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CUNA Regulatory Comment Call

May 23, 2000

(MAJOR RULE)

EXECUTIVE SUMMARY

• The Federal Reserve Board (Fed) is requesting comments on revising the disclosure requirements for credit and charge card solicitations and applications under Regulation Z, the Truth in Lending Act (TILA).



• These revisions would require the following:

the use of 18 point-type size for the Annual Percentage Rate (APR);

that creditors provide supplemental information about penalty rates outside of the table commonly referred to as the "Schumer box;" and

that this table be located either on the same page as the solicitation or application reply form, on the first page of any other applicable document, or on a separate insert with a reference to the insert on the application or reply form.

Comments on the proposal are due by July 18, 2000. Please submit your comments to CUNA by July 12, 2000. Please feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite 300, Washington, DC 20005. You may also contact us if you would like a copy of the proposed rule or you may access it on the Internet at the following address: http://www.bog.frb.fed.us/boarddocs/press/BoardActs/2000/20000518/default.htm

BACKGROUND

TILA is intended to promote the informed use of consumer credit by providing for disclosures about its terms and cost. TILA requires creditors to disclose the cost of credit as a dollar amount and as an APR in a uniform manner. This uniformity is intended to assist consumers in comparison shopping for credit. Regulation Z implements TILA, which contains official staff commentary that interprets the regulation and provides guidance in applying the regulation to specific transactions.

The Fair Credit and Charge Card Disclosure Act of 1988 (Act) amended TILA by requiring that consumers receive important cost information in the form of a table so that they can find the information easily and use it for comparison purposes. This table is commonly referred to as the "Schumer box," named after the law's sponsor, Senator Charles Schumer (D-NY). The table is required to include the APR for purchases, the annual fee, transaction fees, minimum finance charge per billing cycle, the method for calculating finance charges, the grace period, cash advance fees, and fees for late payment or for exceeding the credit limit. These disclosures are required to be "clearly and conspicuously" displayed.

BRIEF DESCRIPTION OF THE PROPOSAL

The proposed rule is intended to further carry out the purposes of the Act and promote more effective disclosures of the costs and terms in credit and charge card solicitations and applications. The proposed rule also revises the model form and includes a new sample form to incorporate the proposed changes. The following are the significant changes that are covered under the proposed rule:

• The APR for purchases must be in at least 18-point type and must appear under a separate heading from other APRs. (This sentence is 18-point type, but this may depend on your computer settings.) This size requirement would also apply to an initial or temporary APR that is higher than the APR that will apply after the temporary period, unless the permanent rate is in 18-point size and the consumer is informed as to how long the temporary rate will be in effect.
• The other disclosures should be in 12-point type. Slightly smaller type may be acceptable, but this would be reviewed on a case-by-case basis. (This Regulatory Comment Call is written in 12-point type - again, this may depend on your computer settings.)
• The Schumer box must be "prominently located." The official staff commentary will be revised to indicate that this requirement is met if the table is on the same page as the solicitation or application, on the first page of any other applicable document, or on a separate insert if there is a reference to the insert on the application or reply form.
• Consumers are often charged higher APRs when a specific event occurs, such as late payments. To reduce clutter in the Schumer box, only this "penalty APR" could be included in the box. The additional information, such as the explanation for when the penalty APR applies and how it is calculated, would have to appear outside of the box. An asterisk or other means must be used to direct the consumer to this additional information.

QUESTIONS TO CONSIDER REGARDING THE FED'S REGULATION Z PROPOSAL

• Would the proposed rule be overly burdensome? Does the burden outweigh the benefit of possible clarity for the consumer? Why or why not? Increasing the type size may take up more space and paper. Would this extra cost be significant? Would there be other burdens besides additional costs?




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• Instead of issuing this rule, would a better approach be for the regulators to only address specific circumstances where the disclosures do not meet the current "clear and conspicuous" test?




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• Should additional rates and fees, such as the APR and fees for balance transfers and cash advances, be included in the Schumer box? Would the benefit to consumers outweigh the burden of compliance? Why or why not? (This question was specifically raised in the proposed rule.)




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• Proposed legislation and proposed rules from the Fed would permit electronic means for delivery of the required disclosures. Would specific guidance be necessary for applying the type size requirements to disclosures made using electronic communications? (This question was specifically raised in the proposed rule.)




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• Other comments?




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