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Federal Reserve Board Regulations 
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

The federal government regulates depository institutions that it charters, or which have obligations insured by it, through five federal agencies.  These laws and regulations establish a framework for bank behavior that fosters the maintenance of a safe and sound banking system and the fair and efficient delivery of services to bank customers.  The Board of Governors of the Federal Reserve System is empowered to set regulations to ensure the smooth functioning of the central bank and its relationships to financial institutions, commercial banks, bank holding companies and consumer credit.  These regulations are the bylaws by which the Federal Reserve System fulfills Congressional policies, defined in various banking legislation since 1913, which have been assigned to the Federal Reserve System for enforcement.

Regulations of the Board of Governors of the Federal Reserve System are published in the Federal Register.  In addition, they may be obtained, individually with amendments, from the Board.  As of mid-year 1988, twenty-seven regulations were in effect.  Interpretations of the regulations are published by the board in the Federal Reserve Bulletin and the Federal Register.  Proposed regulations and amendments to existing regulations are circulated in these publications for comment prior to final promulgation.

Summaries of the various regulations follow.  These regulations can be and have been amended.  To obtain a copy of specific regulations, write to:  Publication Service, Board of Governors of the Federal Reserve System, Washington, DC 20551.

Regulation A:  Loans to Depository Institutions.

Regulation A governs the discount and borrowing privileges of depository institutions.  The Monetary Control Act of 1980 opened the discount facilities of the Federal Reserve System to any depository institution that maintains transactions accounts or nonpersonal time deposits.  The regulation provides for lending under two basic programs:  adjustment credit and extended credit.

Short-term adjustment credit is the primary type of Federal Reserve credit.  This type of credit is offered to help borrowers meet short-term needs for funds when their usual sources are not reasonably available.  Borrowing to take advantage of a favorable spread between the discount rate and other market rates is not permissible.  Interest on adjustment credit will generally be charged at the basic discount rate.  However, the Federal Reserve retains the right to impose a surcharge in addition to the basic rate.  This surcharge may apply to all, or only selected, borrowers at the Federal Reserve's discretion.

Extended credit is designed to assist depository institutions meet longer-term needs for funds.  This category includes seasonal credit regularly given to smaller institutions that lack ready access to national money markets.  Under the seasonal credit program, advances are usually made at the basic discount rate, but as with adjustment credit, the Federal Reserve maintains the option to impose a surcharge.

Extended credit also includes assistance to individual depository institutions that experience special difficulties arising from Exceptional circumstances and assistance to address liquidity strains affecting a broad range of depository institutions.  Such credits are given if the assistance is in the public interest and the needed funds are not available from other sources.  Surcharges are not normally applied to extended credit of this type and repayment schedules are usually more lenient than with seasonal credit.

Although the discount facilities of the Federal Reserve are not intended to supplant other reasonably available sources of funds, in unusual circumstances, emergency credit may be advanced to entities other than depository institutions where failure to obtain credit would adversely affect the economy.  However such credit is only available after all other sources have been tapped, including other federal agencies.

Regulaiton AA:  Consumer Complaint Procedures.

Regulation AA provides for the investigation of alleged unfair or deceptive acts by state member banks, or an alleged violation of law or regulations, given the proper filing of a complaint.  The regulation also prohibits a bank from including or enforcing any of the following provisions in a consumer credit obligation:  a confession of judgment clause; a waiver of exemption; a certain type of wage assignment; and a nonpossessory, nonpurchase money security interest in household goods.  In addition, the regulation prohibits pyramiding (a late charge practice) and provides protection for consigners in consumer credit transactions.

Complaints received by the Board of Governors or a Federal Reserve Bank regarding an act or practice of an institution other than a state member bank will be forwarded to the federal agency having jurisdiction over that institution.

Regulation B:  Equal Credit Opportunity.

Regulation B prohibits discrimination in any credit transaction based on age, race, color, religion, national origin, sex, marital status, or receipt of income from public assistance programs.  As a general rule, creditors may not ask the aforementioned characteristics of applicants, but exceptions apply in the case of residential mortgage applications.  In addition, creditors may not discriminate from applicants who exercise their rights under the federal consumer credit laws.  To facilitate compliance, model credit application forms are provided in the regulation.

The regulation also requires creditors to give applicants a written notice of rejection of an application, a statement of the applicant's rights under the Equal Credit Opportunity Act, and a statement either of the reasons for the rejection or the applicant's right to request the reasons.  Creditors who furnish credit information, when reporting information on married borrowers, must report information in the names of each spouse.

To prevent discrimination, the Board of Governors of the Federal Reserve characterized Regulation B as imposing a delicate balance on the credit system, in recognition of the bank's need to know as much as possible about a prospective borrower and the borrower's right not to disclose information that is irrelevant to the transaction.  The regulation deals with taking, evaluating, and acting on the application and with furnishing and maintaining credit information.  Regulation B does not (the Fed's emphasis) prevent a creditor from determining any pertinent information necessary to evaluate the creditworthiness of an applicant.

Regulation BB:  Community Reinvestment.

Regulation BB requires state-chartered banks that are members of the Federal Reserve System to adopt a Community Reinvestment Act (CRA) statement for each local community served.  The CRA is designed to encourage banks to help meet the credit needs of their communities.  Under this regulation, each bank office must make available a statement for public inspection indicating, on a map, the communities served by that office and the type of credit the bank is prepared to extend within the community.  The regulation contains the text of the notice that a bank is required to provide the public in all full-service domestic branches.

The regulation requires each bank to maintain a file of public comments relating to its CRA statement.  The Federal Reserve Board, in examining a bank, must assess its record in meeting the credit needs of the entire community, including low- and moderate-income neighborhoods, and must take account of the record in considering certain bank applications.

Regulation C:  Home Mortgage Disclosure.

Regulation C requires banks to disclose mortgage lending information to verify if the housing credit needs of their communities are being met.  The regulation carries out the Home Mortgage Disclosure Act of 1975, providing citizens and public officials with information to determine whether depository institutions are meeting the housing credit needs of their local communities.

The regulation applies to commercial banks, savings banks, savings and loan associations, building and loan associations, homestead associations, and credit unions that make federally related mortgage loans.  Institutions with assets of $10 million or less and institutions that do not have an office in a metropolitan statistical area or a primary metropolitan statistical area are exempt.  Institutions covered by the regulation must disclose, annually, the number and total dollar amount of residential mortgage loans originated or purchased during the most recent calendar year, itemized by census tract in which the property is located.  Institutions complying with a similar state or municipal law or regulations which have adequate provision for enforcement may be exempted from this regulation.

Regulation D:  Reserve Requirements.

Regulation D defines the term deposit, specifies the amount of reserves that must be maintained against transaction accounts, establishes the method for computing reserve requirements, and imposes penalties for reserve deficiencies.  The Depository Institutions and Monetary Control Act of 1980 contains major amendments to the Federal Reserve Act which affect, and simplify, Regulation D.  The changes to this regulation were phased in over a period of eight years, affecting both member and nonmember banks.

Transaction accounts are defined to include checking accounts, NOW accounts, share draft accounts, savings accounts that allow automated transfers or third party payments by automated teller machines and accounts that permit more than a limited number of telephone or preauthorized payments or transfers each month.  Reserves must be held equal to 3% of the first $25 million (adjusted annually since 1980 by an amount equal to .8 x percentage change in the level of deposits) and between 8% and 14%, currently 12%, of deposits above $25 million (similarly adjusted since 1980).

Time deposits are deposits or certificates with original maturities of at least 7 days, and savings accounts that allow the institution to require at least 7 days notice by the depositor before a withdrawal is made.  Nonpersonal and transferable time deposits with a maturity of less than 1 years are subject to a 3% reserve requirement.  Personal and nontransferable short-term time deposits, as well as all long-term (over 1 years) time deposits, possess 0% reserve requirements.

Exceptions to these requirements are frequent.  In order to relieve small depository institutions from the burden of reserve requirements, each depository institution need not bank the first $2 million (again, an adjusted figure since 1982) of its reservable liabilities.  At the discretion of the Board of Governors, the reserve requirements may be temporarily raised for all depository institutions.  Such supplemental reserves can only be imposed if essential for the conduct of monetary policy or the smooth working of the money markets.  Also, the board may, under extraordinary circumstances, temporarily impose reserve requirements beyond the specified limits at specific institutions due to circumstances particular to that institution.

Generally, reserves are maintained in the form of vault cash or a noninterest bearing balance held with a Federal Reserve Bank on a direct or indirect basis.  Any bank maintaining full federal reserves will be permitted access to all Federal Reserve services.  Furthermore, reserves may also be required on the deposit liabilities of foreign branches, subsidiaries and international banking facilities of both member and nonmember banks, but such reserve requirements are at the discretion of the board.

Regulation E:  Electronic Fund Transfers.

Regulation E establishes the rights, liabilities, and responsibilities of parties in electronic fund transfers (EFT) and protects consumers using EFT systems.  The major provisions of Regulation E are separated into the consumer's right to know and the issuing institution's need to disclose certain information.  For the consumer's protection, Regulation E prescribes rules for the solicitation and issuance of EFT cards and governs consumer's liability for unauthorized electronic fund transfers.  With regard to the issuing institution's responsibilities, the regulations requires issuing institutions to disclose certain terms and conditions of EFT services and to provide for documentation of electronic transfers.  The regulation also sets up a resolution procedure for errors on EFTs and covers notice of crediting and stoppage of preautorized payments from a customer's account.

Regulation F:  Disclosure Requirements of Publicly Held Member Banks.

Regulation F requires state-chartered banks with more than 500 stockholders and over $1 million in assets or whose securities are registered on a national securities exchange to periodically file financial statements.  Regulations issued by the Board of Governors in this area are substantially similar to those issued by the Securities and Exchange Commission.  The Board of Governors states that the principal aim of this regulation is to ensure that investors have sufficient information to make informed investment decisions and intelligently exercise their voting rights as stockholders.

In general, state-chartered member banks must file registration statements, periodic financial statements, proxy statements, statements of election contests, and various other disclosures of interest to investors.  Officers, directors and principal stockholders must file reports on their holdings in the bank.  The regulation also prohibits tender offers for the stock of a bank subject to the regulation unless certain information is simultaneously filed with the board.

Regulation G:  Margin Credit Extended by Parties Other than Banks, Brokers and Dealers.

Regulation G is one of four regulations regarding credit extended to finance securities transactions (see Regulations T, U and X).  This regulation applies to lenders, other than brokers, dealers, and banks, who are required to register with the Board of Governors.  Registration is required by any party who extends credit (secured directly or indirectly by margin stock) in an amount of $200,000 or more in a calendar quarter or who has outstanding credit in excess of $500,000.  Once a lender is required to be registered, the regulation applies to all outstanding loans which are secured by margin stock.  An exception to this general rule applies to lenders who extend credit via an eligible employee stock option plan which will be used to purchase margin stock of the employer.

Margin stock includes any equity security listed on or having unlisted trading privileges on a national stock exchange, any debt security convertible into such a security, most mutual funds, and any security included on the board's list of over-the-counter margin stocks.

Regulation H:  Membership Requirements for State-Chartered Banks.

Regulation H defines the eligibility requirements of a state bank that wishes to become a member of the Federal Reserve System.  This regulation also describes membership privileges and conditions imposed on these banks, explains financial reporting requirements, and sets out procedures for requesting approval to establish branches and for requesting voluntary withdrawal from membership.  State-chartered member banks are prohibited from engaging in practices that are unsafe or unsound or that result in violation of law, rule, or regulation.  The regulation also imposes specific restrictions on the conduct of some banking practices such as the issuance of letters of credit, acceptances, and lending on the security of improved real estate.

To be eligible for membership, a state bank must possess capital stock and surplus that are considered adequate in relation to the character and condition of its assets and deposit liabilities, both present and future.  A mutual savings bank's eligibility is determined by whether its surplus and undivided profits are equal to the capital requirements.  The decision to become a member of to withdraw from membership has become less important since the Monetary Control Act of 1980 brought all depository institutions under the jurisdiction of the Board of Governors for the imposition of legal reserve requirements and has opened other Reserve System services to any depository institution that maintains transactions accounts or nonpersonal time deposits.

Regulation I:  Member Stock in Federal Reserve Banks.

Regulation I requires each bank joining the Federal Reserve System to subscribe to the stock of its District Reserve Bank in an amount equal to 6% of the member bank's capital and surplus.  Half the total must be paid on approval, while the remainder is subject to call by the Board of Governors.  A 6% dividend is paid on backed portions of Reserve Bank stock.  The stock is not transferable and cannot be used as collateral.  At all times, the 6% ratio of stock to capital must be maintained with all payments directed through the member bank's reserve account.

A member bank's ownership of Federal Reserve stock is subject to cancellation on discontinuance of operations, insolvency or voluntary liquidation, conversion to nonmember status through merger or acquisition, or voluntary or involuntary termination of membership.

Regulation J:  Check Collection and Funds Transfer.

Regulation J establishes procedures, duties, and responsibilities among Federal Reserve banks, the senders and payors of checks and other cash and noncash items, and the originators and recipients of transfers of funds.  Regulation J provides a legal framework for depository institutions to collect checks and other cash items and to settle balances through the Federal Reserve System.  It specifies terms and conditions under which Reserve banks will receive items for collection from and present items to depository institutions and establishes rules under which depository institutions return unpaid items.  The regulation also specifies terms and conditions under which Reserve banks will receive and deliver transfers of funds from and to depository institutions.  In accordance with this function, each Federal Reserve Bank shall issue an operating circular governing the details of its funds transfer operations and other matters deemed appropriate.

Regulation K:  International Banking Operations.

Regulation K governs the international banking activities of domestic banks and the domestic banking activities of foreign banks.  Regulation K was promulgated in substantially its present form in June 1979.  Prior to that date, overseas activities subject to board jurisdiction were covered in several separate regulations.  However, the International Banking Act of 1978 provided the motivation for the consolidation of these regulations.  The purpose of the current regulation is to grant Edge Act corporations powers sufficiently broad to enable them to compete with foreign banks in the United States as well as abroad and to provide all segments of the U.S. economy with a means of financing international trade, particularly exports.

The activities that may be engaged in overseas under Regulation K must generally be of a financial nature.  Member banks' direct overseas investments in foreign companies are limited to foreign banks.  Bank holding companies and Edge Act corporations, on the other hand, can directly invest in foreign companies engaged in certain nonbank activities, as well as in foreign banks.  Member banks can only invest in foreign nonbank companies by doing so indirectly through Edge Act corporations.  As to foreign bank operations in the United States, the regulation reflects limitations on interstate banking and specific exemptions from nonbanking prohibitions.  With respect to loans by domestic banking organizations to foreign borrowers, the regulation provides for the establishment of special reserves against certain international rules for accounting for fees on international loans.

Regulation L:  Interlocking Bank Relationships.

Regulation L tries to ensure competition in the banking industry by restricting the interlocking relationships that a management official may have with other depository organizations.  The regulation prohibits a management official of a state member bank or bank holding company from serving simultaneously as a management official of another depository organization if both organizations are not affiliated, or are very large, or are located in the same local area.

The regulation included a grandfather clause, providing a 10-year transition period which ended in 1988, for certain interlocks and provided exceptions for interlocks involving depository institutions in low-income or economically depressed areas, organizations owned by women or minority groups, newly chartered organizations, and organizations facing disruptive management loss or conditions endangering safety and soundness.

Regulation M:  Consumer Leasing.

Regulation M implements the consumer leasing provisions of the Truth in Lending Act.  The purpose of this regulation is to assure that lessees of personal property are given meaningful disclosures of lease terms.  The disclosures required under this act must be made before the consummation of the lease agreement.  Property subject to this regulation includes personal property leased for personal, family or household use for a minimum of four months.

Regulation M requires leasing companies to disclose in writing the cost of a lease, including any security deposit, monthly payments, license, registration, taxes and maintenance fees and, in the case of an open end lease, whether a "balloon payment" may be applied.  It also requires written disclosure of the terms of a lease, including insurance, guarantees, responsibility for servicing property, standards for wear and tear, and any option to buy.

Regulation N:  Relationships with Foreign Banks.

The purpose of Regulation N is to give the Board of Governors the responsibility for approving in advance any negotiations or agreements by Federal Reserve banks with foreign banks, bankers or governments.  The regulation recognizes a Reserve Bank's authority to engage in foreign open market operations, however, Reserve banks must keep the Board fully advised of all foreign relationships, transactions and agreements.

Under the direction of the Federal Open Market Committee, a Reserve Bank maintaining accounts with a foreign bank may undertake negotiations, agreements, or contracts to facilitate open market transactions.  The Board of Governors has reserved the right to be represented at any meeting concerning such negotiations and agreements, but in any case must be advised of such meetings.  In addition, on a quarterly basis, Reserve banks must report to the Board on accounts they maintain with foreign banks.

Regulation O:  Loans to Executive Officers of Member Banks.

Regulation O prohibits member banks from extending credit to their own executive officers and prohibits insured banks that maintain correspondent accounts with each other from extending credit to one another's executive officers on preferential terms.  In addition, banks whose officers, directors, or principal stockholders who have received preferential extensions of credit from other banks are prohibited from opening correspondent relationships with those banks.

Each executive officer and principal shareholder of an insured bank is to report annually, to the bank's board of directors, the amount of his indebtedness, and that of "related interests," to each of the insured bank's correspondent banks.  The disclosure must include the terms and conditions of the loan.  A "related interest" is a company managed by political or campaign committees controlled by or benefiting bank officials and shareholders.

Each insured bank is required to include with its quarterly report of condition the aggregate extensions of credit by the bank to its executive officers and principal shareholders, together with the number of these individuals whose extensions of credit from the bank are 5% or more of the bank's equity capital or $500,000, whichever is less.  Upon request, the names of such individuals must be publicly disclosed.

Regulation P:  Member Bank Protection Standards.

Regulation P sets minimum standards for security devices and procedures state member banks must establish to discourage robberies, burglaries, and larcenies and to assist in identifying and apprehending persons who commit such acts.  A member bank must appoint a security officer to develop and administer a security program at least equal to the requirements of the regulation.  The program must be in writing and approved by the bank's directors.  Annually, each state-chartered member bank must certify its compliance with the regulation by filing a signed statement with its District Reserve Bank.  The regulation also defines the prescribed penalties imposed each day a member bank is found in violation of security standards.

Regulation Q:  Interest of Deposits.

Regulation Q governs the payment of interest on deposits held by banks that are members of the Federal Reserve System s well as U.S. branches and offices of foreign banks.  This regulation defines interest for purposes of regulation and deposit categories.  In addition, regulation Q includes rules governing the advertising of deposits by member banks.

The Depository Institutions Deregulation Act of 1980 established the phaseout of interest rate ceiling on time and savings deposits which concluded in April 1987.  The removal of interest rate ceilings is intended to enable all depositors, including holders of time and savings deposits, to receive a market rate of return on their deposits.  The authority of the Board of Governors to prescribe rules governing member banks' payment of interest and establishment of classes of deposits was transferred to the Depository Institutions Deregulation Committee in 1980.

Regulation R:  Interlocking Relationships Between Securities Dealers and Member Banks.

Regulation R aims at avoiding any potential conflict of interest, collusion or undue influence on member bank investment policies or investment advice to customers due to interlocking relationships between the personnel of securities dealers and member banks.  This regulation restates the prohibition in the Glass-Steagall Act that prohibits individuals involved in various phases of securities activities from serving as a director, officer, or employee of a member bank.

While national banks may not underwrite securities, they may purchase investment securities for their own purposes as long as the total amount of these securities does not exceed 10% of their capital stock or unimpaired surplus fund.  The regulation does provide an exemption for individuals in government securities transactions.  These securities generally include those of the United States, the International Bank for Reconstruction and Development, the Tennessee Valley Authority, and the general obligations of states and municipalities.  The aforementioned restrictions do not apply to any government obligation.

Regulation S:  Reimbursement for Providing Financial Records.

Regulation S prescribes the rates and conditions for reimbursement of necessary costs directly incurred by financial institutions in providing customer's financial records to government authorities.  Regulation S implements a section of the Right to Financial Privacy Act requiring government authorities to pay a reasonable fee to financial institutions for providing financial records of individuals and small partnerships to federal agencies.

Cost of searching for, reproducing and transporting requested data is covered with certain exceptions.  Search time accounts for the personnel costs of complying with the regulation and is paid on a set man/hour wage rate regardless of the actual wage of the employee conducting the search.  Reproduction costs are also reimbursed on such a predetermined scale, although, actual transportation costs are returned.

Regulation T:  Margin Credit Extended by Brokers and Dealers.

Regulation T governs credit extensions, made in the course of business, by securities brokers and dealers, including all members of national securities exchanges.  This is one of three regulations governing the extension of credit for securities.  This one examines the broker-dealer relationship and assures that no preferential credit treatment is afforded brokers nor dealers.  In general, such entities may not extend credit to their customers unless the loan is secured by "margin securities" nor may they arrange for credit to be extended by others on terms better than they themselves are permitted to extend.

The maximum credit that may be extended is set by the board as a percentage of the current market value of the securities.  When securities on which credit has been extended are withdrawn from an account, cash or securities of an equivalent loan value must be deposited or a portion of the account liquidated so as to maintain the prescribed loan value of the account.

The regulation also prescribes rules governing cash transactions among brokers, dealers and their customers.  It also limits the sources from which borrowing brokers and dealers may secure funds in the ordinary course of their business.

Regulation U:  Margin Credit Extended by Banks.

Regulation U is the third regulation governing margin credit.  In this regulation, credit issued by banks for the purchasing or carrying of securities on margin is limited if the credit is secured directly or indirectly by stock.  Any time a loan is made in which a margin stock serves as collateral, the bank must have the customer execute a purpose statement, Form U-1.  If the purpose is to purchase or carry any margin stock, the loan is a purpose credit.  Generally, if the purpose credit is stock-secured, it is subject to credit limitations and other restrictions of regulation.  For example, the amount of the loan may not exceed the maximum loan value of the securing stock prescribed by the board.

Margin stocks include any equity security listed on or having unlisted trading privileges on a national security exchange, any debt security convertible into such a security, most mutual funds, and any security included on the board's list of over-the-counter margin stock.

Regulation V:  Guarantee on Loans for National Defense Work.

Regulation V facilitates and expedites the financing of contractors, subcontractors, and others involved in national defense work.  In addition, this regulation sets forth the procedures and standards that Federal Reserve banks must observe in fulfiling their responsibilities as fiscal agents for those government departments and agencies authorized to guarantee loans for national defense purposes.

The regulation sets forth the maximum rate of interest, guarantee fees, and commitment fees that may be charged for a guaranteed loan.  By adopting a maximum interest rate equal to the rate it charges its most creditworthy business customers, a financing institution will be able to adjust the interest rate to market conditions.  Nevertheless, the guaranteeing agencies have discretionary authority to set the ceiling rate of interest.  If the agency exercises this authority, it cannot discriminate among loan applicants in imposing a higher charge.

Regulation W (revoked):  Extensions of Consumer Credit.

Regulation W prescribed minimum downpayments, maximum maturities, and other terms applicable to extensions of consumer credit during World War II.  Regulation W was revoked in 1952.

Regulation X:  Borrowers Who Obtain Margin Credit.

Regulation X extends the provisions of Regulations G, T and U to certain borrowers and to certain types of credit extensions not specifically covered by those regulations.  Regulation X applies to borrowers who, for the purpose of purchasing or carrying securities, obtain credit in the United States and to borrowers who act on behalf of United States persons.  This regulation requires that the subject borrowers obtaining credit within the U.S. comply with the margin credit regulation that applies, but if the credit is obtained outside the U.S., the subject borrowers must comply as if the foreign lender were subject to Regulation G, T, or U.  In general, whenever the regulation applies, the borrower is responsible for ensuring that the credit conforms to one of the three margin regulations.  The determination as to which one applies is dependent upon the nature of the lender and is specified in the regulation.

The following borrowers are exempt from the regulation and the controlling statue:  (1) any borrower who obtains purpose credit within the United States unless the borrower willfully causes the credit to be extended in contravention of Regulation G, T, or U and (2) any borrower whose permanent residence is outside the United States who has obtained or has outstanding during any calendar year no more than $100,000 in purpose credit obtained outside the United States.

Regulation Y:  Bank Holding Companies.

Regulation Y relates to the bank and nonbank expansion of bank holding companies and to the divestiture of impermissible nonbank interests.  Regulation Y also governs the acquisition of a bank by individuals.  Any organization that owns a bank is a bank holding company and thus is subject to this regulation.  However, unless an organization takes demand deposits and offers commercial loans it is not considered a bank and thus is not affected by this regulation.  In the early 1980s, entry of nonbank banks was rampant as these businesses tried to avoid regulation.

The regulation contains the presumptions and procedures the board uses to determine whether a company controls a bank and is thus a bank holding company.  The regulation also explains the procedures for obtaining board approval to become a bank holding company and procedures to be followed by bank holding companies acquiring voting shares of banks or nonbank companies.  In addition, the board has specified in the regulation those nonbank activities that are closely related to banking and therefore permissible for bank holding companies.  Foreign activities of domestic bank holding companies and permissible activities of foreign bank holding companies are dealt with separately within the regulation.

Regulation Z:  Truth in Lending.

Regulation Z prescribes uniform methods of computing the cost of credit, disclosure of credit terms, and procedures for resolving errors on certain credit accounts.  Consumer credit is generally defined as credit offered or extended to individuals for personal, family, or household purposes, where the credit is repayable in more than four installments or for which a finance charge is imposed.  The purpose of the Truth in Lending Act is to ensure that credit and leasing terms are disclosed so that customers are able to compare alternative terms intelligently.

The major provisions of the regulation require lenders to (1) provide borrowers with meaningful, written information on essential credit terms, including the cost of credit expressed as an annual percentage rate; (2) respond to consumer complaints of billing errors on certain credit accounts within a specific period; (3) identify credit transactions on periodic statements of open end credit accounts; (4) provide certain rights regarding credit cards; (5) informs consumers of the right to rescind certain credit transactions that are secured by a consumer's principal dwelling within a specified period; and (6) comply with special requirements when advertising credit.



Federal Reserve Regulatory Service.

The Federal Reserve System:  Purposes and Functions.

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