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Regulation
Z
Truth in Lending Act
Subpart C--Closed-End Credit
Section 226.17 - General disclosure requirements.
Section 226.18 - Content of disclosures.
Section 226.19 - Certain residential mortgage
and variable-rate transactions.
Section 226.20 - Subsequent disclosure requirements.
Section 226.21 - Treatment of credit balances.
Section 226.22 - Determination of annual percentage
rate.
Section 226.23 - Right of rescission.
Section 226.24 - Advertising.
Subpart C--Closed-End Credit
Sec. 226.17 General disclosure requirements.
(a) Form of disclosures. (1) The creditor
shall make the disclosures required by this subpart clearly and
conspicuously in writing, in a form that the consumer may keep.
The disclosures shall be grouped together, shall be segregated
from everything else, and shall not contain any information not
directly related 37 to the disclosures required under
Sec. 226.18.38 The itemization of the amount financed
under Sec. 226.18(c)(1) must be separate from the other disclosures
under that section.
37 The disclosures may include an acknowledgment of receipt,
the date of the transaction, and the consumer's name, address,
and account number.
38 The following disclosures may be made together with
or separately from other required disclosures: the creditor's
identity under Sec. 226.18(a), the variable rate example under
Sec. 226.18(f)(4), insurance or debt cancellation under Sec. 226.18(n),
and certain security interest charges under Sec. 226.18(o).
(2) The terms finance charge and annual
percentage rate, when required to be disclosed under Sec. 226.18
(d) and (e) together with a corresponding amount or percentage
rate, shall be more conspicuous than any other disclosure, except
the creditor's identity under Sec. 226.18(a).
(b) Time of disclosures. The creditor
shall make disclosures before consummation of the transaction.
In certain residential mortgage transactions, special timing requirements
are set forth in Sec. 226.19(a). In certain variable-rate transactions,
special timing requirements for variable-rate disclosures are
set forth in Sec. 226.19(b) and Sec. 226.20(c). In certain transactions
involving mail or telephone orders or a series of sales, the timing
of disclosures may be delayed in accordance with paragraphs (g)
and (h) of this section.
(c) Basis of disclosures and use of estimates.
(1) The disclosures shall reflect the terms of the legal obligation
between the parties.
(2)(i) If any information necessary for
an accurate disclosure is unknown to the creditor, the creditor
shall make the disclosure based on the best information reasonably
available at the time the disclosure is provided to the consumer,
and shall state clearly that the disclosure is an estimate.
(ii) For a transaction in which a portion
of the interest is determined on a per-diem basis and collected
at consummation, any disclosure affected by the per-diem interest
shall be considered accurate if the disclosure is based on the
information known to the creditor at the time that the disclosure
documents are prepared for consummation of the transaction.
(3) The creditor may disregard the effects
of the following in making calculations and disclosures.
(i) That payments must be collected in
whole cents.
(ii) That dates of scheduled payments
and advances may be changed because the scheduled date is not
a business day.
(iii) That months have different numbers
of days.
(iv) The occurrence of leap year.
(4) In making calculations and disclosures,
the creditor may disregard any irregularity in the first period
that falls within the limits described below and any payment schedule
irregularity that results from the irregular first period:
(i) For transactions in which the term
is less than 1 year, a first period not more than 6 days shorter
or 13 days longer than a regular period;
(ii) For transactions in which the term
is at least 1 year and less than 10 years, a first period not
more than 11 days shorter or 21 days longer than a regular period;
and
(iii) For transactions in which the term
is at least 10 years, a first period shorter than or not more
than 32 days longer than a regular period.
(5) If an obligation is payable on demand,
the creditor shall make the disclosures based on an assumed maturity
of 1 year. If an alternate maturity date is stated in the legal
obligation between the parties, the disclosures shall be based
on that date.
(6)(i) A series of advances under an
agreement to extend credit up to a certain amount may be considered
as one transaction.
(ii) When a multiple-advance loan to
finance the construction of a dwelling may be permanently financed
by the same creditor, the construction phase and the permanent
phase may be treated as either one transaction or more than one
transaction.
(d) Multiple creditors; multiple consumers.
If a transaction involves more than one creditor, only one set
of disclosures shall be given and the creditors shall agree among
themselves which creditor must comply with the requirements that
this regulation imposes on any or all of them. If there is more
than one consumer, the disclosures may be made to any consumer
who is primarily liable on the obligation. If the transaction
is rescindable under Sec. 226.23, however, the disclosures shall
be made to each consumer who has the right to rescind.
(e) Effect of subsequent events. If a
disclosure becomes inaccurate because of an event that occurs
after the creditor delivers the required disclosures, the inaccuracy
is not a violation of this regulation, although new disclosures
may be required under paragraph (f) of this section, Sec. 226.19,
or Sec. 226.20.
(f) Early disclosures. If disclosures
required by this subpart are given before the date of consummation
of a transaction and a subsequent event makes them inaccurate,
the creditor shall disclose before consummation: 39
39 For certain residential mortgage transactions, Sec.
226.19(a)(2) permits redisclosure no later than consummation or
settlement, whichever is later.
(1) any changed term unless the term
was based on an estimate in accordance with Sec. 226.17(c)(2)
and was labelled an estimate;
(2) all changed terms, if the annual
percentage rate at the time of consummation varies from the annual
percentage rate disclosed earlier by more than \1/8\ of 1 percentage
point in a regular transaction, or more than \1/4\ of 1 percentage
point in an irregular transaction, as defined in Sec. 226.22(a).
(g) Mail or telephone orders--delay in
disclosures. If a creditor receives a purchase order or a request
for an extension of credit by mail, telephone, or any other written
or electronic communication without face-to-face or direct telephone
solicitation, the creditor may delay the disclosures until the
due date of the first payment, if the following information for
representative amounts or ranges of credit is made available in
written form to the consumer or to the public before the actual
purchase order or request:
(1) The cash price or the principal loan
amount.
(2) The total sale price.
(3) The finance charge.
(4) The annual percentage rate, and if
the rate may increase after consummation, the following disclosures:
(i) The circumstances under which the
rate may increase.
(ii) Any limitations on the increase.
(iii) The effect of an increase.
(5) The terms of repayment.
(h) Series of sales--delay in disclosures.
If a credit sale is one of a series made under an agreement providing
that subsequent sales may be added to an outstanding balance,
the creditor may delay the required disclosures until the due
date of the first payment for the current sale, if the following
two conditions are met:
(1) The consumer has approved in writing
the annual percentage rate or rates, the range of balances to
which they apply, and the method of treating any unearned finance
charge on an existing balance.
(2) The creditor retains no security
interest in any property after the creditor has received payments
equal to the cash price and any finance charge attributable to
the sale of that property. For purposes of this provision, in
the case of items purchased on different dates, the first purchased
is deemed the first item paid for; in the case of items purchased
on the same date, the lowest priced is deemed the first item paid
for.
(i) Interim student credit extensions.
For each transaction involving an interim credit extension under
a student credit program, the creditor need not make the following
disclosures: the finance charge under Sec. 226.18(d), the payment
schedule under Sec. 226.18(g), the total of payments under Sec.
226.18(h), or the total sale price under Sec. 226.18(j).
Sec. 226.18 Content of disclosures.
For each transaction,
the creditor shall disclose the following information as applicable:
(a) Creditor. The identity of the creditor
making the disclosures.
(b) Amount financed. The amount financed,
using that term, and a brief description such as the amount of
credit provided to you or on your behalf. The amount financed
is calculated by:
(1) Determining the principal loan amount
or the cash price (subtracting any downpayment);
(2) Adding any other amounts that are
financed by the creditor and are not part of the finance charge;
and
(3) Subtracting any prepaid finance charge.
(c) Itemization of amount financed. (1)
A separate written itemization of the amount financed, including:
40
40 Good faith estimates of settlement costs provided for
transactions subject to the Real Estate Settlement Procedures
Act (12 U.S.C. 2601 et seq.) may be substituted for the disclosures
required by paragraph (c) of this section.
(i) The amount of any proceeds distributed
directly to the consumer.
(ii) The amount credited to the consumer's
account with the creditor.
(iii) Any amounts paid to other persons
by the creditor on the consumer's behalf. The creditor shall identify
those persons.41
41 The following
payees may be described using generic or other general terms and
need not be further identified: public officials or government
agencies, credit reporting agencies, appraisers, and insurance
companies.
(iv) The prepaid finance charge.
(2) The creditor need not comply with
paragraph (c)(1) of this section if the creditor provides a statement
that the consumer has the right to receive a written itemization
of the amount financed, together with a space for the consumer
to indicate whether it is desired, and the consumer does not request
it.
(d) Finance charge. The finance charge,
using that term, and a brief description such as ``the dollar
amount the credit will cost you.''
(1) Mortgage loans. In a transaction
secured by real property or a dwelling, the disclosed finance
charge and other disclosures affected by the disclosed finance
charge (including the amount financed and the annual percentage
rate) shall be treated as accurate if the amount disclosed as
the finance charge:
(i) is understated by no more than $100;
or
(ii) is greater than the amount required
to be disclosed.
(2) Other credit. In any other transaction,
the amount disclosed as the finance charge shall be treated as
accurate if, in a transaction involving an amount financed of
$1,000 or less, it is not more than $5 above or below the amount
required to be disclosed; or, in a transaction involving an amount
financed of more than $1,000, it is not more than $10 above or
below the amount required to be disclosed.
(e) Annual percentage rate. The annual
percentage rate, using that term, and a brief description such
as ``the cost of your credit as a yearly rate.''42
42 For any transaction
involving a finance charge of $5 or less on an amount financed
of $75 or less, or a finance charge of $7.50 or less on an amount
financed of more than $75, the creditor need not disclose the
annual percentage rate.
(f) Variable rate. (1) If the annual
percentage rate may increase after consummation in a transaction
not secured by the consumer's principal dwelling or in a transaction
secured by the consumer's principal dwelling with a term of one
year or less, the following disclosures: 43
43 Information
provided in accordance with Secs. 226.18(f)(2) and 226.19(b) may
be substituted for the disclosures required by paragraph (f)(1)
of this section.
(i) The circumstances under which the
rate may increase.
(ii) Any limitations on the increase.
(iii) The effect of an increase.
(iv) An example of the payment terms
that would result from an increase.
(2) If the annual percentage rate may
increase after consummation in a transaction secured by the consumer's
principal dwelling with a term greater than one year, the following
disclosures:
(i) The fact that the transaction contains
a variable-rate feature.
(ii) A statement that variable-rate disclosures
have been provided earlier.
(g) Payment schedule. The number, amounts,
and timing of payments scheduled to repay the obligation.
(1) In a demand obligation with no alternate
maturity date, the creditor may comply with this paragraph by
disclosing the due dates or payment periods of any scheduled interest
payments for the first year.
(2) In a transaction in which a series
of payments varies because a finance charge is applied to the
unpaid principal balance, the creditor may comply with this paragraph
by disclosing the following information:
(i) The dollar amounts of the largest
and smallest payments in the series.
(ii) A reference to the variations in
the other payments in the series.
(h) Total of payments. The total of payments,
using that term, and a descriptive explanation such as ``the amount
you will have paid when you have made all scheduled payments.''44
44 In any transaction
involving a single payment, the creditor need not disclose the
total of payments.
(i) Demand feature. If the obligation
has a demand feature, that fact shall be disclosed. When the disclosures
are based on an assumed maturity of 1 year as provided in Sec.
226.17(c)(5), that fact shall also be disclosed.
(j) Total sale price. In a credit sale,
the total sale price, using that term, and a descriptive explanation
(including the amount of any downpayment) such as ``the total
price of your purchase on credit, including your downpayment of
$----.'' The total sale price is the sum of the cash price, the
items described in paragraph (b)(2), and the finance charge disclosed
under paragraph (d) of this section.
(k) Prepayment. (1) When an obligation
includes a finance charge computed from time to time by application
of a rate to the unpaid principal balance, a statement indicating
whether or not a penalty may be imposed if the obligation is prepaid
in full.
(2) When an obligation includes a finance
charge other than the finance charge described in paragraph (k)(1)
of this section, a statement indicating whether or not the consumer
is entitled to a rebate of any finance charge if the obligation
is prepaid in full.
(l) Late payment. Any dollar or percentage
charge that may be imposed before maturity due to a late payment,
other than a deferral or extension charge.
(m) Security interest. The fact that
the creditor has or will acquire a security interest in the property
purchased as part of the transaction, or in other property identified
by item or type.
(n) Insurance and debt cancellation.
The items required by Sec. 226.4(d) in order to exclude certain
insurance premiums and debt cancellation fees from the finance
charge.
(o) Certain security interest charges.
The disclosures required by Sec. 226.4(e) in order to exclude
from the finance charge certain fees prescribed by law or certain
premiums for insurance in lieu of perfecting a security interest.
(p) Contract reference. A statement that
the consumer should refer to the appropriate contract document
for information about nonpayment, default, the right to accelerate
the maturity of the obligation, and prepayment rebates and penalties.
At the creditor's option, the statement may also include a reference
to the contract for further information about security interests
and, in a residential mortgage transaction, about the creditor's
policy regarding assumption of the obligation.
(q) Assumption policy. In a residential
mortgage transaction, a statement whether or not a subsequent
purchaser of the dwelling from the consumer may be permitted to
assume the remaining obligation on its original terms.
(r) Required deposit. If the creditor
requires the consumer to maintain a deposit as a condition of
the specific transaction, a statement that the annual percentage
rate does not reflect the effect of the required deposit.45
45 A required deposit
need not include, for example: (1) An escrow account for items
such as taxes, insurance or repairs; (2) a deposit that earns
not less than 5 percent per year; or (3) payments under a Morris
Plan.
Sec. 226.19 Certain residential mortgage
and variable-rate transactions.
(a) Residential mortgage transactions
subject to RESPA--(1) Time of disclosures. In a residential mortgage
transaction subject to the Real Estate Settlement Procedures Act
(12 U.S.C. 2601 et seq.) the creditor shall make good faith estimates
of the disclosures required by Sec. 226.18 before consummation,
or shall deliver or place them in the mail not later than three
business days after the creditor receives the consumer's written
application, whichever is earlier.
(2) Redisclosure required. If the annual
percentage rate at the time of consummation varies from the annual
percentage rate disclosed earlier by more than \1/8\ of 1 percentage
point in a regular transaction or more than \1/4\ of 1 percentage
point in an irregular transaction, as defined in Sec. 226.22,
the creditor shall disclose all the changed terms no later than
consummation or settlement.
(b) Certain variable-rate transactions.45a
If the annual percentage rate may increase after consummation
in a transaction secured by the consumer's principal dwelling
with a term greater than one year, the following disclosures must
be provided at the time an application form is provided or before
the consumer pays a non-refundable fee, whichever is earlier:45b
45a Information
provided in accordance with variable-rate regulations of other
federal agencies may be substituted for the disclosures required
by paragraph (b) of this section.
45b Disclosures
may be delivered or placed in the mail not later than three business
days following receipt of a consumer's application when the application
reaches the creditor by telephone, or through an intermediary
agent or broker.
(1) The booklet titled Consumer Handbook
on Adjustable Rate Mortgages published by the Board and the Federal
Home Loan Bank Board, or a suitable substitute.
(2) A loan program disclosure for each
variable-rate program in which the consumer expresses an interest.
The following disclosures, as applicable, shall be provided:
(i) The fact that the interest rate,
payment, or term of the loan can change.
(ii) The index or formula used in making
adjustments, and a source of information about the index or formula.
(iii) An explanation of how the interest
rate and payment will be determined, including an explanation
of how the index is adjusted, such as by the addition of a margin.
(iv) A statement that the consumer should
ask about the current margin value and current interest rate.
(v) The fact that the interest rate will
be discounted, and a statement that the consumer should ask about
the amount of the interest rate discount.
(vi) The frequency of interest rate and
payment changes.
(vii) Any rules relating to changes in
the index, interest rate, payment amount, and outstanding loan
balance including, for example, an explanation of interest rate
or payment limitations, negative amortization, and interest rate
carryover.
(viii) At the option of the creditor,
either of the following:
(A) A historical example, based on a $10,000
loan amount, illustrating how payments and the loan balance would
have been affected by interest rate changes implemented according
to the terms of the loan program disclosure. The example
shall reflect the most recent 15 years of index value. The
example shall relect all significant loan program terms, such
as negative amortization, interest rate carryover, interest rate
discounts, and interest rate and payment limitations, that would
have been affected by the index movement during the period.
(B) The maximum interest rate and payment
for a $10,000 loan originated at the initial interest rate (index
value plus margin, adjusted by the amount of any discount or premium)
in effect as of an identified month and year for the loan program
disclosure assuming the maximum periodic increases in rates and
payments under the program; and the initial interest rate and
payment for that loan and a statement that the periodic payment
may increase or decrease substantially depending on changes in
the rate.
(ix) An explanation of how the consumer
may calculate the payments for the loan amount to be borrowed
based on either:
(A) The most recent payment shown in
the historical examply in paragraph (b)(2)(viii)(A) of this section;
or
(B) The initital interest rate used to calculate
the maximum interest rate and payment in paragraph (b)(2)(viii)(B)
of this section.
(x) The fact that the loan program contains
a demand feature.
(xi) The type of information that will
be provided in notices of adjustments and the timing of such notices.
(xii) A statement that disclosure forms
are available for the creditor's other variable-rate loan programs.
Sec. 226.20 Subsequent disclosure requirements.
(a) Refinancings. A refinancing occurs
when an existing obligation that was subject to this subpart is
satisfied and replaced by a new obligation undertaken by the same
consumer. A refinancing is a new transaction requiring new disclosures
to the consumer. The new finance charge shall include any unearned
portion of the old finance charge that is not credited to the
existing obligation. The following shall not be treated as a refinancing:
(1) A renewal of a single payment obligation
with no change in the original terms.
(2) A reduction in the annual percentage
rate with a corresponding change in the payment schedule.
(3) An agreement involving a court proceeding.
(4) A change in the payment schedule
or a change in collateral requirements as a result of the consumer's
default or delinquency, unless the rate is increased, or the new
amount financed exceeds the unpaid balance plus earned finance
charge and premiums for continuation of insurance of the types
described in Sec. 226.4(d).
(5) The renewal of optional insurance
purchased by the consumer and added to an existing transaction,
if disclosures relating to the initial purchase were provided
as required by this subpart.
(b) Assumptions. An assumption occurs
when a creditor expressly agrees in writing with a subsequent
consumer to accept that consumer as a primary obligor on an existing
residential mortgage transaction. Before the assumption occurs,
the creditor shall make new disclosures to the subsequent consumer,
based on the remaining obligation. If the finance charge originally
imposed on the existing obligation was an add-on or discount finance
charge, the creditor need only disclose:
(1) The unpaid balance of the obligation
assumed.
(2) The total charges imposed by the
creditor in connection with the assumption.
(3) The information required to be disclosed
under Sec. 226.18(k), (l), (m), and (n).
(4) The annual percentage rate originally
imposed on the obligation.
(5) The payment schedule under Sec. 226.18(g)
and the total of payments under Sec. 226.18(h) based on the remaining
obligation.
(c) Variable-rate adjustments. 45c
An adjustment to the interest rate with or without a corresponding
adjustment to the payment in a variable-rate transaction subject
to Sec. 226.19(b) is an event requiring new disclosures to the
consumer. At least once each year during which an interest rate
adjustment is implemented without an accompanying payment change,
and at least 25, but no more than 120, calendar days before a
payment at a new level is due, the following disclosures, as applicable,
must be delivered or placed in the mail:
45c Information
provided in accordance with variable-rate subsequent disclosure
regulations of other federal agencies may be substituted for the
disclosure required by paragraph (c) of this section.
(1) The current and prior interest rates.
(2) The index values upon which the current
and prior interest rates are based.
(3) The extent to which the creditor
has foregone any increase in the interest rate.
(4) The contractual effects of the adjustment,
including the payment due after the adjustment is made, and a
statement of the loan balance.
(5) The payment, if different from that
referred to in paragraph (c)(4) of this section, that would be
required to fully amortize the loan at the new interest rate over
the remainder of the loan term.
Sec. 226.21 Treatment of credit balances.
When a credit balance in excess of $1
is created in connection with a transaction (through transmittal
of funds to a creditor in excess of the total balance due on an
account, through rebates of unearned finance charges or insurance
premiums, or through amounts otherwise owed to or held for the
benefit of a consumer), the creditor shall:
(a) Credit the amount of the credit balance
to the consumer's account;
(b) Refund any part of the remaining
credit balance, upon the written request of the consumer; and
(c) Make a good faith effort to refund
to the consumer by cash, check, or money order, or credit to a
deposit account of the consumer, any part of the credit balance
remaining in the account for more than 6 months, except that no
further action is required if the consumer's current location
is not known to the creditor and cannot be traced through the
consumer's last known address or telephone number.
Sec. 226.22 Determination of annual percentage
rate.
(a) Accuracy of annual percentage rate.
(1) The annual percentage rate is a measure of the cost of credit,
expressed as a yearly rate, that relates the amount and timing
of value received by the consumer to the amount and timing of
payments made. The annual percentage rate shall be determined
in accordance with either the actuarial method or the United States
Rule method. Explanations, equations and instructions for determining
the annual percentage rate in accordance with the actuarial method
are set forth in appendix J to this regulation.45d
45d An error in
disclosure of the annual percentage rate or finance charge shall
not, in itself, be considered a violation of this regulation if:
(1) The error resulted from a corresponding error in a calculation
tool used in good faith by the creditor; and (2) upon discovery
of the error, the creditor promptly discontinues use of that calculation
tool for disclosure purposes and notifies the Board in writing
of the error in the calculation tool.
(2) As a general rule, the annual percentage
rate shall be considered accurate if it is not more than \1/8\
of 1 percentage point above or below the annual percentage rate
determined in accordance with paragraph (a)(1) of this section.
(3) In an irregular transaction, the
annual percentage rate shall be considered accurate if it is not
more than \1/4\ of 1 percentage point above or below the annual
percentage rate determined in accordance with paragraph (a)(1)
of this section.46
46 For purposes
of paragraph (a)(3) of this section, an irregular transaction
is one that includes one or more of the following features: multiple
advances, irregular payment periods, or irregular payment amounts
(other than an irregular first period or an irregular first or
final payment).
(4) Mortgage loans. If the annual percentage
rate disclosed in a transaction secured by real property or a
dwelling varies from the actual rate determined in accordance
with paragraph (a)(1) of this section, in addition to the tolerances
applicable under paragraphs (a)(2) and (3) of this section, the
disclosed annual percentage rate shall also be considered accurate
if:
(i) The rate results from the disclosed
finance charge; and
(ii)(A) The disclosed finance charge
would be considered accurate under Sec. 226.18(d)(1); or
(B) For purposes of rescission, if the
disclosed finance charge would be considered accurate under Sec.
226.23(g) or (h), whichever applies.
(5) Additional tolerance for mortgage
loans. In a transaction secured by real property or a dwelling,
in addition to the tolerances applicable under paragraphs (a)(2)
and (3) of this section, if the disclosed finance charge is calculated
incorrectly but is considered accurate under Sec. 226.18(d)(1)
or Sec. 226.23(g) or (h), the disclosed annual percentage rate
shall be considered accurate:
(i) If the disclosed finance charge is
understated, and the disclosed annual percentage rate is also
understated but it is closer to the actual annual percentage rate
than the rate that would be considered accurate under paragraph
(a)(4) of this section;
(ii) If the disclosed finance charge
is overstated, and the disclosed annual percentage rate is also
overstated but it is closer to the actual annual percentage rate
than the rate that would be considered accurate under paragraph
(a)(4) of this section.
(b) Computation tools. (1) The Regulation
Z Annual Percentage Rate Tables produced by the Board may be used
to determine the annual percentage rate, and any rate determined
from those tables in accordance with the accompanying instructions
complies with the requirements of this section. Volume I of the
tables applies to single advance transactions involving up to
480 monthly payments or 104 weekly payments. It may be used for
regular transactions and for transactions with any of the following
irregularities: an irregular first period, an irregular first
payment, and an irregular final payment. Volume II of the tables
applies to transactions involving multiple advances and any type
of payment or period irregularity.
(2) Creditors may use any other computation
tool in determining the annual percentage rate if the rate so
determined equals the rate determined in accordance with appendix
J, within the degree of accuracy set forth in paragraph (a) of
this section.
(c) Single add-on rate transactions.
If a single add-on rate is applied to all transactions with maturities
up to 60 months and if all payments are equal in amount and period,
a single annual percentage rate may be disclosed for all those
transactions, so long as it is the highest annual percentage rate
for any such transaction.
(d) Certain transactions involving ranges
of balances. For purposes of disclosing the annual percentage
rate referred to in Sec. 226.17(g)(4) (Mail or telephone orders--delay
in disclosures) and (h) (Series of sales--delay in disclosures),
if the same finance charge is imposed on all balances within a
specified range of balances, the annual percentage rate computed
for the median balance may be disclosed for all the balances.
However, if the annual percentage rate computed for the median
balance understates the annual percentage rate computed for the
lowest balance by more than 8 percent of the latter rate, the
annual percentage rate shall be computed on whatever lower balance
will produce an annual percentage rate that does not result in
an understatement of more than 8 percent of the rate determined
on the lowest balance.
Sec. 226.23 Right of rescission.
(a) Consumer's right to rescind. (1)
In a credit transaction in which a security interest is or will
be retained or acquired in a consumer's principal dwelling, each
consumer whose ownership interest is or will be subject to the
security interest shall have the right to rescind the transaction,
except for transactions described in paragraph (f) of this section.47
47 For purposes
of this section, the addition to an existing obligation of a security
interest in a consumer's principal dwelling is a transaction.
The right of rescission applies only to the addition of the security
interest and not the existing obligation. The creditor shall deliver
the notice required by paragraph (b) of this section but need
not deliver new material disclosures. Delivery of the required
notice shall begin the rescission period.
(2) To exercise the right to rescind,
the consumer shall notify the creditor of the rescission by mail,
telegram or other means of written communication. Notice is considered
given when mailed, when filed for telegraphic transmission or,
if sent by other means, when delivered to the creditor's designated
place of business.
(3) The consumer may exercise the right
to rescind until midnight of the third business day following
consummation, delivery of the notice required by paragraph (b)
of this section, or delivery of all material disclosures,48
whichever occurs last. If the required notice or material disclosures
are not delivered, the right to rescind shall expire 3 years after
consummation, upon transfer of all of the consumer's interest
in the property, or upon sale of the property, whichever occurs
first. In the case of certain administrative proceedings, the
rescission period shall be extended in accordance with section
125(f) of the Act.
48 The term ``material
disclosures'' means the required disclosures of the annual percentage
rate, the finance charge, the amount financed, the total payments,
the payment schedule, and the disclosures and limitations referred
to in Sec. 226.32 (c) and (d).
(4) When more than one consumer in a
transaction has the right to rescind, the exercise of the right
by one consumer shall be effective as to all consumers.
(b)(1) Notice of right to rescind. In
a transaction subject to rescission, a creditor shall deliver
2 copies of the notice of the right to rescind to each consumer
entitled to rescind. The notice shall be on a separate document
that identifies the transaction and shall clearly and conspicuously
disclose the following:
(i) The retention or acquisition of a
security interest in the consumer's principal dwelling.
(ii) The consumer's right to rescind
the transaction.
(iii) How to exercise the right to rescind,
with a form for that purpose, designating the address of the creditor's
place of business.
(iv) The effects of rescission, as described
in paragraph (d) of this section.
(v) The date the rescission period expires.
(2) Proper form of notice. To satisfy
the disclosure requirements of paragraph (b)(1) of this section,
the creditor shall provide the appropriate model form in Appendix
H of this part or a substantially similar notice.
(c) Delay of creditor's performance.
Unless a consumer waives the right of rescission under paragraph
(e) of this section, no money shall be disbursed other than in
escrow, no services shall be performed and no materials delivered
until the rescission period has expired and the creditor is reasonably
satisfied that the consumer has not rescinded.
(d) Effects of rescission. (1) When a
consumer rescinds a transaction, the security interest giving
rise to the right of rescission becomes void and the consumer
shall not be liable for any amount, including any finance charge.
(2) Within 20 calendar days after receipt
of a notice of rescission, the creditor shall return any money
or property that has been given to anyone in connection with the
transaction and shall take any action necessary to reflect the
termination of the security interest.
(3) If the creditor has delivered any
money or property, the consumer may retain possession until the
creditor has met its obligation under paragraph (d)(2) of this
section. When the creditor has complied with that paragraph, the
consumer shall tender the money or property to the creditor or,
where the latter would be impracticable or inequitable, tender
its reasonable value. At the consumer's option, tender of property
may be made at the location of the property or at the consumer's
residence. Tender of money must be made at the creditor's designated
place of business. If the creditor does not take possession of
the money or property within 20 calendar days after the consumer's
tender, the consumer may keep it without further obligation.
(4) The procedures outlined in paragraphs
(d) (2) and (3) of this section may be modified by court order.
(e) Consumer's waiver of right to rescind.
(1) The consumer may modify or waive the right to rescind if the
consumer determines that the extension of credit is needed to
meet a bona fide personal financial emergency. To modify or waive
the right, the consumer shall give the creditor a dated written
statement that describes the emergency, specifically modifies
or waives the right to rescind, and bears the signature of all
the consumers entitled to rescind. Printed forms for this purpose
are prohibited, except as provided in paragraph (e)(2) of this
section.
(2) The need of the consumer to obtain
funds immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during June through September
1993, pursuant to 42 U.S.C. 5170, to be a major disaster area
because of severe storms and flooding in the Midwest. In this
instance, creditors may use printed forms for the consumer to
waive the right to rescind. This exemption to paragraph (e)(1)
of this section shall expire one year from the date an area was
declared a major disaster.
(3) The consumer's need to obtain funds
immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during June through September
1994 to be a major disaster area, pursuant to 42 U.S.C. 5170,
because of severe storms and flooding in the South. In this instance,
creditors may use printed forms for the consumer to waive the
right to rescind. This exemption to paragraph (e)(1) of this section
shall expire one year from the date an area was declared a major
disaster.
(4) The consumer's need to obtain funds
immediately shall be regarded as a bona fide personal financial
emergency provided that the dwelling securing the extension of
credit is located in an area declared during October 1994 to be
a major disaster area, pursuant to 42 U.S.C. 5170, because of
severe storms and flooding in Texas. In this instance, creditors
may use printed forms for the consumer to waive the right to rescind.
This exemption to paragraph (e)(1) of this section shall expire
one year from the date an area was declared a major disaster.
(f) Exempt transactions. The right to
rescind does not apply to the following:
(1) A residential mortgage transaction.
(2) A refinancing or consolidation by
the same creditor of an extension of credit already secured by
the consumer's principal dwelling. The right of rescission shall
apply, however, to the extent the new amount financed exceeds
the unpaid principal balance, any earned unpaid finance charge
on the existing debt, and amounts attributed solely to the costs
of the refinancing or consolidation.
(3) A transaction in which a state agency
is a creditor.
(4) An advance, other than an initial
advance, in a series of advances or in a series of single-payment
obligations that is treated as a single transaction under Sec.
226.17(c)(6), if the notice required by paragraph (b) of this
section and all material disclosures have been given to the consumer.
(5) A renewal of optional insurance premiums
that is not considered a refinancing under Sec. 226.20(a)(5).
(g) Tolerances for accuracy.--(1) One-half
of 1 percent tolerance. Except as provided in paragraphs (g)(2)
and (h)(2) of this section, the finance charge and other disclosures
affected by the finance charge (such as the amount financed and
the annual percentage rate) shall be considered accurate for purposes
of this section if the disclosed finance charge:
(i) is understated by no more than \1/2\
of 1 percent of the face amount of the note or $100, whichever
is greater; or
(ii) is greater than the amount required
to be disclosed.
(2) One percent tolerance. In a refinancing
of a residential mortgage transaction with a new creditor (other
than a transaction covered by Sec. 226.32), if there is no new
advance and no consolidation of existing loans, the finance charge
and other disclosures affected by the finance charge (such as
the amount financed and the annual percentage rate) shall be considered
accurate for purposes of this section if the disclosed finance
charge:
(i) is understated by no more than 1
percent of the face amount of the note or $100, whichever is greater;
or
(ii) is greater than the amount required
to be disclosed.
(h) Special rules for foreclosures--(1)
Right to rescind. After the initiation of foreclosure on the consumer's
principal dwelling that secures the credit obligation, the consumer
shall have the right to rescind the transaction if:
(i) A mortgage broker fee that should
have been included in the finance charge was not included; or
(ii) The creditor did not provide the
properly completed appropriate model form in Appendix H of this
part, or a substantially similar notice of rescission.
(2) Tolerance for disclosures. After
the initiation of foreclosure on the consumer's principal dwelling
that secures the credit obligation, the finance charge and other
disclosures affected by the finance charge (such as the amount
financed and the annual percentage rate) shall be considered accurate
for purposes of this section if the disclosed finance charge:
(i) is understated by no more than $35;
or
(ii) is greater than the amount required
to be disclosed.
Sec. 226.24 Advertising.
(a) Actually available terms. If an
advertisement for credit states specific credit terms, it shall
state only those terms that actually are or will be arranged or
offered by the creditor.
(b) Advertisement of rate of finance
charge. If an advertisement states a rate of finance charge, it
shall state the rate as an ``annual percentage rate,'' using that
term. If the annual percentage rate may be increased after consummation,
the advertisement shall state that fact. The advertisement shall
not state any other rate, except that a simple annual rate or
periodic rate that is applied to an unpaid balance may be stated
in conjunction with, but not more conspicuously than, the annual
percentage rate.
(c) Advertisement of terms that require
additional disclosures. (1) If any of the following terms is set
forth in an advertisement, the advertisement shall meet the requirements
of paragraph (c)(2) of this section:
(i) The amount or percentage of any downpayment.
(ii) The number of payments or period
of repayment.
(iii) The amount of any payment.
(iv) The amount of any finance charge.
(2) An advertisement stating any of the
terms in paragraph (c)(1) of this section shall state the following
terms,49 as applicable:
49 An example of
one or more typical extensions of credit with a statement of all
the terms applicable to each may be used.
(i) The amount or percentage of the
downpayment.
(ii) The terms of repayment.
(iii) The annual percentage rate, using
that term, and, if the rate may be increased after consummation,
that fact.
(d) Catalogs and multiple-page advertisements.
(1) If a catalog or other multiple-page advertisement gives information
in a table or schedule in sufficient detail to permit determination
of the disclosures required by paragraph (c)(2) of this section,
it shall be considered a single advertisement if:
(i) The table or schedule is clearly
set forth; and
(ii) Any statement of the credit terms
in paragraph (c)(1) of this section appearing anywhere else in
the catalog or advertisement clearly refers to the page on which
the table or schedule begins.
(2) A catalog or multiple-page advertisement
complies with paragraph (c)(2) of this section if the table or
schedule of terms includes all appropriate disclosures for a representative
scale of amounts up to the level of the more commonly sold higher-priced
property or services offered.
SubPart A - General
SubPart B - Open-End Credit
- (Large File - May Load Slowly)
SubPart D - Miscellaneous
Subpart E - Special Rules
for Certain Home Mortgage Transactions
Appendices A - L
Credit And Banking
Laws Directory
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