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6500 - Consumer Protection
Subpart C—Closed-End
Credit
§ 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 required
by this subpart may be provided to the consumer in electronic form,
subject to compliance with the consumer consent and other applicable
provisions of the Electronic Signatures in Global and National Commerce
Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The disclosures
required by §§ 226.17(g), 226.19(b), and 226.24 may be provided to
the consumer in electronic form without regard to the consumer consent
or other provisions of the E-Sign Act in the circumstances set forth in
those sections. 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
§ 226.18. 38
The itemization of the amount financed under § 226.18(c)(1) must be
separate from the other disclosures under that section.
(2) The terms "finance charge" and "annual percentage
rate," when required to be disclosed under
§ 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 § 226.18(a).
(b) Time of disclosures. The creditor shall make
disclosures before consummation of the transaction. In certain mortgage
transactions, special timing requirements are set forth in
§ 226.19(a). In certain
variable-rate transactions, special timing requirements for
variable-rate disclosures are set forth in § 226.19(b) and
§ 226.20(c). In certain
transactions involving mail or telephone orders or a series of sales,
the timing of the 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.
{{8-29-08 p.6663}}
(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
§ 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, § 226.19, or § 226.20.
(f) Early disclosures. If disclosures required by this
subpart are given before the date of a consummation of a transaction
and a subsequent event makes them inaccurate, the creditor shall
disclose before consummation (except that, for certain mortgage
transactions, § 226.19(a)(2) permits redisclosure no later than
consummation or settlement, whichever is
later). 39
(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 facsimile machine 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 or in electronic 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.
{{8-29-08 p.6664}}
(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 § 226.18(d), the payment schedule under
§ 226.18(g), the total of payments under § 226.18(h), or the total
sale price under § 226.18(j).
[Codified to 12 C.F.R. § 226.17]
[Section 226.17 amended at 52 Fed. Reg. 48670, December 24, 1987,
effective December 28, 1987, but compliance optional until October 1,
1988; 61 Fed. Reg. 49246, September 19, 1996, effective October 1,
1996; 66 Fed. Reg. 17338, March 30, 2001, effective March 30, 2001; 67
Fed. Reg. 16982, April 9, 2002; 72 Fed. Reg. 63474, November 9, 2007,
effective December 10, 2007, the mandatory compliance date is October
1, 2008; 73 Fed. Reg. 44600, July 30, 2008, effective October 1,
2009]
§ 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
(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
(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.
{{8-29-08 p.6665}}
(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
(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
(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
(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 § 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.
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(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 § 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 § 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
[Codified to 12 C.F.R. § 226.18]
[Section 226.18 amended at 46 Fed. Reg. 29246, June 1, 1981; 52
Fed. Reg. 48670, December 24, 1987, effective December 28, 1987, but
compliance optional until October 1, 1988; 61 Fed. Reg. 49246,
September 19, 1996, effective October 21, 1996]
§ 226.19 Certain residential mortgage and variable-rate
transactions.
(a) Mortgage transactions subject to
RESPA--(1)(i) Time of disclosures. In a mortgage
transaction subject to the Real Estate Settlement Procedures Act
(12 U.S.C. 2601 et
seq.) that is secured by the consumer's principal dwelling, other
than a home equity line of credit subject to § 226.5b, the creditor
shall make good faith estimates of the disclosures required by
§ 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.
(ii) Imposition of fees. Except as provided in
paragraph (a)(1)(iii) of this section, neither a creditor nor any other
person may impose a fee on the consumer in connection with the
consumer's application for a mortgage transaction subject to paragraph
(a)(1)(i) of this section before the consumer has received the
disclosures required by paragraph (a)(1)(i) of this section. If the
disclosures are mailed to the consumer, the consumer is considered to
have received them three business days after they are mailed.
(iii) Exception to fee restriction. A creditor or
other person may impose a fee for obtaining the consumer's credit
history before the consumer has received the disclosures required by
paragraph (a)(1)(i) of this section, provided the fee is bona
fide and reasonable in amount.
(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 § 226.22, the creditor shall
disclose all the changed terms no later than consummation or
settlement.
{{8-29-08 p.6667}}
(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
nonrefundable fee, whichever is
earlier: 45b
(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 values. The example shall reflect 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 example in
paragraph (b)(2)(viii)(A) of this section; or
(B) The initial 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.
(c) Electronic disclosures. For an application that is
accessed by the consumer in electronic form, the disclosures required
by paragraph (b) of this section may be provided to the consumer in
electronic form on or with the application.
[Codified to 12 C.F.R. § 226.19]
{{8-29-08 p.6668}}
[Section 226.19 amended at 52 Fed. Reg. 48670, December
24, 1987, effective December 28, 1987, but compliance optional until
October 1, 1988; 53 Fed. Reg. 467, January 7, 1988; 61 Fed. Reg. 49296,
September 19, 1996, effective October 21, 1996; 62 Fed. Reg. 63443,
December 1, 1997, effective November 21, 1997, but compliance optional
until October 1, 1998; 72 Fed. Reg. 63474, November 9, 2007, effective
December 10, 2007, the mandatory compliance date is October 1, 2008; 73
Fed. Reg. 44600, July 30, 2008, effective October 1,
2009]
§ 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
§ 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 § 226.18(k),
(l), (m), and (n).
(4) The annual percentage rate originally imposed on the
obligation.
(5) The payment schedule under § 226.18(g) and the total of
payments under § 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
§ 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 payment at a new level is
due, the following disclosures, as applicable, must be delivered or
placed in the mail:
(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.
[Codified to 12 C.F.R. § 226.20]
[Section 226.20 amended at 52 Fed. Reg. 48671, December
24, 1987, effective December 28, 1987, but compliance optional until
October 1, 1988]
{{8-29-08 p.6669}}
§ 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
six 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.
[Codified to 12 C.F.R. § 226.21]
§ 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
(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
(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 tolerance 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 § 226.18(d)(1); or
(B) For purposes of rescission, if the disclosed finance charge
would be considered accurate under § 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 § 226.18(d)(1) or § 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.
{{8-29-08 p.6670}}
(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,
and 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
§ 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.
[Codified to 12 C.F.R. § 226.22]
[Section 226.22 amended at 47 Fed. Reg. 756, January 7, 1982,
effective December 31, 1981; 48 Fed. Reg. 14886, April 6, 1983,
effective October 1, 1982; 61 Fed. Reg. 49246, September 19, 1996,
effective October 21, 1996]
§ 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
(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 three 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
§ 125(f) of the act.
(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 two copies of the
notice of the right to rescind to each consumer entitled to
rescind
{{8-29-08 p.6670.01}}(one copy to each if the notice is
delivered in electronic form in accordance with the consumer consent
and other applicable provisions of the E-Sign Act). 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 of 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. 48a
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. 48b
In this instance, creditors may use printed forms for the consumer to
waive the
{{8-29-08 p.6670.02}}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. 48c
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
§ 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
§ 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
§ 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.
[Codified to 12 C.F.R. § 226.23]
{{8-29-08 p.6670.03}}
[Section 226.23 amended at 47 Fed. Reg. 51732, November
17, 1982; 51 Fed. Reg. 45299, December 18, 1986, effective December 16,
1986, but reliance optional until October 1, 1987; 51 Fed. Reg. 47106,
December 30, 1986; 58 Fed. Reg. 40583, July 29, 1993; 59 Fed. Reg.
40204, August 5, 1994, effective July 29, 1994; 59 Fed. Reg. 63715,
December 9, 1994, effective December 8, 1994; 60 Fed. Reg. 15471, March
24, 1995, effective March 22, 1995, but compliance optional until
October 1, 1995; 61 Fed. Reg. 49247, September 19, 1996, effective
October 21, 1996; 66 Fed. Reg. 17338, March 30, 2001, effective March
30, 2001; 72 Fed. Reg. 63474, November 9, 2007, effective December 10,
2007, the mandatory compliance date is October 1,
2008]
§ 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) Clear and conspicuous standard. Disclosures
required by this section shall be made clearly and conspicuously.
(c) 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. If an advertisement is for credit not secured by
a dwelling, 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. If an advertisement is for credit
secured by a dwelling, the advertisement shall not state any other
rate, except that a simple annual rate that is applied to an unpaid
balance may be stated in conjunction with, but not more conspicuously
than, the annual percentage rate.
(d) Advertisement of terms that require additional
disclosures--(1) Triggering terms. If any of the
following terms is set forth in an advertisement, the advertisement
shall meet the requirements of paragraph (d)(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) Additional terms. An advertisement stating any of
the terms in paragraph (d)(1) of this section shall state the following
terms, 49
as applicable (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, which reflect the repayment
obligations over the full term of the loan, including any balloon
payment.
(iii) The "annual percentage rate," using that term, and,
if the rate may be increased after consummation, that fact.
(e) Catalogs or other multiple-page advertisements;
electronic advertisements--(1) If a catalog or other
multiple-page advertisement, or an electronic advertisement (such as an
advertisement appearing on an Internet Web site), gives information in
a table or schedule in sufficient detail to permit determination of the
disclosures required by paragraph (d)(2) of this section, it shall be
considered a single advertisement if--
(i) The table or schedule is clearly and conspicuously set forth;
and
(ii) Any statement of terms of the credit terms in paragraph
(d)(1) of this section appearing anywhere else in the catalog or
advertisement clearly refers to the page or location where the table or
schedule begins.
(2) A catalog or other multiple-page advertisement or an
electronic advertisement (such as an advertisement appearing on an
Internet Web site) complies with paragraph (d)(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.
{{8-29-08 p.6670.04}}
(f) Disclosure of Rates and Payments in Advertisements for
Credit Secured by a Dwelling.
(1) Scope. The requirements of this paragraph apply
to any advertisement for credit secured by a dwelling, other than
television or radio advertisements, including promotional materials
accompanying applications.
(2) Disclosure of rates--(i) In
general. If an advertisement for credit secured by a dwelling
states a simple annual rate of interest and more than one simple annual
rate of interest will apply over the term of the advertised loan, the
advertisement shall disclose in a clear and conspicuous manner:
(A) Each simple annual rate of interest that will apply. In
variable-rate transactions, a rate determined by adding an index and
margin shall be disclosed based on a reasonably current index and
margin;
(B) The period of time during which each simple annual rate of
interest will apply; and
(C) The annual percentage rate for the loan. If such rate is
variable, the annual percentage rate shall comply with the accuracy
standards in §§ 226.17(c) and 226.22.
(ii) Clear and conspicuous requirement. For purposes
of paragraph (f)(2)(i) of this section, clearly and conspicuously
disclosed means that the required information in paragraphs
(f)(2)(i)(A) through (C) shall be disclosed with equal prominence and
in close proximity to any advertised rate that triggered the required
disclosures. The required information in paragraph (f)(2)(i)(C) may be
disclosed with greater prominence than the other information.
(3) Disclosure of payments--(i) In
general. In addition to the requirements of paragraph (c)
of this section, if an advertisement for credit secured by a dwelling
states the amount of any payment, the advertisement shall disclose in a
clear and conspicuous manner:
(A) The amount of each payment that will apply over the term of
the loan, including any balloon payment. In variable-rate transactions,
payments that will be determined based on the application of the sum of
an index and margin shall be disclosed based on a reasonably current
index and margin;
(B) The period of time during which each payment will apply; and
(C) In an advertisement for credit secured by a first lien on a
dwelling, the fact that the payments do not include amounts for taxes
and insurance premiums, if applicable, and that the actual payment
obligation will be greater.
(ii) Clear and conspicuous requirement. For purposes
of paragraph (f)(3)(i) of this section, a clear and conspicuous
disclosure means that the required information in paragraphs
(f)(3)(i)(A) and (B) shall be disclosed with equal prominence and in
close proximity to any advertised payment that triggered the required
disclosures, and that the required information in paragraph
(f)(3)(i)(C) shall be disclosed with prominence and in close proximity
to the advertised payments.
(4) Envelope excluded. The requirements in paragraphs
(f)(2) and (f)(3) of this section do not apply to an envelope in which
an application or solicitation is mailed, or to a banner advertisement
or pop-up advertisement linked to an application or solicitation
provided electronically.
(g) Alternative disclosures--television or radio
advertisements. An advertisement made through television or radio
stating any of the terms requiring additional disclosures under
paragraph (d)(2) of this section may comply with paragraph (d)(2) of
this section either by:
(1) Stating clearly and conspicuously each of the additional
disclosures required under paragraph (d)(2) of this section; or
(2) Stating clearly and conspicuously the information required by
paragraph (d)(2)(iii) of this section and listing a toll-free telephone
number, or any telephone number that allows a consumer to reverse the
phone charges when calling for information, along with a reference that
such number may be used by consumers to obtain additional cost
information.
(h) Tax implications. If an advertisement distributed
in paper form or through the Internet (rather than by radio or
television) is for a loan secured by the consumer's principal
dwelling, and the advertisement states that the advertised extension of
credit may exceed the fair market value of the dwelling, the
advertisement shall clearly and conspicuously state that:
{{8-29-08 p.6670.04-A}}
(1) The interest on the portion of the credit extension that is
greater than the fair market value of the dwelling is not tax
deductible for Federal income tax purposes; and
(2) The consumer should consult a tax adviser for further
information regarding the deductibility of interest and charges.
(i) Prohibited acts or practices in advertisements for
credit secured by a dwelling. The following acts or practices are
prohibited in advertisements for credit secured by a dwelling:
(1) Misleading advertising of "fixed" rates and
payments. Using the words "fixed" to refer to rates,
payments, or the credit transaction in an advertisement for
variable-rate transactions or other transactions where the payment will
increase, unless:
(i) In the case of an advertisement solely for one or more
variable-rate transactions,
(A) The phrase "Adjustable-Rate Mortgage,"
"Variable-Rate Mortgage," or "ARM" appears in the
advertisement before the first use of the word "fixed" and is at
least as conspicuous as any use of the word "fixed" in the
advertisement; and
(B) Each use of the word "fixed" to refer to a rate or
payment is accompanied by an equally prominent and closely proximate
statement of the time period for which the rate or payment is fixed,
and the fact that the rate may vary or the payment may increase after
that period;
(ii) In the case of an advertisement solely for non-variable-rate
transactions where the payment will increase (e.g., a
stepped-rate mortgage transaction with an initial lower payment), each
use of the word "fixed" to refer to the payment is accompanied by
an equally prominent and closely proximate statement of the time period
for which the payment is fixed, and the fact that the payment will
increase after that period; or
(iii) In the case of an advertisement for both variable-rate
transactions and non-variable-rate transactions,
(A) The phrase "Adjustable-Rate Mortgage,"
"Variable-Rate Mortgage," or "ARM" appears in the
advertisement with equal prominence as any use of the term
"fixed," "Fixed-Rate Mortgage," or similar terms; and
(B) Each use of the word "fixed" to refer to a rate,
payment, or the credit transaction either refers solely to the
transactions for which rates are fixed and complies with paragraph
(i)(1)(ii) of this section, if applicable, or, if it refers to the
variable-rate transactions, is accompanied by an equally prominent and
closely proximate statement of the time period for which the rate or
payment is fixed, and the fact that the rate may vary or the payment
may increase after that period.
(2) Misleading comparisons in advertisements. Making
any comparison in an advertisement between actual or hypothetical
credit payments or rates and any payment or simple annual rate that
will be available under the advertised product for a period less than
the full term of the loan, unless:
(i) In general. The advertisement includes a clear
and conspicuous comparison to the information required to be disclosed
under sections 226.24(f)(2) and (3); and
(ii) Application to variable-rate transactions. If
the advertisement is for a variable-rate transaction, and the
advertised payment or simple annual rate is based on the index and
margin that will be used to make subsequent rate or payment adjustments
over the term of the loan, the advertisement includes an equally
prominent statement in close proximity to the payment or rate that the
payment or rate is subject to adjustment and the time period when the
first adjustment will occur.
(3) Misrepresentations about government
endorsement. Making any statement in an advertisement that the
product offered is a "government loan program",
"government-supported loan", or is otherwise endorsed or
sponsored by any federal, state, or local government entity, unless the
advertisement is for an FHA loan, VA loan, or similar loan program that
is, in fact, endorsed or sponsored by a federal, state, or local
government entity.
(4) Misleading use of the current lender's
name. Using the name of the consumer's current lender in an
advertisement that is not sent by or on behalf of the consumer's
current lender, unless the advertisement:
(i) Discloses with equal prominence the name of the person or
creditor making the advertisement; and
(ii) Includes a clear and conspicuous statement that the person
making the advertisement is not associated with, or acting on behalf
of, the consumer's current lender.
{{8-29-08 p.6670.04-B}}
(5) Misleading claims of debt elimination. Making any
misleading claim in an advertisement that the mortgage product offered
will eliminate debt or result in a waiver or forgiveness of a
consumer's existing loan terms with, or obligations to, another
creditor.
(6) Misleading use of the term
"counselor". Using the term "counselor" in an
advertisement to refer to a for-profit mortgage broker or mortgage
creditor, its employees, or persons working for the broker or creditor
that are involved in offering, originating or selling mortgages.
(7) Misleading foreign-language
advertisements. Providing information about some trigger terms or
required disclosures, such as an initial rate or payment, only in a
foreign language in an advertisement, but providing information about
other trigger terms or required disclosures, such as information about
the fully-indexed rate or fully amortizing payment, only in English in
the same advertisement.
[Codified to 12 C.F.R. § 226.24]
[Section 226.24 amended at 66 Fed. Reg. 17338, March 30, 2001,
effective March 30, 2001; 72 Fed. Reg. 63474 November 9, 2007,
effective December 10, 2007, the mandatory compliance date is October
1, 2008; 73 Fed. Reg. 46601, July 30, 2008, effective October 1,
2009]
37 The disclosures may include an acknowledgment of receipt,
the date of the transaction, and the consumer's name, address, and
account number. Go Back to Text
38 The following disclosures may be made together with or
separately from other required disclosures: the creditor's identity
under § 226.18(a), the variable rate example under 226.18(f)(1)(iv),
insurance or debt cancellation under § 226.18(n), and certain
security interest charges under § 226.18(o). Go Back to Text
39[Reserved] Go Back to Text
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. Go Back to Text
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. Go Back to Text
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. Go Back to Text
43 Information provided in accordance with §§ 226.18(f)(2)
and 226.19(b) may be substituted for the disclosures required by
paragraph (f)(1) of this section. Go Back to Text
44 In any transaction involving a single payment, the creditor
need not disclose the total of payments. Go Back to Text
45A 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. Go Back to Text
45aInformation provided in accordance with variable-rate
regulations of other federal agencies may be substituted for the
disclosures required by paragraph (b) of this section. Go Back to Text
45bDisclosures 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. Go Back to Text
45cInformation 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. Go Back to Text
45dAn 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. Go Back to Text
46For 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). Go Back to Text
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. Go Back to Text
48 The term "material disclosures" means the required
disclosures of the annual percentage rate, the finance charge, the
amount financed, the total of payments, the payment schedule, and the
disclosures and limitations referred to in
§§ 226.32(c) and (d) and
226.35(b)(2). Go Back to Text
48a A list of the affected areas will be maintained by the
Board. Go Back to Text
48b A list of the affected areas will be maintained and
published by the Board. Such areas now include parts of Alabama,
Florida, and Georgia. Go Back to Text
48c A list of the affected areas will be maintained and
published by the Board. Such areas now include the following counties
in Texas: Angelina, Austin, Bastrop, Brazos, Brazoria, Burleson,
Chambers, Fayette, Fort Bend, Galveston, Grimes, Hardin, Harris,
Houston, Jackson, Jasper, Jefferson, Lee, Liberty, Madison, Matagorda,
Montgomery, Nacagdoches, Orange, Polk, San Augustine, San Jacinto,
Shelby, Trinity, Victoria, Washington, Waller, Walker, and Wharton. Go Back to Text
49 An example of one or more typical extensions of credit with
a statement of all the terms applicable to each may be used. Go Back to Text
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