Fed Box Reg. Z Question

Posted By: Bear Collector, CRCM

Fed Box Reg. Z Question - 12/04/00 09:53 PM

This question kind of piggy-backs on of the questions below, but it may not be the same issue. I read recently that some examiners are criticizing banks for putting the fact that the loan is secured by all of the customer's assets in the bank ("right of set-off" statement) in the Fed Box. Examiners have said that it does not belong there, citing this disclosure as a violation of 12 CFR 226.17(a) which states that the disclosures in the Fed Box must be segregated from everything else and shall not contain any information not direcctly related to the disclosures required in 226.18. Is this a major issue and one that needs to be corrected, or just one person's interpretation which can be ignored?
Posted By: Lucy Griffin

Re: Fed Box Reg. Z Question - 12/05/00 01:36 AM

Reg Z permits related information to be placed in the federal box. I would consider this as related information and definitely not a violation. This sounds a bit like an examiner in search of a violation instead of a reasonable interpretation of Z.
Posted By: Andy_Z

Re: Fed Box Reg. Z Question - 12/05/00 02:55 AM

First, we should all agree that security interests are disclosable in the Fed box. If your state's law considers the right to setoff a security interest it should definitely be disclosed there.

Also look to the Commentary, 2(a)(25):

"Security Interest"

"1. Threshold test. The threshold test is whether a particular interest in property is recognized as a security interest under applicable law. The regulation does not determine whether a particular interest is a security interest under applicable law. If the creditor is unsure whether a particular interest is a security interest under applicable law (for example, if statutes and case law are either silent or inconclusive on the issue), the creditor may at its option consider such interests as security interests for Truth in Lending purposes."

There is certainly room to justify the disclosure, in my opinion anyway. But I'm no attorney. You might tactfully ask the examiner in charge to verify his/her findings with his/her supervisor since (I make assumptions here)this has not been a problem in the past, appears to be an accepted practice and allowed under the Commentary.

Good luck.

Andy Zavoina
Opinions stated are not necessarily that of my employer.