Final rule—amendment to Regulation Z - Legal Developments

Federal Reserve Bulletin, Feb, 2002

(4) Repayment ability. Engage in a pattern or practice of extending credit subject to section 226.32 to a consumer based on the consumer' s collateral without regard to the consumer's repayment ability, including the consumer's current and expected income, current obligations, and employment. There is a presumption that a creditor has violated this paragraph (a)(4) if the creditor engages in a pattern or practice of making loans subject to section 226.32 without verifying and documenting consumers' repayment ability.

(b) Prohibited acts or practices for dwelling-secured loans; open-end credit. In connection with credit secured by the consumer's dwelling that does not meet the definition in section 226.2(a)(20), a creditor shall not structure a home-secured loan as an open-end plan to evade the requirements of section 226.32.

5. Appendix H to Part 226 is amended by revising Model Form H-16 to read as follows:

Appendix H to Part 226--Closed-End Model Forms and Clauses

H-16--Mortgage Sample

6. In Supplement I to Part 226, the following amendments are made:

a. Under Section 226.31--General Rules, under Paragraph 31(c)(1)(i), paragraph 2. is added;

b. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, under Paragraph 32(a)(1)(ii), paragraph 1. introductory text is revised and 1.iv. is added;

c. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, a new heading Paragraph 32(b)(1)(iv) is added and a new paragraph 1. is added;

d. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, under Paragraph 32(c)(3), the heading is revised, paragraph 1. is revised and paragraph 2. is removed; and a new heading Paragraph 32(c)(5) is added and a new paragraph 1. is added.

e. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, a new heading Paragraph 32(d)(8) is added; a new heading Paragraph 32(d)(8)(ii) is added and a new paragraph 1. is added; and a new heading Paragraph 32(d)(8)(iii) is added and new paragraphs 1. and 2. are added.

f. Under Section 226.32--Requirements for Certain Closed-End Home Mortgages, 32(e) Prohibited Acts and Practices is removed;

g. Under Subpart E, a new Section 226.34--Prohibited Acts or Practices in Connection with Credit Secured by a Consumer's Dwelling; Open-end Credit is added; and

h. Under Appendix H--Closed-End Model Forms and Clauses, paragraphs 20. through 23. are redesignated as paragraphs 21. through 24., and new paragraph 20. is added.

The additions and revisions read as follows:

Supplement I to Part 226--Official Staff Interpretations

Subpart E--Special Rules for Certain Home Mortgage Transactions

Section 226.31--General Rules

31(c) Timing of disclosure.

Paragraph 31(c)(1)(i) Change in terms.

2. Sale of optional products at consummation. If the consumer finances the purchase of optional products such as credit insurance and as a result the monthly payment differs from what was previously disclosed under section 226.32, redisclosure is required and a new three-day waiting period applies. (See comment 32(c)(3)-1 on when optional items may be included in the regular payment disclosure.)