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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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