Commentary Proposal Released

The Federal Reserve Board has published its annual proposed update to the Truth in Lending Official Staff Commentary. Some years, the proposed commentary update contains compliance-shattering concepts and triggers seemingly endless activity. This year's proposal is a give-back for all the work put in on Y2K. There is truly not much here to deal with.

The proposal contains three elements, one of which is the new trigger amount for high cost loans. This should simply trigger the distribution of this amount and the use of this figure in internal audits to determine whether high cost loans have been made.

The other two provisions are more substantive but won't make a big difference to your compliance routine. The proposed revision that would most affect banks is language to conform the citations in Commentary paragraph 19(b)-5 to the correct sections in 226.19(b)(2). The FRB intends no substantive change.

The third - and only substantive - element of the proposal would clarify that "pay-day loans" are credit that is subject to the disclosure requirements of Truth in Lending. Pay-day loans are cash advances or "check loans" made in the expectation of the customer's pay check. They are short term loans, usually paid in full when the pay check is received.

The commentary would compare these loans to the regulation's definition of credit - the ability to incur debt and defer its payment or the right to defer payment of debt. The FRB staff concludes that payday loans, although short term, meet this definition.

Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 13 & 14, 11/99