Magazine article Regulation

Regulation Z

Magazine article Regulation

Regulation Z

Article excerpt

STATUS: Federal Reserve comment period closes March 28.

The Federal Reserve Board of Governors recently announced that it is beginning a review process of the revolving credit disclosure requirements of its Regulation Z. The regulation implements provisions of the 1968 Consumer Credit Protection Act, more popularly referred to as the "Truth in Lending" law. Although the act was significantly amended in 1980 and various parts of the resulting regulations have been modified since then, this is the first time since 1982 that Regulation Z has been reviewed in its entirety.

The Fed's current review focuses on the disclosure requirements for openend or revolving credit accounts not secured by a home. In other words, it applies mainly to consumer credit card accounts, both merchant-specific and general-purpose bank cards such as VISA and MasterCard. The Fed plans to review other credit facilities under Regulation Z (such as home mortgages) later.

The original rationale for truth-in-lending requirements was to "assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." Survey results seem to suggest the law has achieved its intended effect. As Thomas A. Durkin observes in a 2002 Federal Reserve Bulletin article, consumer awareness of credit card annual percentage rates has "increased from 27 percent of credit card holders before Truth in Lending, to 63 percent in 1970 (15 months after implementation), to 71 percent in 1977, and in 2000 to 85 percent and 91 percent respectively, for the 'narrow' and 'broad' definitions of awareness employed in the 2000 survey."

But disclosure and awareness are not ends in themselves. An important but unstated corollary of the rationale for increased disclosure and awareness is that better-informed consumers make better choices about their use of consumer credit. …

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