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.
# # #
MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs
202-326-2161
STAFF CONTACT: Carole L. Reynolds, Division of Credit
Practices, 202-326-3230
(V920007)
(FedRegZ)