This is a reminder that the Federal Reserve Board has requested comments by October 12, 2007 regarding the proposed rule that would amend Regulation Z, which implements the Truth in Lending Act (TILA), and the staff commentary to the regulation, 72 F.R. 32948 (June 14, 2007).

    The Board is proposing changes to format, timing and content requirements for the five main types of open-end credit disclosures governed by Regulation Z: (1) credit and charge card application and solicitation disclosures; (2) account-opening disclosures; (3) periodic statement disclosures; (4) change-in-terms notices; and (5) advertising provisions. In addition, the Board is proposing changes to coverage of credit insurance, debt cancellation and debt suspension products that affect open- and closed-end credit.

    Credit Insurance, Debt Cancellation and Debt Suspension Coverage:

    • Expanded coverage of existing rules for debt cancellation to “debt suspension” for both open-end credit and closed-end transactions. New requirement that, to exclude the cost of debt suspension from the finance charge, creditors must inform consumers that debt suspension suspends, but does not cancel, the debt; and
    • A broader interpretation of existing language that would require creditors to provide disclosures and obtain evidence of consent on sales of credit insurance or debt cancellation or suspension during the life of an open-end account, and not just at the time an open-end account is opened.

    Applications and Solicitations:

    • New tabular format requirements, including type size, boldface type, placement of information and the use of cross-references; and
    • Revised content requirements, including disclosure of the duration of penalty rates and new disclosures on the effect of payment allocation practices.

    Account-Opening Disclosures:

    • New requirement for disclosure of certain key information in a summary table; and
    • Identification of fees that must be disclosed in the summary table and others that may be disclosed at account opening or orally before consumer becomes obligated to pay the fee.

    Periodic Statement Disclosures:

    • New requirement to itemize interest charges for different types of transactions and provide separate totals of fees and interest for the month and year-to-date;
    • Revised disclosure of the “effective APR,” including format and terminology. (The Board also is soliciting comment on whether this rate should be required to be disclosed); and
    • New disclosure (required by the Bankruptcy Act) of the effect of making only the minimum required payment on repayment of balances.

    Changes in Terms:

    • Increased advance notice period (45 days) for changing terms, including a rate increase due to the consumer’s delinquency or default; and
    • New requirement that a tabular disclosure of key terms being changed must appear on the front of a periodic statement that accompanies a change-in-terms notice.

    Advertising Provisions:

    • New requirement that advertisements stating a minimum monthly payment also must state, in equal prominence, the time period required to pay the balance and the total of payments if only minimum payments are made; and
    • Prohibition on referring to a rate as “fixed” unless (i) the advertisement specifies a time period for which the rate is fixed and the rate will not increase for any reason during that time or (ii) the rate will not increase for any reason while the plan is open.

    Our Firm has analyzed the proposal in depth and engaged in conversations about the implications of the proposed changes for the industry.

    Judy Scheiderer