The lending team is proposing a loan special for a closed end consumer product (non-mortgage) where the first loan payment would be made by the bank. It would be a normal term, but the bank covers the first payment.

Any thoughts or direction for handling this? Is there a specific section of Reg Z that could help with the disclosure?

Advice - don't make a 2 payment loan.

If I'm a borrower, I'll insist that you spell out the payment waiver feature in the promissory note or a binding rider of some kind. For the sake of this discussion, we'll assume that's what you're doing.

Section 1026.17(c)(1) tells you that "the disclosures shall reflect the terms of the legal obligation between the parties." That means your 60-month loan now has 59 real payments and the first payment doesn't count. For that matter, the (waived) first payment shouldn't appear in the TIL disclosure at all--not in the payment schedule, TOP, FC, or APR.

In order to prepare the note, you'll still need to calculate the payment amounts as if there are 60 of them. Also, you'll need to be sure that the APR part of the software can handle first payment periods of up to 3 months.