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Comment for Appendix H - Closed-End Forms and Clauses

1. Models H-1 and H-2.

i. Creditors may make several types of changes to closed-end model forms H-1 (credit sale) and H-2 (loan) and still be deemed to be in compliance with the regulation, provided that the required disclosures are made clearly and conspicuously. Permissible changes include the addition of the information permitted by § 1026.17(a)(1) and “directly related” information as set forth in the commentary to § 1026.17(a).

ii. The creditor may also delete or, on multi-purpose forms, indicate inapplicable disclosures, such as:

A. The itemization of the amount financed option. (See Samples H-12 through H-15.)

B. The credit life and disability insurance disclosures. (See Samples H-11 and H-12.)

C. The property insurance disclosures. (See Samples H-10 through H-12, and H-14.)

D. The “filing fees” and “non-filing insurance” disclosures. (See Samples H-11 and H-12.)

E. The prepayment penalty or rebate disclosures. (See Samples H-12 and H-14.)

F. The total sale price. (See Samples H-11 through H-15.)

iii. Other permissible changes include:

A. Adding the creditor's address or telephone number. (See the commentary to § 1026.18(a).)

B. Combining required terms where several numerical disclosures are the same, for instance, if the “total of payments” equals the “total sale price.” (See the commentary to § 1026.18.)

C. Rearranging the sequence or location of the disclosures - for instance, by placing the descriptive phrases outside the boxes containing the corresponding disclosures, or by grouping the descriptors together as a glossary of terms in a separate section of the segregated disclosures; by placing the payment schedule at the top of the form; or by changing the order of the disclosures in the boxes, including the annual percentage rate and finance charge boxes.

D. Using brackets, instead of checkboxes, to indicate inapplicable disclosures.

E. Using a line for the consumer to initial, rather than a checkbox, to indicate an election to receive an itemization of the amount financed.

F. Deleting captions for disclosures.

G. Using a symbol, such as an asterisk, for estimated disclosures, instead of an “e.”

H. Adding a signature line to the insurance disclosures to reflect joint policies.

I. Separately itemizing the filing fees.

J. Revising the late charge disclosure in accordance with the commentary to § 1026.18(l).

2. Model H-3. Creditors have considerable flexibility in filling out Model H-3 (itemization of the amount financed). Appropriate revisions, such as those set out in the commentary to § 1026.18(c), may be made to this form without loss of protection from civil liability for proper use of the model forms.

3. Models H-4 through H-7. The model clauses are not included in the model forms although they are mandatory for certain transactions. Creditors using the model clauses when applicable to a transaction are deemed to be in compliance with the regulation with regard to that disclosure.

4. Model H-4(A). This model contains the variable rate model clauses applicable to transactions subject to § 1026.18(f)(1) and is intended to give creditors considerable flexibility in structuring variable rate disclosures to fit individual plans. The information about circumstances, limitations, and effects of an increase may be given in terms of the contract interest rate or the annual percentage rate. Clauses are shown for hypothetical examples based on the specific amount of the transaction and based on a representative amount. Creditors may preprint the variable rate disclosures based on a representative amount for similar types of transactions, instead of constructing an individualized example for each transaction. In both representative examples and transaction-specific examples, creditors may refer either to the incremental change in rate, payment amount, or number of payments, or to the resulting rate, payment amount, or number of payments. For example, creditors may state that the rate will increase by 2%, with a corresponding $150 increase in the payment, or creditors may state that the rate will increase to 16%, with a corresponding payment of $850.

5. Model H-4(B). This model clause illustrates the variable-rate disclosure required under § 1026.18(f)(2), which would alert consumers to the fact that the transaction contains a variable-rate feature and that disclosures were provided earlier.

6. Model H-4(C). This model clause illustrates the early disclosures required generally under § 1026.19(b). It includes information on how the consumer's interest rate is determined and how it can change over the term of the loan, and explains changes that may occur in the borrower's monthly payment. It contains an example of how to disclose historical changes in the index or formula values used to compute interest rates for the preceding 15 years. The model clause also illustrates the disclosure of the initial and maximum interest rates and payments based on an initial interest rate (index value plus margin, adjusted by the amount of any discount or premium) in effect as of an identified month and year for the loan program disclosure and illustrates how to provide consumers with a method for calculating the monthly payment for the loan amount to be borrowed.

7. Models H-4(D) through H-4(J). These model clauses and sample and model forms illustrate certain notices, statements, and other disclosures required as follows:

i. Model H-4(D)(1) illustrates the interest rate adjustment notice required under § 1026.20(c) and Model H-4(D)(2) provides an example of a notice of interest rate adjustment with corresponding payment change. Model H-4(D)(3) illustrates the interest rate adjustment notice required under § 1026.20(d) and Model H-4(D)(4) provides an example of a notice of initial interest rate adjustment.

ii. Model H-4(E) illustrates the interest rate and payment summary table required under § 1026.18(s) for a fixed-rate mortgage transaction.

iii. Model H-4(F) illustrates the interest rate and payment summary table required under § 1026.18(s) for an adjustable-rate or a step-rate mortgage transaction.

iv. Model H-4(G) illustrates the interest rate and payment summary table required under § 1026.18(s) for a mortgage transaction with negative amortization.

v. Model H-4(H) illustrates the interest rate and payment summary table required under § 1026.18(s) for a fixed-rate, interest-only mortgage transaction.

vi. Model H-4(I) illustrates the introductory rate disclosure required by § 1026.18(s)(2)(iii) for an adjustable-rate mortgage transaction with an introductory rate.

vii. Model H-4(J) illustrates the balloon payment disclosure required by § 1026.18(s)(5) for a mortgage transaction with a balloon payment term.

viii. Model H-4(K) illustrates the no-guarantee-to-refinance statement required by § 1026.18(t) for a mortgage transaction.

8. Model H-5. This contains the demand feature clause.

9. Model H-6. This contains the assumption clause.

10. Model H-7. This contains the required deposit clause.

11. Models H-8 and H-9. These models contain the rescission notices for a typical closed-end transaction and a refinancing, respectively. The last paragraph of each model form contains a blank for the date by which the consumer's notice of cancellation must be sent or delivered. A parenthetical is included to address the situation in which the consumer's right to rescind the transaction exists beyond 3 business days following the date of the transaction, for example, where the notice or material disclosures are delivered late or where the date of the transaction in paragraph 1 of the notice is an estimate. The language of the parenthetical is not optional. See the commentary to § 1026.2(a)(25) regarding the specificity of the security interest disclosure for model form H-9. The prior version of model form H-9 is substantially similar to the current version and creditors may continue to use it, as appropriate. Creditors are encouraged, however, to use the current version when reordering or reprinting forms.

12. Sample forms. The sample forms (H-10 through H-15) serve a different purpose than the model forms. The samples illustrate various ways of adapting the model forms to the individual transactions described in the commentary to appendix H. The deletions and rearrangements shown relate only to the specific transactions described. As a result, the samples do not provide the general protection from civil liability provided by the model forms and clauses.

13. Sample H-10. This sample illustrates an automobile credit sale. The cash price is $7,500 with a downpayment of $1,500. There is an 8% add-on interest rate and a term of 3 years, with 36 equal monthly payments. The credit life insurance premium and the filing fees are financed by the creditor. There is a $25 credit report fee paid by the consumer before consummation, which is a prepaid finance charge.

14. Sample H-11. This sample illustrates an installment loan. The amount of the loan is $5,000. There is a 12% simple interest rate and a term of 2 years. The date of the transaction is expected to be April 15, 1981, with the first payment due on June 1, 1981. The first payment amount is labeled as an estimate since the transaction date is uncertain. The odd days' interest ($26.67) is collected with the first payment. The remaining 23 monthly payments are equal.

15. Sample H-12. This sample illustrates a refinancing and consolidation loan. The amount of the loan is $5,000. There is a 15% simple interest rate and a term of 3 years. The date of the transaction is April 1, 1981, with the first payment due on May 1, 1981. The first 35 monthly payments are equal, with an odd final payment. The credit disability insurance premium is financed. In calculating the annual percentage rate, the U.S. Rule has been used. Since an itemization of the amount financed is included with the disclosures, the statement regarding the consumer's option to receive an itemization is deleted.

16. Samples H-13 through H-15. These samples illustrate various closed-end transactions. Samples H-13 and H-15 are for transactions subject to § 1026.17(a). Samples H-13 and H-15 do not illustrate the requirements of § 1026.18(c) or (p) regarding the itemization of the amount financed and a reference to contract documents. See form H-2 for a model for these requirements.

17. Sample H-13. This sample illustrates a mortgage with a demand feature. The loan amount is $44,900, payable in 360 monthly installments at a simple interest rate of 14.75%. The 15 days of interim interest ($294.34) is collected as a prepaid finance charge at the time of consummation of the loan (April 15, 1981). In calculating the disclosure amounts, the minor irregularities provision in § 1026.17(c)(4) has been used. The property insurance premiums are not included in the payment schedule. This disclosure statement could be used for notes with the 7-year call option required by the Federal National Mortgage Association (FNMA) in states where due-on-sale clauses are prohibited.

18. Sample H-14. This sample disclosure form illustrates the disclosures under § 1026.19(b) for a variable-rate transaction secured by the consumer's principal dwelling with a term greater than one year. The sample form shows a creditor how to adapt the model clauses in appendix H-4(C) to the creditor's own particular variable-rate program. The sample disclosure form describes the features of a specific variable-rate mortgage program and alerts the consumer to the fact that information on the creditor's other closed-end variable-rate programs is available upon request. It includes information on how the interest rate is determined and how it can change over time. Section 1026.19(b)(2)(viii) permits creditors the option to provide either a historical example or an initial and maximum interest rates and payments disclosure; both are illustrated in the sample disclosure. The historical example explains how the monthly payment can change based on a $10,000 loan amount, payable in 360 monthly installments, based on historical changes in the values for the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of one year. Index values are measured for 15 years, as of the first week ending in July. This reflects the requirement that the index history be based on values for the same date or period each year in the example. The sample disclosure also illustrates the alternative disclosure under § 1026.19(b)(2)(viii)(B) that the initial and the maximum interest rates and payments be shown for a $10,000 loan originated at an initial interest rate of 12.41 percent (which was in effect July 1996) and to have 2 percentage point annual (and 5 percentage point overall) interest rate limitations or caps. Thus, the maximum amount that the interest rate could rise under this program is 5 percentage points higher than the 12.41 percent initial rate to 17.41 percent, and the monthly payment could rise from $106.03 to a maximum of $145.34. The loan would not reach the maximum interest rate until its fourth year because of the 2 percentage point annual rate limitations, and the maximum payment disclosed reflects the amortization of the loan during that period. The sample form also illustrates how to provide consumers with a method for calculating their actual monthly payment for a loan amount other than $10,000.

19. Sample H-15. This sample illustrates a graduated payment transaction subject to § 1026.17(a) with a 5-year graduation period and a 71/2 percent yearly increase in payments. The loan amount is $44,900, payable in 360 monthly installments at a simple interest rate of 14.75%. Two points ($898), as well as an initial guarantee insurance premium of $225.00, are included in the prepaid finance charge. The guarantee insurance premiums are calculated on the basis of 1/4 of 1% of the outstanding principal balance under an annual reduction plan. The abbreviated disclosure permitted under § 1026.18(g)(2) is used for the payment schedule for years 6 through 30. The prepayment disclosure refers to both penalties and rebates because information about penalties is required for the simple interest portion of the obligation and information about rebates is required for the guarantee insurance portion of the obligation.

20. Sample H-16. This sample illustrates the disclosures required under § 1026.32(c). The sample illustrates the amount borrowed and the disclosures about optional insurance that are required for mortgage refinancings under § 1026.32(c)(5). Creditors may, at their option, include these disclosures for all loans subject to § 1026.32. The sample also includes disclosures required under § 1026.32(c)(3) when the legal obligation includes a balloon payment.

21. HRSA-500-1 9-82. Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA-500-1 9-82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all Health Education Assistance Loans (HEAL) with a variable interest rate that were considered interim student credit extensions as defined in Regulation Z.

22. HRSA-500-2 9-82. Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA-500-2 9-82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a fixed interest rate that were considered interim student credit extensions as defined in Regulation Z.

23. HRSA-502-1 9-82. Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA-502-1 9-82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a variable interest rate in which the borrower has reached repayment status and is making payments of both interest and principal.

24. HRSA-502-2 9-82. Pursuant to section 113(a) of the Truth in Lending Act, Form HRSA-502-2 9-82 issued by the U.S. Department of Health and Human Services for certain student loans has been approved for use for loans made prior to the mandatory compliance date of the disclosures required under Subpart F. The form was approved for all HEAL loans with a fixed interest rate in which the borrower has reached repayment status and is making payments of both interest and principal.

25. Models H-18, H-19, H-20.

i. These model forms illustrate disclosures required under § 1026.47 on or with an application or solicitation, at approval, and after acceptance of a private education loan. Although use of the model forms is not required, creditors using them properly will be deemed to be in compliance with the regulation with regard to private education loan disclosures. Creditors may make certain types of changes to private education loan model forms H-18 (application and solicitation), H-19 (approval), and H-20 (final) and still be deemed to be in compliance with the regulation, provided that the required disclosures are made clearly and conspicuously. The model forms aggregate disclosures into groups under specific headings. Changes may not include rearranging the sequence of disclosures, for instance, by rearranging which disclosures are provided under each heading or by rearranging the sequence of the headings and grouping of disclosures. Changes to the model forms may not be so extensive as to affect the substance or clarity of the forms. Creditors making revisions with that effect will lose their protection from civil liability.

ii. The creditor may delete inapplicable disclosures, such as:

A. The Federal student financial assistance alternatives disclosures.

B. The self-certification disclosure.

iii. Other permissible changes include, for example:

A. Adding the creditor's address, telephone number, or Web site.

B. Adding loan identification information, such as a loan identification number.

C. Adding the date on which the form was printed or produced.

D. Placing the notice of the right to cancel in the top left or top right of the disclosure to accommodate a window envelope.

E. Combining required terms where several numerical disclosures are the same. For instance, if the itemization of the amount financed is provided, the amount financed need not be separately disclosed.

F. Combining the disclosure of loan term and payment deferral options required in § 1026.47(a)(3) with the disclosure of cost estimates required in § 1026.47(a)(4) in the same chart or table (See comment 47(a)(3)-4.)

G. Using the first person, instead of the second person, in referring to the borrower.

H. Using “borrower” and “creditor” instead of pronouns.

I. Incorporating certain state “plain English” requirements.

J. Deleting inapplicable disclosures by whiting out, blocking out, filling in “N/A” (not applicable) or “0,” crossing out, leaving blanks, checking a box for applicable items, or circling applicable items.

iv. Although creditors are not required to use a certain paper size in disclosing the §§ 1026.47(a), (b) and (c) disclosures, samples H-21, H-22, and H-23 are designed to be printed on two 81/2 × 11 inch sheets of paper. A creditor may use a larger sheet of paper, such as 81/2 × 14 inch sheets of paper, or may use multiple pages. If the disclosures are provided on two sides of a single sheet of paper, the creditor must include a reference or references, such as “SEE BACK OF PAGE” at the bottom of each page indicating that the disclosures continue onto the back of the page. If the disclosures are on two or more pages, a creditor may not include any intervening information between portions of the disclosure. In addition, the following formatting techniques were used in presenting the information in the sample tables to ensure that the information is readable:

A. A readable font style and font size (10-point Helvetica font style for body text).

B. Sufficient spacing between lines of the text.

C. Standard spacing between words and characters. In other words, the body text was not compressed to appear smaller than the 10-point type size.

D. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text.

E. Sufficient contrast between the text and the background. Generally, black text was used on white paper.

v. While the Bureau is not requiring issuers to use the above formatting techniques in presenting information in the disclosure, the Bureau encourages issuers to consider these techniques when deciding how to disclose information in the disclosure to ensure that the information is presented in a readable format.

vi. Creditors are allowed to use color, shading and similar graphic techniques in the disclosures, so long as the disclosures remain substantially similar to the model and sample forms in appendix H.

26. Sample H-21. This sample illustrates a disclosure required under § 1026.47(a). The sample assumes a range of interest rates between 7.375% and 17.375%. The sample assumes a variable interest rate that will never exceed 25% over the life of the loan. The term of the sample loan is 20 years for an amount up to $20,000 and 30 years for an amount more than $20,000. The repayment options and sample costs have been combined into a single table, as permitted in the commentary to § 1026.47(a)(3). It demonstrates the loan amount, interest rate, and total paid when a consumer makes loan payments while in school, pays only interest while in school, and defers all payments while in school.

27. Sample H-22. This sample illustrates a disclosure required under § 1026.47(b). The sample assumes the consumer financed $10,000 at an 8.23% annual percentage rate. The sample assumes a variable interest rate that will never exceed 25% over the life of the loan. The payment schedule and terms assumes a 20-year loan term and that the consumer elected to defer payments while enrolled in school. This includes a sample disclosure of a total loan amount of $10,600 and prepaid finance charges totaling $600, for a total amount financed of $10,000.

28. Sample H-22. This sample illustrates a disclosure required under § 1026.47(c). The sample assumes the consumer financed $10,000 at an 8.23% annual percentage rate. The sample assumes a variable annual percentage rate in an instance where there is no maximum interest rate. The sample demonstrates disclosure of an assumed maximum rate, and the statement that the consumer's actual maximum rate and payment amount could be higher. The payment schedule and terms assumes a 20-year loan term, the assumed maximum interest rate, and that the consumer elected to defer payments while enrolled in school. This includes a sample disclosure of a total loan amount of $10,600 and prepaid finance charges totaling $600, for a total amount financed of $10,000.

29. Model Form H-29. Model form H-29 contains the disclosures for the cancellation of an escrow account established in connection with a closed-end transaction secured by a first lien on real property or a dwelling.

i. This model form illustrates the disclosures required by § 1026.20(e).

ii. A creditor or servicer satisfies § 1026.20(e) if it provides model form H-29 or a substantially similar notice, which is properly completed with the disclosures required by § 1026.20(e).

iii. Although creditors and servicers are not required to use a certain paper size in disclosing the information under § 1026.20(e), model form H-29 is designed to be printed on an 81/2 × 1- inch sheet of paper. In addition, the following formatting techniques were used in presenting the information in the model form to ensure that the information is readable:

A. A readable font style and font size (10-point minimum font size);

B. Sufficient spacing between lines of the text;

C. Standard spacing between words and characters. In other words, the text was not compressed to appear smaller than 10-point type;

D. Sufficient white space around the text of the information in each row, by providing sufficient margins above, below and to the sides of the text;

E. Sufficient contrast between the text and the background. Generally, black text was used on white paper.

iv. While the regulation does not require creditors or servicers to use the above formatting techniques in presenting information in the tabular format (except for the 10-point minimum font size requirement), creditors and servicers are encouraged to consider these techniques when deciding how to disclose information in the notice to ensure that the information is presented in a readable format.

v. Creditors and servicers may use color, shading and similar graphic techniques with respect to the notice, so long as the notice remains substantially similar to model form H-29.

30. Standard Loan Estimate and Closing Disclosure forms. Forms H-24(A) through (G), H-25(A) through (J), and H-28(A) through (J) are model forms for the disclosures required under §§ 1026.37 and 1026.38. However, pursuant to §§ 1026.37(o)(3) and 1026.38(t)(3), for federally related mortgage loans forms H-24(A) through (G) and H-25(A) through (J) are standard forms required to be used for the disclosures required under §§ 1026.37 and 1026.38, respectively.