both business and consumer transactions, such a requirement, if read into the Act and regulation, would be a particular difficulty for credit card transactions. Consequently, in staff's view, § 171(c) of the Act and § 226.4(i)(5) of Regulation Z preempt the types of State laws listed therein with respect to business transactions. Staff believes that its opinion is supported by the statutory and regulatory language. Section 171(c) begins by stating, "Notwithstanding any other provisions of this title ***" As previously noted, this language is mirrored in the underlined portion of § 226.4(1)(5) reproduced above. Staff believes that this language can be read to indicate that the general exemption from coverage of business credit contained in § 104(1) of the Act and § 226.3(a) of the regulation does not apply with regard to matters that § 171(c) and § 226.4(i)(5) govern. Therefore, in staff's opinion, the preemptive effect of § 171(c) of the Act and § 226.4(i)(5) of the regulation operate with respect to State laws, of the types listed therein, that pertain to business credit. § 226.4(1) With regard to gasoline service stations, if credit card price for gasoline is clearly disclosed on the pump, that price shall be considered the "regular price," and other signs and posters located in the service area and visible from the road may be considered advertisements. With regard to gasoline service stations, the disclosure of the availability of cash discounts required at public entrances is satisfied by any sign located so that it is clearly visible to all customers entering the service area. DECEMBER 5, 1977. * This is in response to your letter of * in which you requested an official staff interpretation of § 226.4(i) of Regulation Z. Your client, a national retail gasoline dealer, is considering various alternative methods of enabling its branded dealers to offer customers a discount if they pay for gasoline purchases with cash rather than by use of a credit card. It is contemplated that this discount will not apply to purchases of other types of goods or services generally available at the service stations. Section 226.4(i) specifies varying price and other disclosure requirements and limitations with regard to notification of the availability of discounts for cash, advertising, and price tagging/posting when discounts for cash are offered. Because of the unique nature of gasoline service stations vis a vis the normal enclosed store-type retail establishments, some questions have arisen as to the permissible disclosures on signs of varying types which may be displayed at gasoline service stations. Along with your letter, you have submitted prototype designs of five signs which you have asked staff to review for content as well as proposed placement at a service station. Staff feels that to review the signs which you have submitted and approve their use in an official staff interpretation would be tantamount to approving a disclosure form, and the staff generally refrains from issuing official staff interpretations for such purposes. However, the staff does feel that, due to the unique nature of gasoline service stations, some general comments with respect to compliance with § 226.4(i) |