FOR YOUR INFORMATION...........................MARCH 2, 1992
FTC STAFF RECOMMENDS FEW CHANGES TO FEDERAL RESERVE'S REGULATION GOVERNING HOME-EQUITY LINE-OF-CREDIT DISCLOSURES
Federal Trade Commission staff have recommended that the Federal Reserve Board retain most of its current provisions under Regulation Z pertaining to the disclosures of initial discounted rates ("teaser rates") lenders must make to consumers shopping for home-equity lines of credit.
The FTC staff submitted comments in response to a request from the Federal Reserve following a recent U.S. Court of Appeals' examination of home-equity credit-line issues. The Federal Reserve subsequently requested comments regarding revisions to Regulation Z (which is the implementing regulation of the Truth in Lending Act) in a notice published in the Federal Register on Dec. 30, 1991. The FTC staff letter was signed by Carole L. Reynolds of the Division of Credit Practices in the FTC's Bureau of Consumer Protection.
Currently, Regulation Z requires lenders to state in pre- application disclosures, when an initial rate is discounted and how long the teaser rate will last. Currently, however, lenders are not required to disclose the rate itself. Rather, Regulation Z requires lenders to advise consumers to ask about the actual value of the discounted rate. The Federal Reserve requested comments on whether this language should be retained or revised to require creditors to state the actual rate itself in written pre-application disclosures to consumers. According to the FTC staff, it is in a lender's interest to tell consumers what its actual promotional rates are. Because these rates may change frequently and requiring written disclosure would mean frequent updating of pre-printed forms and other materials, the staff recommended retaining the current language and allowing lenders to disclose the rate orally or otherwise.
- more - Federal Reserve/Home-Equity--03/02/92)
The staff also recommended against expanding a provision under Regulation Z that lenders may present three representative payment scenarios in providing various payment information for their home-equity credit-line plans. The current regulation creates three categories of payment options from which the repre- sentative samples are to be chosen. According to the FTC staff, expanding the payment example disclosure requirements so that payment options would be required for every repayment option or loan plan the lender offers could result in "information over- load" for consumers, could lead lenders to narrow the number the payment plans they offer to consumers, and could be unreasonable and costly to lenders.
These comments represent the views of the FTC's Division of Credit Practices and not necessarily the views of the Commission or any individual Commissioner.
Copies of the comments are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY 1-866-653-4261.
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MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs 202-326-2161
STAFF CONTACT: Carole L. Reynolds, Division of Credit Practices, 202-326-3230