issue-1996-05-24•Federal Register proposed rules — 1996-05-24
Federal Register proposed rules — 1996-05-24
issue-1996-05-24Federal Register proposed rules — 1996-05-24Proposed Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-13174 Latex Condoms; User Labeling; Expiration Dating
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26140-26145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13174]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Part 801
[Docket No. 95N-0374]
RIN 0910-AA32
Latex Condoms; User Labeling; Expiration Dating
AGENCY: Food and Drug Administration, HHS.
ACTION: Proposed rule.
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SUMMARY: The Food and Drug Administration (FDA) is issuing a proposed
regulation that would require the labeling of latex condoms to contain
an expiration date based upon physical and mechanical testing performed
after exposing the product to varying conditions that age latex.
Studies show that latex condoms degrade over time. Such degradation has
a significant effect on the product's ability to provide a barrier to
sexually transmitted disease (STD) agents, including the human
immunodeficiency virus (HIV). This requirement is being proposed in
order to provide consumers with essential information regarding the
safe use of these products.
DATES: Written comments on this proposed rule by August 22, 1996.
Written comments on the information collection requirements should be
submitted by June 24, 1996. FDA proposes that any final rule that may
be issue based on this proposal become effective 180 days after the
date of its publication in the Federal Register.
ADDRESSES: Submit written comments on this proposed rule to the Dockets
Management Branch (HFA-305), Food and Drug Administration, 12420
Parklawn Dr., rm. 1-23, Rockville, MD 20857. Submit written comments on
the information collection requirements to the Office of Information
and Regulatory Affairs, OMB, New Executive Office Bldg., 725 17th St.
NW., rm. 10235, Washington, DC 20503, Attn: Desk Officer for FDA.
FOR FURTHER INFORMATION CONTACT: Donald E. Marlowe, Center for Devices
and Radiological Health (HFZ-150), Food and Drug Administration, 12200
Wilkins Ave., Rockville, MD 20852, 301-443-7003.
SUPPLEMENTARY INFORMATION:
I. Background
It is estimated that over 1 million persons in the United States
are infected with HIV (Ref. 1). HIV is transmitted primarily through
sexual contact; however, nonsexual transmission has occurred in health
care settings as a result of contact with infected blood. Additionally,
HIV has been isolated from other body fluids in addition to blood. With
the prevalence of HIV infection and the risk of transmission of other
infections, the importance of the quality of an effective barrier to
the transmission of infection is crucial.
Numerous studies in the scientific literature, including the
proceedings of a conference on ``Latex as a Barrier Material''
sponsored by FDA in 1989, have addressed and overwhelmingly supported
the use of latex membranes, such as condoms and medical gloves, as
effective barriers against the transmission of various disease agents,
including hepatitis, HIV, and other infections (Ref. 2). The Centers
for Disease Control and Prevention (CDC) and the Surgeon General of the
Public Health Service have recommended, on the basis of evidence that
latex provides a barrier against the transmission of STD's, that latex
condoms should be used according to instructions with every act of
intercourse for maximum protection against STD's (Ref. 3). Two recent
studies involving serodiscordant heterosexual couples (i.e., one
partner is HIV positive, the other HIV negative) indicate that using
latex condoms substantially reduces the risk of HIV transmission (Refs.
4 and 5). In one study, none of the 123 partners who used condoms
consistently became infected while 12 (10 percent) of 122 partners who
used condoms inconsistently became infected (Ref. 4). In the second
study, 3 (2 percent) of the 171 consistent condom users became infected
compared to 8 (15 percent) of 55 inconsistent condom users (Ref. 5).
The effectiveness of latex condoms as a barrier, however, is
dependent upon the integrity of the latex material. Degradation of
latex film products (e.g., the embrittlement of the latex film, an
increase in the porosity of the membrane, or other loss of physical
properties) occurs when latex is exposed to various types of
environmental conditions (such as elevated temperature, fluorescent
lights, or ozone) normally experienced in product use, shipment, or
storage situations. Exposure to these environmental conditions degrades
the film progressively over time, and may result in bursts, rips, tears
or seepage that allows the transmission of infectious agents.
To understand the effects of aging and other storage conditions on
latex properties, the State of Washington's Board of Pharmacy initiated
an FDA-sponsored study of the material integrity
[[Page 26141]]
of latex condoms (the FDA/Washington study) in July 1989 (Ref. 6). This
study was designed to investigate the effects of aging on latex condoms
by studying burst pressure, burst volume, tensile strength, and
elongation at breakage, after storage over different periods of time at
varying temperatures. The study examined dry (nonlubricated) condoms
and various types of lubricated condoms, produced by the major domestic
condom manufacturers. The study consisted of two parts--laboratory
testing, which ran for 3 years, and field testing, which is an ongoing
study of normal condom aging at eight sites representing varying
temperatures, elevations, and humidity conditions.
At the laboratories of the FDA/Washington study, packaged and
unpackaged latex condoms were exposed to temperatures of 20 and 30
deg.C (representing room temperature) for up to 5 years. In order to
represent exposure to the upper extreme of environmental temperatures,
condoms were exposed for 100 days to a temperature of 45 deg.C. Also,
to accelerate the aging process of the latex, condoms were exposed to
temperatures of 70 and 85 deg.C for up to 100 days (Refs. 7 through
9). The study revealed that exposed condoms (i.e., condoms not
protected by packaging) degraded to the point of being unusable within
1 year at room temperature, and at higher temperatures in as little as
10 days. The FDA/Washington study further shows that latex condoms
stored in intact plastic packages also degrade over time, though at a
much slower rate. The results of the FDA/Washington study demonstrate
that aging and other conditions can significantly affect the integrity,
strength, and quality of latex essential to maintaining a barrier
against the transmission of disease.
At a meeting with the agency, condom manufacturers and FDA agreed
that, based upon the American Society for Testing and Materials (ASTM)
standards and the FDA/Washington study, two accelerated aging test
conditions (i.e., storage for 7 days at 70 deg.C and storage for 90
days at 40 to 50 deg.C) properly evaluate aging properties of latex
films. Given the evidence that aging affects the latex barrier
properties of condoms that prevent the transmission of infectious
agents, the agency believes latex condoms should not be used after
aging has compromised latex barrier properties. Accordingly, FDA
believes that such products should bear expiration dates, based upon
appropriate testing, that will inform the user when these products
should no longer be used. FDA is therefore proposing that latex condoms
bear expiration dates.
Proposed Sec. 801.435(c) would require an expiration date to appear
on the primary packaging (i.e., the individual package), as well as
higher levels of labeling, such as the case containing individually
packaged products to ensure visibility.
To establish the expiration date, FDA is proposing to require
manufacturers to subject their products to certain aging condition
environments prior to conducting physical and mechanical testing that
will demonstrate the product will maintain its barrier properties
during the labeled shelf life of the product. The accelerated aging
conditions would be based on data and test protocols proposed by the
industry, and supported by existing condom standards (Ref. 10), and the
findings of the Mandel and FDA/Washington studies (Refs. 7 and 6).
Specifically, FDA in proposed Sec. 801.435(d) would require that a
manufacturer, before performing tests on products that demonstrate
physical and mechanical integrity of the product, subject products from
three discrete and random lots to each of the following conditions: (1)
Storage unpackaged for the maximum amount of time the manufacturer
allows the product to remain unpackaged after manufacture, followed by
storage of the packaged product at 70 deg.C (plus or minus 2 deg.C)
for 7 days; (2) storage unpackaged for the maximum amount of time the
manufacturer allows the product to remain unpackaged after manufacture,
followed by storage of the packaged product at 40 to 50 deg.C (plus or
minus 2 deg.C) for 90 days; and (3) storage unpackaged for the maximum
amount of time the manufacturer allows the product to remain unpackaged
after manufacture, followed by storage of the packaged product at 15 to
30 deg.C for the stated shelf life of the product.
Under proposed Sec. 801.435(e), if the latex barrier properties are
adequate (i.e., pass the manufacturer's reasonable physical and
mechanical integrity tests) after undergoing the 70 deg.C /7-day and
40 to 50 deg.C/90-day tests, the product may be labeled with an
expiration date of up to 5 years. If the product, after storage at
either 7- or 90-day test conditions, fails to meet the manufacturer's
physical or mechanical integrity tests, the labeled shelf life of the
product would be required to be demonstrated by real-time storage data
at 15 to 30 deg.C. Products that pass the 7- and 90-day test
conditions, would be required to undergo confirmation tests after the
product has been stored at 15 to 30 deg.C for the stated shelf life.
If the product fails the 15 to 30 deg.C confirmation test, the product
would be required to be relabeled to represent the actual shelf life
supported by real time data.
Although FDA would not require manufacturers of currently marketed
products to submit new 510(k) submissions prior to marketing condoms
with expiration dates, all testing data must be retained in each
company's files as required by 21 CFR 820.180, and remain available for
FDA inspection. New 510(k) submissions should include data to establish
labeled expiration dates.
The agency believes that the proposed 180-day time period between
the publication date of the final rule and the effective date of the
final rule would be sufficient time to conduct the required tests and
ensure that all latex condoms being initially introduced into
interstate commerce will bear an expiration date. Latex condoms
introduced into interstate commerce after the effective date of a final
rule based on this proposal, which do not bear appropriate expiration
dates would be considered to be misbranded under sections 201(n),
502(a) and (f)(1) of the Federal Food, Drug, and Cosmetic Act (the act)
(21 U.S.C. 321(n), 352(a) and (f)(1)) in that their labeling fails to
contain facts material to the consequences of their use, and fails to
bear adequate directions for use.
II. Statement of Law
Section 701(a) of the act (21 U.S.C. 371(a)) authorizes FDA to
issue substantive binding regulations for the efficient enforcement of
the act. Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609
(1973); see also Weinberger v. Bentex Pharmaceuticals, Inc., 412 U.S.
645, 653 (1973); National Ass'n of Pharmaceutical Manufacturers v. FDA,
637 F.2d 877 (2d Cir. 1981); National Confectioners Ass'n v. Califano,
569 F.2d 690 (D.C. Cir 1978); National Nutritional Foods Ass'n v.
Weinberger, 512 F.2d 688 (2d Cir.) cert. denied, 423 U.S. 825 (1975).
Under the proposed rule, any latex condom that is not labeled as
required and that is introduced or delivered for introduction into
commerce after the effective date of a final rule would be misbranded
under sections 201(n) and 502(a) and (f)(1) of the act (21 U.S.C.
321(n) and 352(a) and (f)(1)). Section 502(a) of the act provides that
a device is misbranded if ``its labeling is false or misleading in any
particular.'' Section 201(n) of the act provides that, in determining
whether labeling of a regulated article (such as a device) is
misleading:
[[Page 26142]]
* * * there shall be taken into account * * * not only
representations made or suggested by statement, word, design,
device, or any combination thereof, but also the extent to which the
labeling * * * fails to reveal facts material in the light of such
representations or material with respect to consequences which may
result from the use of the article to which the labeling * * *
relates * * *.-
The shelf life of latex condoms is material information that
consumers need in order to safely use latex products. The omission of
shelf life would constitute an omission of a material fact and would
render latex condoms without an expiration date misbranded within the
meaning of section 502(a) of the act. The courts have upheld FDA's
authority to prevent false and misleading labeling by promulgating
regulations requiring label warnings and other affirmative disclosures,
see, e.g., Cosmetic, Toiletry and Fragrance Association v. Schmidt, 409
F. Supp. 57 (D.D.C. 1976), aff'd without opinion, Civil No. 75-1715
(D.C. Cir. August 19, 1977), even in the absence of a proven cause and
effect relationship between product usage and harm, Council for
Responsible Nutrition v. Goyan, Civil No. 80-1124 (D.D.C. August 1,
1980).
Section 502(f)(1) of the act provides that a device is also
misbranded unless its labeling bears adequate directions for use.
Adequate directions for use means adequate directions under which a
layperson can use a device safely and for the purpose for which it is
intended (see 21 CFR 801.4 and 801.5). Information concerning latex
condom shelf life is necessary to allow lay users to use these products
safely by avoiding use of products that may have degraded. Failure to
include such information would render the products misbranded under
section 502(f)(1) of the act.
FDA may impose testing requirements in a labeling regulation issued
under its general rulemaking authority. See, e.g., American Frozen Food
Inst. v. Mathews, 413 F. Supp. 548 (D.D.C. 1976), aff'd per curiam sub
nom. American Frozen Food Inst. v. Califano, 555 F.2d 1059 (D.C. Cir
1977); see also National Nutritional Foods Ass'n v. Weinberger, supra.
Thus, FDA may require that all latex condom manufacturers use the same
conditions to test aging to ensure that the expiration date reflects
the period of time a product can be used safely. A similar requirement
is imposed in 21 CFR 801.430(f) for absorbency tests for menstrual
tampons, and in 21 CFR 801.420(c)(4) on hearing aid manufacturers and
distributors who must determine and state technical data values for
hearing aid labeling in accordance with specified test procedures. The
hearing aid regulation has been upheld. American Speech and Hearing
Ass'n v. Califano, Medical Devices Report (CCH) No. 77-1327
Secs. 15004, 15007 (D.D.C. August 23, 1977), aff'd No. 77-1327 (D.C.
Cir. Dec. 19, 1977). Food regulations issued under section 701(a) of
the act also impose many such specific testing requirements (see, e.g.,
21 CFR 113.40 (tests for low-acid canned foods); 21 CFR
155.190(b)(2)(i) (test for determining drained weight of canned
tomatoes); 21 CFR 161.190 (method for determining color designation of
tuna)).
Consumers must be aware of the potential for degradation of latex
condoms in order to safely use such products to provide a barrier from
infectious agents. Accordingly, FDA believes that the shelf life is a
material fact to the consequences of use of latex condoms. FDA also
believes that a shelf life is necessary to provide the consumer with
adequate directions for use. After the effective date of the final
regulation, FDA will consider latex condoms that do not provide this
information to be misbranded under sections 201(n), 502(a) and (f)(1)
of the act because they fail to contain facts material to the
consequences of their use, and fail to bear adequate directions for
use.
III. Preemption
FDA advises that any labeling requirement based upon this proposal
would, under section 521(a) of the act (21 U.S.C. 360k(a)), preempt any
State or local requirement that is different from, or in addition to,
FDA's labeling requirement. Section 521(a) of the act provides that no
State or local government may establish any requirement applicable
under the act if such requirement is different from, or in addition to,
a requirement which is applicable to the device under the act.
In 1991, the State of Washington requested an advisory opinion
regarding the preemption of its State requirement that condom labels
bear a 3-year expiration date. One condom manufacturer had objected to
the State law, on the grounds that its 510(k) clearance included
labeling for a 5-year shelf life. The agency determined that the State
requirement was not preempted by section 521(a) of the act because, at
that time, there was no counterpart Federal requirement with respect to
expiration date labeling for condoms. FDA's ``General Guidance for
Modifying Condom Labeling to Include Shelf Life'' (Ref. 11) provided
premarket notification procedures for manufacturers who choose
voluntarily to affix shelf life dates to their condom packages. That
document did not establish a ``requirement'' within the meaning of
section 521(a) of the act. This proposed rule, when final, however,
would constitute a requirement which will preempt any State or local
requirement regarding the expiration date labeling of latex condoms
which is different from, or in addition to, the final regulation.
IV. Labeling For Other Latex-Film Products
The agency recognizes that the unique packaging of latex condoms
(i.e., product sealed individually in air-tight packages) makes it
difficult to extrapolate the data relating to latex condoms to other
latex-film medical devices that have packaging which may provide a
different level of protection from environmental conditions. Given the
evidence that aging affects the integrity of latex films, FDA believes
that medical devices containing or composed of a latex film should
provide information regarding the age of the latex film. In order to
address this issue, FDA is initiating a study to determine at what rate
latex gloves degrade under various environmental conditions.
Until the agency compiles sufficient data to propose an expiration
date for latex devices other than condoms, the agency is considering
whether to require devices containing or consisting of latex films,
other than latex condoms, to be labeled with the date of manufacture
(i.e., the date the latex film was formed by dipping). Although the
date of manufacture provides no information about the expected life of
the product, it will provide age information. Based upon such age
information, consumers may make a more informed choice regarding the
use of the product.
Furthermore, as shown in the FDA/Washington study cited above,
latex films are far more stable in intact packages than when exposed.
Because the normal use of some products (such as nonsterile examination
gloves, sold in dispenser boxes of 100), includes storage in opened
packages, FDA is also considering additional labeling information
requirements for products normally dispensed in open containers,
including the statement ``Heat and light accelerate the degradation of
latex films. Store opened containers away from heat and light.''
FDA invites advance comments on these issues. Meanwhile, FDA
encourages manufacturers to voluntarily provide information to
consumers regarding the age of latex film devices, and additional
educational materials and ancillary information regarding the
[[Page 26143]]
stability and best storage conditions of such products, as appropriate.
V. Environmental Impact
The agency has determined under 21 CFR 25.24(a)(11) that this
action is of a type that does not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.
VI. Analysis of Impacts
FDA has examined the impacts of the proposed rule under Executive
order 12866 and the Regulatory Flexibility Act (Pub. L. 96-354).
Executive Order 12866 directs agencies to assess all costs and benefits
of available regulatory alternatives and, when regulation is necessary,
to select regulatory approaches that maximize net benefits (including
potential economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity). The agency believes that
this proposed rule is consistent with the regulatory philosophy and
principles identified in the Executive Order. In addition, the proposed
rule is not a significant regulatory action as defined by the Executive
Order and so is not subject to review under the Executive Order.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. This proposed regulation would require physical and
mechanical integrity tests. Because condom manufacturers routinely
conduct such tests on their products, the required testing would affect
manufacturers only by establishing storage conditions prior to testing
such products. This proposed rule would also require a labeling change.
The proposed 180-day time period between the publication date and
effective date of the final rule based upon this proposal would allow
most manufacturers to exhaust their existing supply of labels.
Accordingly, for the above-stated reasons, the agency certifies that
the proposed rule will not have a significant economic impact on small
entities. Therefore, under the Regulatory Flexibility Act, no further
analysis is required.
VII. Paperwork Reduction Act of 1995
This proposed rule contains information collections which are
subject to review by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995. The title, description, and
respondent description of the information collection are shown below
with an estimate of the annual reporting burden. Included in the
estimate is the time for reviewing instructions, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
With respect to the following collection of information, FDA
invites comments on: (1) Whether the proposed collection of information
is necessary for proper performance of FDA's functions, including
whether the information will have practical utility; (2) the accuracy
of FDA's estimate of the burden of the proposed collection of
information, including the validity of the methodology and assumptions
used; (3) ways to enhance the quality, utility, and clarity of the
information to be collected; and (4) ways to minimize the burden of the
collection of information on respondents, including through the use of
automated collection techniques, when appropriate, and other forms of
information technology.
Title: Labeling Requirements for Latex Condoms--Expiration Date
Labeling.
Description: These information collection requirements apply to
condom manufacturers. This proposed rule expands the labeling of latex
condoms to contain an expiration date. The expiration date must be
supported by data from quality control tests demonstrating physical and
mechanical integrity of three random lots of the same product which
were stored under accelerated and real time conditions. Quality control
testing under accelerated conditions must include tests of: (1)
Unpackaged bulk product for the maximum amount of time the manufacturer
allows the product to remain unpackaged; (2) packaged product stored at
a specified temperature for 7 days; and (3) packaged product stored at
a specified temperature for 90 days. Quality control testing must also
be done under real time conditions, i.e., on packaged product at a
specified temperature for the entire expiration period (up to 5 years).
The recording of shelf life testing by condom manufacturers is used
to support the inclusion of expiration dating on the labeling of latex
condoms. Information concerning latex condom shelf life is necessary to
allow lay users to use these products safely by avoiding use of
products that may have degraded. The effectiveness of latex condoms as
a barrier to the transmission of infectious agents is dependent upon
the integrity of the latex material. The shelf life of latex condoms is
material information that consumers need in order to safely use latex
products.
Condom manufacturers will use the information collected from the
testing to establish the expiration date to be printed on the labeling
and purchasers will use the information collected to determine likely
effectiveness.
Section 510(h) of the act (21 U.S.C. 360(h)) requires that condom
manufacturers as device manufacturers be inspected at least once in a
2-year period. During that inspection, FDA inspectors will review the
test records used to support the expiration date in order to ensure
that the expiration date is accurate.
Description of Respondents: Businesses or other for profit
organizations.
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Estimated Annual Recordkeeping Burden
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Annual Frequency of Total Operating and
21 CFR Section No. of Recordkeepers Recordkeeping Total Annual Records Hours per Recordkeeper Total Hours Total Capital Costs Maintenance Costs
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801.435(d) 58 1 58 1201 6,9601 $9,2802 $125,2801
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\1\ The annual burden reported here represents a year in which a manufacturer would have conducted testing at 0 days, 7 days, 90 days, and 5 years (in support of a labeled expiration period of
5 years). However, FDA expects that testing at 0 days, 7 days, and 90 days would be conducted during 1 year to justify a 5-year expiration period, and that testing on 5-year-old product
would be conducted in another year.
\2\ Capital costs are one time start-up costs and consist of a revision of policies and procedures.
As required by section 3507(d) of the Paperwork Reduction Act of
1995, FDA has submitted the collections of information contained in the
proposed rule to OMB for review. Other organizations and individuals
should submit comments on the information collection requirements by
June 24, 1996, and should direct them to the
[[Page 26144]]
Office of Information and Regulatory Affairs, OMB, New Executive Office
Bldg., 725 17th St. NW., rm. 10235, Washington, DC 20503, Attn: Desk
Officer for FDA.
VIII. Comments
Interested persons may, on or before August 22, 1996, submit to the
Dockets Management Branch (address above) written comments regarding
this proposal. Two copies of any comments are to be submitted, except
that individuals may submit one copy. Comments are to be identified
with the docket number found in brackets in the heading of this
document. Received comments may be seen in the office above between 9
a.m. and 4 p.m., Monday through Friday.
IX. References
The following references have been placed on display in the Dockets
Management Branch (address above) and may be seen by interested persons
between 9 a.m. and 4 p.m., Monday through Friday.
1. Center for Disease Control and Prevention, ``HIV Prevalence
Estimates and AIDS Case Projections for The United States: Report
Based Upon a Workshop,'' Morbidity and Mortality Weekly Report, vol.
39/No. RR-16, November 30, 1990.
2. Conference on Latex as a Barrier Material, University of
Maryland, (sponsored by FDA), May 1989.
3. Center for Disease Control, ``Update: Barrier Protection
Against HIV Infection and Other Sexually Transmitted Diseases,''
Morbidity and Mortality Weekly Report, vol. 42/No. 30, August 6,
1993.
4. DeVincenzi, L., European Study Group on Heterosexual
Transmission of HIV, Heterosexual Transmission of HIV in a European
Cohort of Couples (abstract No. WSCO2-1), vol.1, IXth International
Conference on AIDS/HIV STD World Congress. Berlin, 83, June 9, 1993.
5. Saracco, A., M. Musicco, A. Nicolosi, et al., ``Man-to-Woman
Sexual Transmission of HIV: Longitudinal Study of 343 Steady
Partners of Infected Men,'' Journal of Acquired Immune Deficiency
Syndrome, 6:497-502, 1993.
6. Final Report: Lubricated Latex Condoms--Study of the Effects
of Environmental Parameters on Deterioration: Program for
Appropriate Technology in Health (PATH), FDA Contract No. 223-88-
4285, October 1993.
7. Mandel, J. et al., ``Measurement of the Aging of Rubber
Vulcanizates'' Journal of Research of the National Bureau of
Standards, vol. 63C, No. 2, October-December, 1959.
8. Barker, L. R., Accelerated and Long-Term Ageing of Natural
Rubber Vulcanisates: Journal of Natural Rubber Research, vol. 2, No.
4, pp. 201-213 (1987).
9. Barker, L. R., Accelerated Long-Term Ageing of Natural Rubber
Vulcanisates, Part 2: Results From Ageing Tests at 40 C, Journal of
Natural Rubber Research, vol. 5, No. 3, pp. 266-274, 1990.
10. ASTM D 3492, Standard Specification for Rubber
Contraceptives (Condoms), American Society for Testing and
Materials, Philadelphia, PA.
11. ``General Guidance for Modifying Condom Labeling to Include
Shelf Life,'' Division of Small Manufacturers Assistance, Center for
Devices and Radiological Health, Rockville, MD.
List of Subjects in 21 CFR Part 801
Labeling, Medical devices, Reporting and recordkeeping
requirements.
Therefore, under the Federal Food, Drug, and Cosmetic Act, and
under authority delegated to the Commissioner of Food and Drugs, it is
proposed that 21 CFR part 801 be amended as follows:
PART 801--LABELING
1. The authority citation for 21 CFR part 801 continues to read as
follows:
Authority: Secs. 201, 301, 501, 502, 507, 519, 520, 701, 704 of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 351,
352, 357, 360i, 360j, 371, 374).
2. New Sec. 801.435 is added to subpart H to read as follows:
Sec. 801.435 User labeling for latex condoms.
(a) This section applies to the subset of condoms as identified in
Sec. 884.5300 of this chapter, and condoms with spermicidal lubricant
as identified in Sec. 884.5310, which products are formed from latex
films.
(b) Data show that the material integrity of latex condoms degrades
over time. To protect the public health and minimize the risk of device
failure, latex condoms must bear an expiration date which is supported
by testing as described in paragraph (d) of this section.
(c) The expiration date, as demonstrated by testing procedures
described in paragraph (d) of this section, must be displayed
prominently and legibly on the primary packaging (e.g., individual
package), and higher levels of packaging (e.g., boxes of condoms), in
order to ensure visibility of the expiration date.
(d) The expiration date must be supported by data from reasonable
quality control tests demonstrating the physical and mechanical
integrity of the product after three discrete and random lots of the
same product have been subjected to each of the following conditions:
(1) Storage of unpackaged bulk product for the maximum amount of
time the manufacturer allows the product to remain unpackaged, followed
by storage of the packaged product at 70 deg.C (plus or minus 2
deg.C) for 7 days;
(2) Storage of unpackaged bulk product for the maximum amount of
time the manufacturer allows the product to remain unpackaged, followed
by storage of the packaged product at a selected temperature between 40
and 50 deg.C (plus or minus 2 deg.C) for 90 days; and
(3) Storage of unpackaged bulk product for the maximum amount of
time the manufacturer allows the product to remain unpackaged, followed
by storage of the packaged product at a monitored or controlled
temperature between 15 and 30 deg.C for the lifetime of the product
(real-time storage).
(e) If a product fails the manufacturer's reasonable quality
control tests for physical and mechanical integrity after the
completion of the accelerated storage tests described in paragraphs
(d)(1) and (d)(2) of this section, the product expiration date must be
demonstrated by real-time storage conditions described in paragraph
(d)(3) of this section. If all of the products tested after storage at
temperatures as described in paragraphs (d)(1) and (d)(2) of this
section pass the manufacturer's reasonable physical and mechanical
integrity tests, the manufacturer may label the product with an
expiration date of up to 5 years from the date of product packaging. If
the extrapolated expiration date, under paragraphs (d)(1) and (d)(2) of
this section, is used, the labeled expiration date must be confirmed by
reasonable physical and mechanical integrity tests performed at the end
of the stated expiration period as described in paragraph (d)(3) of
this section. If the data from tests following real-time storage
described in paragraph (d)(3) of this section fails to confirm the
extrapolated expiration date, the manufacturer must, at that time,
relabel the product to reflect the actual shelf life.
(f) The time period upon which the expiration date is based shall
start with the date of packaging.
(g) All testing data must be retained in each company's files, as
required by Sec. 820.180 of this chapter, and shall be made available,
upon request, for inspection by FDA.
(h) Any latex condom not labeled with an expiration date as
required by paragraph (c) of this section, and delivered for
introduction into interstate commerce after the effective date of this
regulation is misbranded under sections 201(n) and 502(a) and (f) of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321(n), 352(a) and
(f)).
[[Page 26145]]
Dated: May 17, 1996.
William K. Hubbard,
Associate Commissioner for Policy Coordination.
[FR Doc. 96-13174 Filed 5-23-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-13151 Clean Air Act Interim Approval of Operating Permits Program; Delegation of Section 112 Standards; State of Vermont
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26145-26149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13151]
=======================================================================
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 70
[AD-FL-5510-2]
Clean Air Act Interim Approval of Operating Permits Program;
Delegation of Section 112 Standards; State of Vermont
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: The EPA proposes interim approval of the Operating Permits
Program submitted by Vermont for the purpose of complying with Federal
requirements for an approvable State program to issue operating permits
to all major stationary sources, and to certain other sources. EPA is
also approving Vermont's authority to implement hazardous air pollutant
requirements.
DATES: Comments on this proposed action must be received in writing by
June 24, 1996.
ADDRESSES: Comments should be addressed to Donald Dahl, Air Permits,
CAP, U.S. Environmental Protection Agency, Region I, JFK Federal
Building, Boston, MA 02203-2211. Copies of the State's submittal and
other supporting information used in developing the proposed interim
approval are available for inspection during normal business hours at
the following location: U.S. Environmental Protection Agency, Region 1,
One Congress Street, 11th floor, Boston, MA 02203-2211.
FOR FURTHER INFORMATION CONTACT: Donald Dahl, CAP, U.S. Environmental
Protection Agency, Region 1, JFK Federal Building, Boston, MA 02203-
2211, (617) 565-4298.
SUPPLEMENTARY INFORMATION:
I. Background and Purpose
A. Introduction
As required under title V of the 1990 Clean Air Act Amendments
(sections 501-507 of the Clean Air Act (``the Act'')), EPA has
promulgated rules which define the minimum elements of an approvable
State operating permits program and the corresponding standards and
procedures by which the EPA will approve, oversee, and withdraw
approval of State operating permits programs (see 57 FR 32250 (July 21,
1992)). These rules are codified at 40 Code of Federal Regulations
(CFR) Part 70. Title V requires States to develop, and submit to EPA,
programs for issuing these operating permits to all major stationary
sources and to certain other sources.
The Act requires that States develop and submit these programs to
EPA by November 15, 1993, and that EPA act to approve or disapprove
each program within 1 year after receiving the submittal. The EPA's
program review occurs pursuant to section 502 of the Act and the part
70 regulations, which together outline criteria for approval or
disapproval. Where a program substantially, but not fully, meets the
requirements of Part 70, EPA may grant the program interim approval for
a period of up to 2 years. If EPA has not fully approved a program by 2
years after the November 15, 1993 date, or by the end of an interim
program, it must establish and implement a Federal program.
B. Federal Oversight and Sanctions
If EPA were to finalize this proposed interim approval, it would
extend for two years following the effective date of final interim
approval, and could not be renewed. During the interim approval period,
the State of Vermont would be protected from sanctions, and EPA would
not be obligated to promulgate, administer and enforce a Federal
permits program for the State of Vermont. Permits issued under a
program with interim approval have full standing with respect to part
70, and the 1-year time period for submittal of permit applications by
subject sources begins upon the effective date of interim approval, as
does the 3-year time period for processing the initial permit
applications 1.
---------------------------------------------------------------------------
\1\ Note that states may require applications to be submitted
earlier than required under section 503(c). See Subchapter X,
Section 5-1005 of Vermont's rules.
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Following final interim approval, if the State of Vermont failed to
submit a complete corrective program for full approval by the date 6
months before expiration of the interim approval, EPA would start an
18-month clock for mandatory sanctions. If the State of Vermont then
failed to submit a corrective program that EPA found complete before
the expiration of that 18-month period, EPA would apply sanctions as
required by section 502(d)(2) of the Act, which would remain in effect
until EPA determined that the State of Vermont had corrected the
deficiency by submitting a complete corrective program. If, six months
after application of the first sanction, the State of Vermont still has
not submitted a corrective program that EPA finds complete, a second
sanction will be required.
If, following final interim approval, EPA were to disapprove the
State of Vermont's complete corrective program, EPA would be required
under section 502(d)(2) to apply sanctions on the date 18 months after
the effective date of the disapproval, unless prior to that date the
State of Vermont had submitted a revised program and EPA had determined
that it corrected the deficiencies that prompted the disapproval. If,
six months after EPA applies the first sanction, the State of Vermont
has not submitted a revised program that EPA has determined corrected
the deficiencies that prompted disapproval, a second sanction will be
required.
Moreover, if EPA has not granted full approval to the State of
Vermont's program by the expiration of an interim approval and that
expiration occurs after November 15, 1995, EPA must promulgate,
administer and enforce a Federal permits program for the State of
Vermont upon interim approval expiration.
II. Proposed Action and Implications
A. Analysis of State Submission
The analysis contained in this document focuses on specific
elements of Vermont's title V operating permits program that must be
corrected to meet the minimum requirements of 40 CFR part 70. The full
program submittal, technical support document (TSD), dated April 19,
1996 entitled ``Technical Support Document--Vermont Operating Permits
Program'', which contains a detailed analysis of the submittal, and
other relevant materials are available for inspection as part of the
public docket. The docket may be viewed during regular business hours
at the address listed above.
1. Title V Program Support Materials
Vermont's title V program was submitted by the State on April 28,
1995 (PROGRAM). The submittal was found to be administratively complete
on June 12, 1995. The PROGRAM consisted of a Governor's letter, program
description, Attorney General's legal opinion, permitting regulations
and enabling legislation, and permitting program documentation.
Included with the PROGRAM submittal was a draft implementation
agreement which will be finalized by EPA and Vermont. The
[[Page 26146]]
agreement outlines procedures for EPA oversight, the state's
administration of the PROGRAM, and state commitments for implementing
future air toxic regulations. On March 6, 1996, Vermont submitted a
supplement to their PROGRAM, which included a revised Attorney General
Opinion, a revised permit form, and a letter of intention for
delegation of standards under sections 111 and 112 of the Clean Air
Act.
2. Title V Operating Permit Regulations and Implementation
Vermont's regulations implementing Part 70 include Environmental
Protection Regulations, Air Pollution Control Chapter V, Definitions
(Sec. 5-101) and Subchapter X (Secs. 5-1001-1016, Operating Permits).
The Vermont PROGRAM, including the operating permit regulations,
substantially meets the requirements of 40 CFR part 70, including
Secs. 70.2 and 70.3 with respect to applicability, Secs. 70.4, 70.5 and
70.6 with the respect to permit content and operational flexibility,
Secs. 70.7 and 70.8 with respect to public participation and review by
affected states and EPA, and Sec. 70.11 with respect to requirements
for enforcement authority. Although the regulations substantially meet
Part 70 requirements, there are program deficiencies that are outlined
in section II.B. below as Interim Approval issues. Those Interim
Approval issues are more fully discussed in the TSD. The ``Issues''
section of the TSD also contains a detailed discussion of elements of
Part 70 that are not explicitly contained in Vermont's regulation, but
which are satisfied by other elements of Vermont's program submittal
and/or other Vermont State law. Also discussed in the TSD are certain
elements of Vermont's title V regulation that are in need of a legal
interpretation and which EPA is interpreting to be consistent with Part
70 with the understanding that Vermont shares such interpretation.
Those elements include: (1) the absence of the language ``[a]ny
national ambient air quality standard or increment or visibility
requirement under Part C of title I of the Act, but only as it would
apply to temporary sources permitted pursuant to section 504(e) of the
Act'' in Vermont's definition of ``applicable requirement''; (2)
Section 5-1014 of Vermont's rule relating to ``off-permit'' changes;
(3) Vermont's treatment of ``insignificant activities'' under Sections
5-1002 and 5-1006; (4) Vermont's authority to make applicability
determinations in Section 5-1003; (5) Vermont's treatment of the
stringency of compliance schedules contained in permits as required by
40 CFR 70.5(8)(iii)(C); (6) Vermont's treatment of certain permit
content elements required by 40 CFR 70.6; (7) Vermont's method for
providing adequate, streamlined, and reasonable procedures for
expeditiously processing permit modifications; and (8) Vermont's
requirements for the time frames and detailed contents of compliance
certifications. EPA understands that Vermont will implement its program
consistent with these interpretations, and will base this interim
approval on these interpretations unless Vermont comments to the
contrary.
Variances. Vermont's Air Quality Variance Board has the authority
to issue a variance from requirements imposed by State law. See 10
V.S.A. Sec. 561. The EPA regards Vermont's variance provisions as
wholly external to the program submitted for approval under Part 70 and
consequently is proposing to take no action on these provisions of
State law. The EPA has no authority to approve provisions of State law
that are inconsistent with the Act. The EPA does not recognize the
ability of a permitting authority to grant relief from the duty to
comply with a federally enforceable Part 70 permit, except where such
relief is granted through procedures allowed by Part 70. A Part 70
permit may be issued or revised (consistent with Part 70 procedures),
to incorporate those terms of a variance that are consistent with
applicable requirements. A Part 70 permit may also incorporate, via
Part 70 permit issuance or revision procedures, the schedule of
compliance set forth in a variance. However, EPA reserves the right to
pursue enforcement of applicable requirements notwithstanding the
existence of a compliance schedule in a permit to operate. This is
consistent with 40 CFR 70.5(c)(8)(iii)(C), which states that a schedule
of compliance ``shall be supplemental to, and shall not sanction
noncompliance with, the applicable requirements on which it is based.''
3. Permit Fee Demonstration
Section 502(B)(3) of the Act requires that each permitting
authority collect fees sufficient to cover all reasonable direct and
indirect costs required to develop and administer its title V operating
permit program. Each title V program submittal must contain either a
detailed demonstration of fee adequacy or a demonstration that the fees
collected exceed $25 per ton of actual emissions per year, adjusted
from the August, 1989 consumer price index (``CPI''). The $25 per ton
was presumed by Congress to cover all reasonable direct and indirect
costs to an operating permit program. This minimum amount is referred
to as the ``presumptive minimum.''
Vermont has opted to make a presumptive fee demonstration. Vermont
has demonstrated that actual emissions emitted from their title V
sources was 5079 tons, excluding carbon monoxide. Vermont's permit fee
legislation requires that each title V source pay an annual fee based
on $800 per facility and $30 per ton. Therefore Vermont will collect
$219,375. Using Vermont's application and emission fees, the State will
collect $43.19 per ton annually which is above the presumptive minimum
adjusted by the CPI.
Therefore, Vermont has demonstrated that the State will collect
sufficient permit fees to meet EPA's presumptive minimum criteria. For
more information, see section VII of Vermont's title V program
documentation.
4. Provisions Implementing the Requirements of Other Titles of the Act
a. Authority and/or Commitments for Section 112 Implementation
Vermont has demonstrated in its title V program submittal adequate
legal authority to implement and enforce all section 112 requirements
through the title V permit. This legal authority is contained in
Vermont's enabling legislation, regulatory provisions defining
``applicable requirements,'' and the requirement that a title V permit
must incorporate all applicable requirements. EPA has determined that
this legal authority is sufficient to allow Vermont to issue permits
that assure compliance with all section 112 requirements and to carry
out all section 112 activities. In addition, given Vermont's
commitments regarding implementation of the State's title V program,
EPA has determined that the State will issue permits that assure
compliance with all section 112 requirements, and will carry out all
section 112 activities. For further discussion of this subject, please
refer to the Technical Support Document, referenced above, and the
April 13, 1993 guidance memorandum titled ``Title V Program Approval
Criteria for Section 112 Activities,'' signed by John Seitz, Director
of the Office of Air Quality Planning and Standards.
b. Implementation of 112(g) Upon Program Approval
On February 14, 1995, EPA published an interpretive notice (see 60
FR 8333) that postpones the effective date of section 112(g) until
after EPA has promulgated a rule addressing the
[[Page 26147]]
requirements of that provision. The section 112(g) interpretive notice
explains that EPA is still considering whether the effective date of
section 112(g) should be delayed beyond the date of promulgation of the
Federal rule so as to allow States time to adopt rules implementing the
Federal rule, and that EPA will provide for any such additional delay
in the final section 112(g) rulemaking. Unless and until EPA provides
for such an additional postponement of the effective date of section
112(g), Vermont must be able to implement section 112(g) during the
period between promulgation of the Federal section 112(g) rule and
adoption of implementing State regulations for section 112(g)
requirements. EPA believes that Vermont can utilize its preconstruction
permitting program to serve as a procedural vehicle for implementing
the section 112(g) rule and making these requirements Federally
enforceable between promulgation of the Federal section 112(g) rule and
adoption of implementing State regulations for section 112(g). For this
reason, EPA is proposing to approve Vermont's preconstruction
permitting program found in 10 V.S.A. Sec. 5-501 under the authority of
title V and Part 70 solely for the purpose of implementing section
112(g) during the transition period between title V approval and
adoption of a State rule implementing EPA's section 112(g) regulations.
Since the approval would be for the single purpose of providing a
mechanism to implement section 112(g) during the transition period, the
approval would be without effect if EPA decides in the final section
112(g) rule that sources are not subject to the requirements of the
rule until State regulations are adopted. Also, since the approval
would be for the limited purpose of allowing the State sufficient time
to adopt regulations, EPA proposes to limit the duration of the
approval to 18 months following promulgation by EPA of its section
112(g) rule.
c. Program for Straight Delegation of Sections 111 and 112 Standards
The part 70 requirements for approval of a State operating permit
program, specified in 40 CFR 70.4(b), encompass section 112(l)(5)
requirements for approval of a program for delegation of the hazardous
air pollutant program General Provisions, Subpart A, of 40 CFR parts 61
and 63, promulgated under section 112 of the Act, and MACT standards as
promulgated by EPA as they apply to part 70 sources. Section 112(l)(5)
requires that a State's program contain adequate legal authorities,
adequate resources for implementation, and an expeditious compliance
schedule, which are also requirements under Part 70. The Vermont
Department of Environmental Conservation provided a supplemental
request on March 6, 1996, for non-part 70 sources which contained
information regarding adequate legal authorities, adequate resources
for implementation, and an expeditious compliance schedule. Therefore,
EPA is also proposing to grant approval under section 112(l)(5) and 40
CFR 63.91 of Vermont's mechanism for receiving delegation of section
112 standards for both major and area sources, that are unchanged from
the Federal standards as promulgated (straight delegation) and section
112 infrastructure programs such as those programs authorized under
sections 112(i)(5), 112(g), 112(j), and 112(r). In addition, EPA is
reconfirming the delegation of 40 CFR part 60 standards currently
delegated to Vermont as indicated in Table I. Please note EPA has
withdrawn delegation of Subpart XX, ``Bulk Gas Terminals'' per
Vermont's request. Vermont requested the withdrawal because there
currently are no Subpart XX sources in the State.
EPA is proposing to delegate all applicable future 40 CFR parts 60,
61, and 63 standards pursuant to the following mechanism unless
otherwise requested by Vermont.2 Vermont will accept future
delegation of standards by checking the appropriate boxes on a
standardized checklist. The EPA Regional Office will forward a
checklist listing the applicable regulations to Vermont, and Vermont
will accept the Federal standard as promulgated by checking the
appropriate box and returning it to EPA. The details of this delegation
mechanism are set forth in the March 6, 1996 letter containing a
Memorandum of Agreement between EPA and Vermont. This program will
apply to both existing and future standards. The original delegation
agreement between EPA and Vermont was set forth in a letter to Brendan
J. Whittaker dated September 30, 1982. In addition, Vermont has
indicated that for some section 112 standards it may choose to submit a
more stringent State rule or program through section 112(l). EPA will
need to take public notice and comment for any section 112 delegation
other than straight delegation.
---------------------------------------------------------------------------
\2\ The radionuclide National Emission Standards for Hazardous
Air Pollutant (NESHAP) is a section 112 regulation and therefore,
also an applicable requirement under the State operating permits
program for part 70 sources. There is not yet a Federal definition
of ``major source'' for radionuclide sources. Therefore, until a
major source definition for radionuclide is promulgated, no source
would be a major section 112 source solely due to its radionuclide
emissions. However, a radionuclide source may, in the interim, be a
major source under Part 70 for another reason, thus requiring a Part
70 permit. The EPA will work with the State in the development of
its radionuclide program to ensure that permits are issued in a
timely manner.
---------------------------------------------------------------------------
Vermont is implementing this delegation by issuing permits to both
major and area/minor sources. Permits issued to area/minor sources are
not title V permits and therefore may not be federally enforceable.
d. Implementation of Title IV of the Act
Vermont has stated in Section 5-1008(g) of Subchapter X that the
``Secretary shall implement the requirements and provisions of Title IV
of the federal Clean Air Act.''
B. Proposed Action
The scope of Vermont's Part 70 program covers all Part 70 sources
within the state of Vermont, except any sources of air pollution over
which an Indian Tribe has jurisdiction. See, e.g., 59 FR 55813, 55815-
18 (Nov. 9, 1994). The term ``Indian Tribe'' is defined under the Act
as ``any Indian tribe, band, nation, or other organized group or
community, including any Alaska Native village, which is Federally
recognized as eligible for the special programs and services provided
by the United States to Indians because of their status as Indians.''
See section 302(r) of the CAA; see also 59 FR 43956, 43962 (Aug. 25,
1994); 58 FR 54364 (Oct. 21, 1993).
Requirements for approval, specified in 40 CFR 70.4(b), encompass
section 112(l)(5) requirements for approval of a program for delegation
of section 112 standards as promulgated by EPA as they apply to part 70
sources and non-part 70 sources. As discussed above, Vermont's
submittal meets the requirements for EPA approval of delegation of
section 112 standards. Therefore, the EPA is also proposing to grant
approval under section 112(l)(5) and 40 CFR 63.91 of the State's
mechanism for receiving delegation of section 112 standards that are
unchanged from Federal standards as promulgated. Vermont will be
issuing permits containing section 112 standards to both major and
area/minor sources; therefore, EPA is delegating authority to implement
these standards for all sources subject to the standards, not just for
part 70 sources.
The EPA is proposing to grant interim approval to the operating
permits program submitted by Vermont on April 28, 1995. If promulgated,
the State must make the following changes to receive full approval:
[[Page 26148]]
1. Vermont does not allow for ``section 502(b)(10)'' changes at a
title V source. In an August 29, 1994 (59 FR 44572) rulemaking
proposal, EPA proposed to eliminate section 502(b)(10) changes as a
mechanism for implementing operational flexibility. However, the Agency
solicited comment on the rationale for this proposed elimination. If
EPA should conclude, during a final rulemaking, that section 502(b)(10)
changes are no longer required as a mechanism for operational
flexibility, then Vermont will not be required to address 502(b)(10)
changes in its rule.
2. In Sections 5-1014 and 5-1015(a)(11), the program regulation
implementing operational flexibility requirements allows the State the
discretion to incorporate emission trades into a permit, and does not
require that the emissions involved in such trades be quantifiable.
EPA's rule states that when a permitting authority agrees to establish
an emissions cap in a title V permit independent of otherwise
applicable requirements, the permitting authority must include emission
trading provisions for complying with that cap requested by the permit
applicant, as long as those provisions are quantifiable and include the
compliance requirements of 40 CFR 70.6 (a) and (c). EPA's rule also
requires that the emissions involved in such trades be quantifiable
before a title V permit can provide for the trades. See
Sec. 70.4(b)(12)(iii). However, if a source requests an emission trade
that could violate an underlying state requirement, the State has the
discretion to limit any emission trading consistent with the state
requirement when issuing the operating permit.
Vermont must therefore adopt regulatory language requiring the
State to include, upon request by a source, emission trading provisions
in a title V permit for the purpose of complying with an emissions cap
established in the permit, provided that the emissions involved in such
trades are quantifiable. Vermont retains the option to include language
in its regulation that would require all such trades to be consistent
with state requirements as well as applicable requirements.
3. In Section 5-1008(e)(1), the program regulation states that
Vermont has the discretion to reopen and reissue a title V permit for
cause. In Section 5-1008(e)(4) (i)-(vi), the program regulation
enumerates the conditions which would potentially cause Vermont to
reopen a permit. EPA's rule requires a permitting authority to reopen
and reissue a permit when certain conditions exist (or ``for cause'' as
defined by the regulation). See 40 CFR 70.7(f). Thus, Vermont must
change the word ``may'' to ``shall'' in Section 5-1008(e)(1). Vermont
must also include a provision in its rule requiring the State to reopen
and reissue a permit (with a remaining term of 3 or more years) within
18 months of a source's becoming subject to an additional applicable
requirement. See Sec. 70.7(f)(1)(i).
4. Vermont must adopt provisions in Subchapter X which would
require that every permit contain certain terms and conditions as
specified in section 70.6. Vermont's current permit content section,
found at Section 5-1015 of Subchapter X, does not contain all of the
terms and conditions in Sec. 70.6. Section 5-1015 of the program rule
requires permit terms which generally address applicable requirements,
emission monitoring and reporting, and compliance plans. Vermont will
need to add the following missing requirements of section 70.6: (a) a
source's obligation to report promptly any permit deviations (section
70.6(a)(3)(iii)(B)); (b) a source's obligation to maintain a record
when switching between operating scenarios (section 70.6(a)(9)(i)); (c)
the State's obligation to separate in a title V permit those permit
terms which are enforceable by the State only (and to specifically
designate them as such) from those which are enforceable by both the
State and EPA (sections 70.6(b) (1) and (2)); and (d) the State's
obligation to indicate in a title V permit the origin and authority of
all permit terms and conditions, and identify any difference in form as
compared to the applicable requirement upon which a permit term or
condition is based (section 70.6(a)(1)(i)).
There are several ways Vermont could revise its rule to address the
separation of federal and state requirements. One option suggested by
EPA's recent ``White Paper Number 2,'' dated March 5, 1996, is to
clarify which state requirements are not federally-enforceable in the
Findings of Fact section of the draft permit. This separation would
identify for all concerned parties the federal applicable requirements
and the requirements based solely on State law. If Vermont proposed to
consolidate the State and federal requirements in the permit terms and
conditions, Vermont would then have to use the most stringent limit as
the permit condition in the draft permit. If an applicant objected
during the public comment period to the consolidation of federal and
State requirements, Vermont would have to separate the permit
conditions within the enforceable terms and conditions section of the
final permit. Vermont's regulation must clearly provide the permit
applicant the authority to require the State to separate out State-only
permit terms and conditions.
III. Administrative Requirements
A. Request for Public Comments
The EPA is requesting comments on all aspects of this proposed
interim approval. Copies of the State's submittal and other information
relied upon for the proposed interim approval are contained in a docket
maintained at the EPA Regional Office. The docket is an organized and
complete file of all the information submitted to, or otherwise
considered by, EPA in the development of this proposed interim
approval. The principal purposes of the docket are:
(1) to allow interested parties a means to identify and locate
documents so that they can effectively participate in the approval
process, and
(2) to serve as the administrative record in the event of judicial
review. The EPA will consider any comments received by June 24, 1996.
B. Executive Order 12866
The Office of Management and Budget has exempted this action from
Executive Order 12866 review.
C. Regulatory Flexibility Act
The EPA's actions under section 502 of the Act do not create any
new requirements, but simply address operating permits programs
submitted to satisfy the requirements of 40 CFR Part 70. Because this
action does not impose any new requirements, it does not have a
significant impact on a substantial number of small entities.
D. Unfunded Mandates
Under Section 202 of the Unfunded Mandates Reform Act of 1995
(``Unfunded Mandates Act''), signed into law on March 22, 1995, EPA
must prepare a budgetary impact statement to accompany any proposed or
final rule that includes a Federal mandate that may result in estimated
costs to State, local, or tribal governments in the aggregate; or to
the private sector, of $100 million or more. Under Section 205, EPA
must select the most cost-effective and least burdensome alternative
that achieves the objectives of the rule and is consistent with
statutory requirements. Section 203 requires EPA to establish a plan
for informing and advising any small governments that may be
significantly or uniquely impacted by the rule.
EPA has determined that the action promulgated today does not
include a Federal mandate that may result in
[[Page 26149]]
estimated costs of $100 million or more to either State, local, or
tribal governments in the aggregate, or to the private sector. This
Federal action approves preexisting requirements under State or local
law, and imposes no new Federal requirements. Accordingly, no
additional costs to State, local, or tribal governments, or to the
private sector, result from this action.
List of Subjects in 40 CFR Part 70
Environmental protection, Administrative practice and procedure,
Air pollution control, Intergovernmental relations, Operating permits,
Reporting and recordkeeping requirements.
Authority: 42 U.S.C. 7401-7671q.
Dated: May 6, 1996.
John P. DeVillars,
Regional Administrator, Region I.
Table I to the Preamble
Reconfirmation of Part 60 and 61 Delegations
Part 60 Subpart Categories
Da ELECTRIC UTILITY STEAM GENERATORS
Dc SMALL INDUSTRIAL-COMMERCIAL-INSTITUTIONAL STEAM GENERATING UNITS
E INCINERATORS
I ASPHALT CONCRETE PLANTS
RR TAPE AND LABEL SURFACE COATINGS
OOO NONMETALLIC MINERAL PROCESSING PLANTS
UUU CALCINERS AND DRYERS IN MINERALS INDUSTRY
Part 61 Subpart Categories
M ASBESTOS
[FR Doc. 96-13151 Filed 5-23-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-13101 Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Allocation of Costs Associated With Local Exchange Provision of Video Programming Services
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26152-26153]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13101]
=======================================================================
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I and Part 64
[CC Docket No. 96-98; CC Docket No. 96-112; DA 96-753]
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996; Allocation of Costs Associated With
Local Exchange Provision of Video Programming Services
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: The Common Carrier Bureau released a public notice inviting
parties filing comments or reply comments on the Notice of Proposed
Rulemaking in CC Docket No. 96-98, regarding implementation of the
local competition provisions in the Telecommunications Act of 1996, and
the Notice of Proposed Rulemaking in CC Docket No. 96-112, regarding
allocation of costs associated with local exchange provision of video
programming services, to submit proposed language for rules that the
Commission could adopt in these proceedings. Such proposed language
will not be counted against the page limits set forth in those notices.
DATES: Comment dates in CC Docket No. 96-98 are May 16, 1996, with
reply comments due May 30, 1996, and also May 20, 1996, with reply
comments due June 3, 1996. Comments in CC Docket No. 96-112 are due May
28, 1996; reply comments are due June 7, 1996.
ADDRESSES: Comments must be filed with the Office of the Secretary,
Federal Communications Commission, 1919 M Street, N.W., Washington, D.
C. 20554. The complete text of the Notice released by the Commission is
available for inspection and copying during normal business hours in
the FCC Reference Center, 1919 M Street, N.W., Room 239, Washington, D.
C. 20554.
FOR FURTHER INFORMATION CONTACT: Paul Gallant (202/418-1941), Policy
and Program Planning Division, Common Carrier Bureau.
[[Page 26153]]
SUPPLEMENTARY INFORMATION:
Synopsis of Public Notice
On April 19, 1996, the Commission released a Notice of Proposed
Rulemaking in CC Docket No. 96-98 to implement the local competition
provisions of the Telecommunications Act of 1996. Implementation of the
Local Competition Provisions of the Telecommunications Act of 1996,
Notice of Proposed Rulemaking, FCC 96-182 (Local Competition NPRM) (61
FR 18311, April 25, 1996). Parties are hereby invited to submit, in
conjunction with their comments or reply comments, proposed text for
rules that the Commission could adopt in this proceeding. Specific rule
proposals should be filed as an appendix to a party's comments or reply
comments, and will not be counted against the page limits set forth in
paragraph 291 of the Local Competition NPRM or the Order released May
7, 1996, modifying those page limits. Implementation of the Local
Competition Provisions of the Telecommunications Act of 1996, Order, DA
96-700. Such appendices may include only proposed text for rules that
would implement proposals set forth in the parties' comments and reply
comments in this proceeding, and may not include any comments or
arguments. Proposed rules should be provided in the format used for
rules in the Code of Federal Regulations, and should otherwise conform
to the Comment Filing Procedures set forth in the Local Competition
NPRM.
On May 10, 1996, the Commission released a Notice of Proposed
Rulemaking in CC Docket No. 96-112. Allocation of Costs Associated with
Local Exchange Carrier Provision of Video Programming Services, Notice
of Proposed Rulemaking, FCC 96-214 (LEC Video Programming NPRM) (61 FR
25184, May 20, 1996). Parties are hereby invited to submit, in
conjunction with their comments or reply comments, proposed text for
rules that the Commission could adopt in this proceeding. Specific rule
proposals should be attached as an appendix to a party's comments or
reply comments, and will not be counted against the page limits set
forth in paragraph 66 of the LEC Video Programming NPRM. Such
appendices may include only proposed text for rules that would
implement proposals set forth in the parties' comments and reply
comments in this proceeding, and may not include any comments or
arguments. Proposed rules should be provided in the format used for
rules in the Code of Federal Regulations, and should otherwise conform
to the Comment Filing Procedures set forth in the LEC Video Programming
NPRM.
Accordingly, it is ordered That parties may file proposed language
for rules in this proceeding consistent with the procedures set forth
above.
Federal Communications Commission.
Regina M. Keeney,
Chief, Common Carrier Bureau.
[FR Doc. 96-13101 Filed 5-23-96; 8:45 am]
BILLING CODE 6712-01-P
Complete official Federal Register PDF
FR Doc. 96-13087 Guidelines Establishing Test Procedures for the Analysis of Oil and Grease and Total Petroleum Hydrocarbons: Reopening of Comment Period
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Page 26149]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13087]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 136
[FRL-5509-7]
Guidelines Establishing Test Procedures for the Analysis of Oil
and Grease and Total Petroleum Hydrocarbons: Reopening of Comment
Period
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice; reopening of comment period.
-----------------------------------------------------------------------
SUMMARY: The U.S. Environmental Protection Agency (EPA) is reopening
the comment period for the proposal to amend the Guidelines
Establishing Test Procedures under section 304(h) of the Clean Water
Act to replace existing gravimetric test procedures for the
conventional pollutant ``oil and grease'' with EPA Method 1664, which
was published in the Federal Register on January 23, 1996 (61 FR 1730).
The public comment period for the proposed rule ended on March 25,
1996.
EPA has received several requests for an extension of time to
comment on the proposed rule, on the grounds that several issues that
the rule addresses require additional time for a proper evaluation. The
Agency has determined that an extension of time is in the public
interest, and that an additional 60 days to comment on the proposed
rule is reasonable.
DATES: Comments on this proposal will be accepted until July 23, 1996.
ADDRESSES: Send written comments on the proposed rule to ``Method
1664'' Comment Clerk; Water Docket MC-4101; Environmental Protection
Agency; 401 M Street, S.W.; Washington, D.C. 20460. Commenters are
requested to submit any references cited in their comments. Commenters
are also requested to submit an original and 3 copies of their written
comments and enclosures. Commenters who want receipt of their comments
acknowledged should include a self addressed, stamped envelope. All
comments must be postmarked or delivered by hand by July 23, 1996. No
facsimiles (faxes) will be accepted.
FOR FURTHER INFORMATION CONTACT: Mr. Ben Honaker, Engineering and
Analysis Division (4303), USEPA Office of Science and Technology, 401 M
Street, S.W., Washington, D.C., 20460, or call (202) 260-2272.
SUPPLEMENTARY INFORMATION: On January 23, 1996, EPA published a
proposed rule at 61 FR 1730 to replace existing gravimetric procedures
for the conventional pollutant ``oil and grease'' (40 CFR 401.16) with
EPA Method 1664 as part of EPA's effort to reduce dependency on the use
of chlorofluorocarbons (CFCs). Method 1664 uses normal hexane (n-
hexane) as the extraction solvent in place of 1,1,2-trichloro-1,2,2-
trifluoroethane (CFC-113). This proposal would withdraw approval of EPA
Method 413.1 and Standard Methods Method 5520B, which use CFC-113 as
the extraction solvent. In an effort to provide for the use and
depletion of existing laboratory stocks of CFC-113, EPA plans to
implement the required use of Method 1664 no sooner than six months
after the final rule is published in the Federal Register. Method 1664
was also proposed for the determination of total petroleum
hydrocarbons.
This extension of time for comment neither represents any
modification of the proposed rule, nor indicates a change in the
Agency's interpretation of the existing requirements. The extension of
time for receipt of comments simply provides those interested parties
an additional 60 days to provide comments to the Agency on the proposed
rule. All other requirements stipulated in the initial proposal for
receipt of comments still apply.
All written comments submitted in accordance with the instructions
in the Notice of Proposed Rulemaking and received by July 23, 1996,
including those received between the close of the comment period on
March 25, 1996, and the publication of this notice, will be entered
into the public record and considered by EPA before promulgation of the
final rule.
Dated: May 17, 1996.
Robert Perciasepe,
Assistant Administrator for Water.
[FR Doc. 96-13087 Filed 5-23-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-13022 Metolachlor; Pesticide Tolerances
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26149-26152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-13022]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
[PP4E4420 and 6E4638/P656; FRL-5370-2]
RIN 2070-AC18
Metolachlor; Pesticide Tolerances
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: EPA proposes to establish time-limited tolerances for residues
of the herbicide metolachlor and its metabolites in or on the raw
agricultural commodities pepper, and forage and hay of the grass
forage, fodder and hay crop group (excluding Bermudagrass). The
proposed regulation to establish maximum permissible levels for
residues of the herbicide was requested in petitions submitted by the
Interregional Research Project No. 4 (IR-4). The tolerances would
expire on December 31, 1998.
DATES: Comments, identified by the docket number [PP 4E4420 and 6E4638/
P656], must be received on or before June 24, 1996.
ADDRESSES: By mail, submit written comments to: Public Response and
Program Resources Branch, Field Operations Division (7506C), Office of
Pesticide Programs, Environmental Protection Agency, 401 M St., SW.,
Washington, DC 20460. In person, bring comments to: Rm. 1132, CM #2,
1921 Jefferson Davis Highway, Arlington, VA 22202. Comments and data
may also be submitted to OPP by sending electronic mail (e-mail) to:
[email protected].
[[Page 26150]]
Electronic comments must be submitted as an ASCII file avoiding the
use of special characters and any form of encryption. Comments and data
will also be accepted on disks in WordPerfect 5.1 file format or ASCII
file format. All comments and data in electronic form must be
identified by the docket number [PP 4E4420 and 6E4638/P656]. Electronic
comments on this proposed rule may be filed online at many Federal
Depository Libraries. Additional information on electronic submissions
can be found in the ``SUPPLEMENTARY INFORMATION'' section of this
document.
Information submitted as a comment concerning this document may be
claimed confidential by marking any part or all of that information as
``Confidential Business Information''(CBI). CBI should not be submitted
through e-mail. Information marked as CBI will not be disclosed except
in accordance with procedures set forth in 40 CFR part 2. A copy of the
comment that does not contain CBI must be submitted for inclusion in
the public record. Information not marked confidential may be disclosed
publicly by EPA without prior notice. All written comments will be
available for public inspection in Rm. 1132 at the Virginia address
given above, from 8 a .m. to 4:30 p.m., Monday through Friday,
excluding legal holidays.
FOR FURTHER INFORMATION CONTACT: By mail: Hoyt L. Jamerson,
Registration Division (7505W), Office of Pesticide Programs,
Environmental Protection Agency, 401 M St. SW., Washington, DC 20460.
Office location and telephone number: Sixth Floor, Crystal Station #1,
2800 Jefferson Davis Highway, Arlington, VA 22202, (703) 308-8783; e-
mail: [email protected].
SUPPLEMENTARY INFORMATION: The Interregional Research Project No. 4
(IR-4), New Jersey Agricultural Experiment Station, P.O. Box 231,
Rutgers University, New Brunswick, NJ 08903, has submitted pesticide
petitions (PP) 4E4420 and 6E4638 to EPA on behalf of the named
Agricultural Experiment Stations. These petitions request that the
Administrator, pursuant to section 408(e) of the Federal Food, Drug,
and Cosmetic Act (FFDCA), 21 U.S.C. 346a(e), amend 40 CFR 180.368 by
establishing tolerances for combined residues (free and bound) of the
herbicide metolachlor [2-chloro-N-(2-ethyl-6-methylphenyl)-N-(2-
methoxy-1- methylethyl)acetamide], and its metabolites, determined as
the derivatives, 2-[(2-ethyl-6-methylphenyl)amino]-1-propanol and 4-(2-
ethyl-6-methylphenyl)-2-hydroxy-5-methyl-3-morpholinone, each expressed
as the parent compound, in or on certain raw agricultural commodities
as follows:
1. PP 4E4420. Petition submitted on behalf of the Experimental
Stations of Arkansas, Florida, Georgia, Oklahoma, South Carolina, and
Texas proposing a time-limited tolerance for pepper at 0.5 part per
million (ppm).
IR-4 also proposed that the established tolerances for combined
residues of metolachlor and its metabolites on bell pepper at 0.1 ppm,
chili pepper at 0.5 ppm, Cubanelle pepper at 0.1 ppm, and tabasco
pepper at 0.5 ppm be removed. The established metolachlor tolerances
for these varieties of pepper are no longer needed, since the proposed
tolerance for pepper will apply to all varieties of pepper. The
commodity term ``pepper'' is defined in 40 CFR 180.1(h) to include all
varieties of pepper.
2. PP 6E4638. Petition submitted on behalf of the Experimental
Station of Oregon proposing time-limited tolerances for forage at 10
ppm and hay at 0.2 ppm of the grass forage, fodder and hay crop group
(excluding Bermudagrass). IR-4 proposed the tolerances in support of
regional registration for use of metolachlor on grass grown for seed in
Idaho, Oregon and Washington. The use of metolachlor on grass grown for
seed will be limited to production areas in Idaho, Oregon, and
Washington based on the geographical representation of the residue data
submitted. Additional residue data will be required to expand the area
of usage. Persons seeking geographically broader registration should
contact the Agency's Registration Division at the address provided
above. EPA is establishing these tolerances with an expiration date of
December 31, 1998, to allow IR-4 time to submit additional residue data
in support of permanent tolerances for pepper and the grass forage,
fodder, and hay crop group (excluding Bermudagrass). IR-4 has agreed to
provide magnitude of residue data from three additional field trials
for bell pepper, and five additional field trials for grass forage and
hay.
The scientific data submitted in the petition and other relevant
material have been evaluated. The toxicological data considered in
support of the proposed tolerance include:
1. A 1-year feeding study with dogs fed diets containing 0, 100,
300, or 1,000 ppm (equivalent to 3.5, 9.7 or 32.7 mg/kg/day for males
and 3.6, 9.7 or 33.0 mg/kg/day for females) with a systemic no-observed
effect level (NOEL) of 300 ppm (9.7 mg/kg/day) based on decreased body
weight in females.
2. A 2-year feeding/carcinogenicity study with rats fed diets
containing 0, 30, 300, 1,000, or 3,000 ppm (equivalent to 0, 1.5, 15,
50, or 150 mg/kg/day) with a compound related increase in liver
adenomas and combined adenomas/carcinomas in female rats at the high
dose level. This study, which was performed by Industrial Biotest, was
classified as supplemental data due to inadequate clinical chemistry
determination and dietary preparation records.
3. A 2-year feeding/carcinogenicity study with rats fed diets
containing 0, 30, 300, or 3,000 ppm (equivalent to 0, 1.5, 15, or 150
mg/kg/day) with a systemic NOEL of 300 ppm based on decreased body
weight at the 3,000 ppm dose level. A statistically significant
increase in liver neoplasia was found in female rats at the 3,000 ppm
dose level.
4. A 2-year carcinogenicity study in mice fed diets containing 0,
300, 1,000 and 3,000 ppm (highest dose level equivalent to 428 mg/kg/
day) with no treatment related carcinogenic effects observed under the
conditions of the study.
5. A second 2-year carcinogenicity study in mice fed diets
containing 0, 300, 1,000 or 3,000 ppm with no treatment related
carcinogenic effects observed under the conditions of the study.
6. A 2-generation reproduction study in rats fed diets containing
0, 30, 300 or 1,000 ppm with a reproductive NOEL of 300 ppm (equivalent
to 23.5 to 26 mg/kg/day) based on reduced pup weights in the F1a and
F2a litters at the 1,000 ppm dose level (equivalent to 75.8 to 85.7 mg/
kg/day). The NOEL for parental toxicity is equal to or greater than the
1,000 ppm dose level.
7. A developmental toxicity study in rabbits given gavage doses at
0, 36, 120 or 360 mg/kg/day on gestation days 6 through 18. The NOEL
for maternal toxicity was established at 120 mg/kg/day based on
lacrimation, miosis, reduced food consumption and body weight gain.
There was no developmental toxicity observed under the conditions of
the study.
8. A second developmental toxicity study in rats given gavage doses
of 0, 30, 100, 300, or 1,000 mg/kg/day on gestation days 6-15. The
NOEL's for maternal and developmental toxicity were established at 300
mg/kg/day. The NOEL for maternal toxicity was based on deaths,
salivation, lacrimation, convulsions, reduced body weight and food
consumption at the 1,000 mg/kg/day dose level. The NOEL for
developmental toxicity was based on
[[Page 26151]]
reduced mean fetal body weight, reduced number of implantations/dam
with resulting decreased litter size, and a slight increase in
resorptions/dam with resulting increase in post-implantation loss.
9. Metolachlor was not found to be mutagenic in any tests.
Mutagenicity data include gene mutation assays in Salmonella and mouse
lymphoma cells; structural chromosome aberration tests including an in
vivo micronucleus assay in Chinese hamsters and a dominant lethal assay
in mice; and other genotoxic activity tests including DNA damage/repair
assays in rat hepatocytes and in human fibroblasts, and an in vivo/in
vitro unscheduled DNA synthesis assay.
10. Several metabolism studies have been performed with metolachlor
and the available data indicate the compound is readily absorbed after
oral dosing and excreted in approximately equal amounts in urine and
feces.
Metolachlor was evaluated by the Office of Pesticide Programs'
Health Effects Division, Carcinogenicity Peer Review Committee (CPRC)
in 1991 and classified as a Group C (possible carcinogen) with a
recommendation for the quantification of estimated potential human risk
using a linearized low-dose extrapolation (Q*). This
recommendation was based on the finding of liver tumors in female rats
at the 3,000 ppm dose level in both rat studies and the apparent
induction of a small number of nasal turbinate tumors in both sexes of
rats at the 3,000 ppm dose level. Nasal turbinate tumors have also been
associated with dietary administration of acetochlor and alachlor,
structurally related herbicides that are classified as Group B2
carcinogens (probable human carcinogens).
The Carcinogenicity Peer Review Committee's decision was presented
to the FIFRA Scientific Advisory Panel on September 18, 1991. The Panel
concluded that liver tumors were benign and hyperplasia were evident in
rats of both sexes. The Panel also concluded that the occurrence of
nasal turbinate tumors in rats was low and not statistically
significant, but of concern since metolachlor is structurally related
to acetochlor and alachlor. The Panel considered the carcinogenicity
evidence to be minimal but sufficient for the classification of
metolachlor as a Group C carcinogen.
The CPRC met on July 27, 1994, to revaluate the weight-of-the-
evidence on metolachlor, with particular reference to its
carcinogenicity, based on newly submitted metabolism and mutagenicity
studies. The registrant submitted data to show that the metabolism of
metolachlor is substantially different from the metabolism of
acetochlor and alachlor. Metolachlor does not metabolize to form a
reactive quinone imine, which is presumed to be the carcinogenic
metabolite of acetochlor and alachlor. There was also no evidence for
mutagenic potential of metolachlor. Based on these data and in
consideration of the full weight-of-the-evidence, the CPRC concluded
that the classification of metolachlor should remain as a Group C
carcinogen, but recommended that the Reference Dose (RfD) should be
used for quantification of human risk.
The RfD is established at 0.1 mg/kg of body weight (bwt)/day, based
on a NOEL of 9.7 mg/kg/day from the 1-year feeding study with dogs and
an uncertainty factor of 100. Available information on anticipated
residues and/or percent of crop treated were used to estimate the
Anticipated Residue Contribution (ARC) from residues of metolachlor in
the human diet. The ARC from established tolerances and the proposed
tolerances for pepper and forage and hay of the grass, forage, fodder
and hay group is estimated at 0.0006 mg/kg bwt/day and utilizes 0.6
percent of the RfD for the U.S. population. The ARC for non-nursing
infants (the subgroup most highly exposed) utilizes 2 percent of the
RfD. EPA generally has no concern for exposures below 100 percent of
the RfD and concludes that the proposed uses of metolachlor on pepper
and grass grown for seed pose negligible dietary cancer risks to
humans.
Adequate analytical methods are available for enforcement purposes.
The methods are listed in the Pesticide Analytical Manual, Vol. II (PAM
II). The qualitative nature of the residues in plants and animals is
adequately understood. The established tolerances for milk and meat,
fat, kidney, liver and meat byproducts of livestock are adequate to
cover secondary residues resulting from the proposed use on grass grown
for seed. There are no livestock feed commodities associated with
pepper.
There are presently no actions pending against the continued
registration of this chemical. The pesticide is considered useful for
the purpose for which the tolerances are sought.
Based on the information and data considered, the Agency has
determined that the tolerances established by amending 40 CFR part 180
would protect the public health. Therefore, it is proposed that the
tolerances be established as set forth below.
Any person who has registered or submitted an application for
registration of a pesticide, under the Federal Insecticide, Fungicide,
and Rodenticide Act (FIFRA) as amended, which contains any of the
ingredients listed herein, may request within 30 days after publication
of this notice in the Federal Register that this rulemaking proposal be
referred to an Advisory Committee in accordance with section 408(e) of
the FFDCA.
Interested persons are invited to submit written comments on the
proposed regulation. Comments must bear a notation indicating the
docket number [PP 4E4420 and 6E4638/P656].
A record has been established for this rulemaking under docket
number [PP 4E4420 and 6E4638/P656] (including comments and data
submitted electronically as described below). A public version of this
record, including printed, paper versions of electronic comments, which
does not include any information claimed as CBI, is available for
inspection from 8 a.m. to 4:30 p.m., Monday through Friday, excluding
legal holidays. The public record is located in Room 1132 of the Public
Response and Program Resources Branch, Field Operations Division
(7506C), Office of Pesticide Programs, Environmental Protection Agency,
Crystal Mall #2, 1921 Jefferson Davis Highway, Arlington, VA.
Electronic comments can be sent directly to EPA at:
opp-D[email protected]
Electronic comments must be submitted as an ASCII file avoiding the
use of special characters and any form of encryption.
The official record for this rulemaking, as well as the public
version, as described above will be kept in paper form. Accordingly,
EPA will transfer all comments received electronically into printed,
paper form as they are received and will place the paper copies in the
official rulemaking record which will also include all comments
submitted directly in writing. The official rulemaking record is the
paper record maintained at the address in ``ADDRESSES'' at the
beginning of this document.
Under Executive Order 12866 (58 FR 51735, Oct. 4, 1993), the Agency
must determine whether the regulatory action is ``significant'' and
therefore subject to all the requirements of the Executive Order (i.e.,
Regulatory Impact Analysis, review by the Office of Management and
Budget (OMB)). Under section 3(f), the order defines ``significant'' as
those actions likely to lead to a rule (1) having an annual effect on
the economy of $100
[[Page 26152]]
million or more, or adversely and materially affecting a sector of the
economy, productivity, competition, jobs, the environment, public
health or safety, or State, local or tribal governments or communities
(also known as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement, grants, user fees, or loan programs; or (4) raising novel
legal or policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in this Executive Order.
Pursuant to the terms of this Executive Order, EPA has determined
that this rule is not ``significant'' and is therefore not subject to
OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub.L. 104-4), or require prior consultation as
specified by Executive Order 12875 (58 FR 58093, October 28, 1993),
entitled Enhancing the Intergovernmental Partnership, or special
consideration as required by Executive Order 12898 (59 FR 7629,
February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act (5
U.S.C. 601-612), the Administrator has determined that regulations
establishing new tolerances or raising tolerance levels or establishing
exemptions from tolerance requirements do not have a significant
economic impact on a substantial number of small entities. A
certification statement explaining the factual basis for this
determination was published in the Federal Register of May 4, 1981 (46
FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.
Dated: May 10, 1996.
Peter Caulkins,
Acting Director, Registration Division, Office of Pesticide Programs.
Therefore, it is proposed that 40 CFR part 180 be amended as
follows:
PART 180--[AMENDED]
1. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
2. In Sec. 180.368, by removing ``peppers, bell'' from the table in
paragraph (a), by revising the table in paragraph (c) and by adding a
new paragraph (d) to read as follows:
Sec. 180.368 Metolachlor; tolerances for residues.
* * * * *
(c)* * *
------------------------------------------------------------------------
Parts per
Commodity million Expiration date
------------------------------------------------------------------------
Onions, dry bulb.................. 1.0 .......................
Grass forage, fodder and hay group
(excluding Bermudagrass), forage. 10 December 31, 1998
Grass forage, fodder and hay group
(excluding Bermudagrass), hay.... 0.2 December 31, 1998
------------------------------------------------------------------------
(d) A time-limited tolerance is established for the combined
residues (free and bound) of the herbicide metolachlor [2-chloro-N-(2-
ethyl-6-methylphenyl)-N-(2-methoxy-1-methylethyl)acetamide], and its
metabolites, determined as the derivatives, 2-[(2-ethyl-6-
methylphenyl)amino]-1-propanol and 4-(2-ethyl-6-methylphenyl)-2-
hydroxy-5-methyl-3-morpholinone, each expressed as the parent compound
in or on the following raw agricultural commodity:
------------------------------------------------------------------------
Parts per
Commodity million Expiration date
------------------------------------------------------------------------
Pepper............................ 0.5 December 31, 1998
------------------------------------------------------------------------
[FR Doc. 96-13022 Filed 5-23-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-12928 Recordkeeping and Confirmation Requirements for Securities Transactions
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26135-26140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12928]
=======================================================================
-----------------------------------------------------------------------
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 344
RIN 3064-AB74
Recordkeeping and Confirmation Requirements for Securities
Transactions
AGENCY: Federal Deposit Insurance Corporation.
ACTION: Advance notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Deposit Insurance Corporation (FDIC) is
considering whether and how to amend its regulations governing
recordkeeping and confirmation requirements for securities transactions
by state nonmember banks. The agency's present regulation was adopted
in 1979 and has remained essentially unchanged since that time. The
FDIC is undertaking a review of this regulation with the goal of
modernizing its requirements to, among other things, reflect the
supervisory role played by other Federal agencies charged with
supervision of securities transactions. The agency is soliciting
comment on a number of issues that have been identified. The responses
will be used to aid the FDIC in developing a proposed amendment for
public comment.
DATES: Comments must be received by June 24, 1996.
ADDRESSES: Comments should be directed to Jerry L. Langley, Executive
Secretary, Attention: Room F-402, Federal Deposit Insurance
Corporation, 550 17th Street, NW, Washington, DC 20429. Comments may be
delivered to room F-402, 1776 F Street, NW, Washington, DC 20429, on
business days between 8:30 am and 5:00 pm or sent by facsimile
transmission to FAX number 202/898-3838. Internet: [email protected].
Comments will be available for inspection and photocopying in the FDIC
Public Information Center, room 100, 801 17th Street, NW, Washington,
DC 20429, between 9:00 am and 5:00 pm on business days.
FOR FURTHER INFORMATION CONTACT: Curtis Vaughn, Examination Specialist,
Division of Supervision, (202) 898-6759; John Harvey, Review Examiner
(Trust), Division of Supervision (202) 898-6762; Patrick J. McCarty,
Counsel, Legal Division (202) 898-8708; or Gerald Gervino, Senior
Attorney, Legal Division (202) 898-3723. Federal Deposit Insurance
Corporation, 550 17th St., N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
Background
Section 303 of the Riegle Community Development and Regulatory
Improvement Act of 1994 (CDRI Act)
The FDIC is conducting a systematic review of its regulations and
written policies. Section 303(a) of the CDRI Act (12 U.S.C. 4803(a))
requires that each Federal banking agency review its regulations to
streamline them to improve efficiency, reduce unnecessary costs and
eliminate unwarranted constraints on credit availability. Section
303(a) also requires the Federal banking agencies to work jointly to
make uniform all regulations and guidelines implementing common
statutory or supervisory policies. As part of the section 303 process,
the FDIC published in December of 1995 a notice in the Federal Register
describing the section 303 requirements and inviting the general public
and interested parties to comment on FDIC regulations and policy
statements. 60 FR 62345 (December 6, 1995).
On July 24, 1979 the FDIC and the other Federal banking agencies
promulgated regulations addressing recordkeeping and confirmation
requirements for securities transactions effected by banks. See 44 FR
43261 (July 24, 1979) (FDIC), 44 FR 43252 (July 24, 1979 (OCC) and 44
FR 43258 (July 24, 1979) (FRB). These regulations were, and are,
virtually identical. With the exception of two amendments, the FDIC's
part 344 has remained unchanged since it was promulgated in 1979. See
45 FR 12777 (February 27, 1980), 60 FR 7111 (February 7, 1995).
The FDIC wishes to review its recordkeeping and confirmation
requirements for securities transactions in part 344 with the purposes
of section 303 of the CDRI in mind. The Office of the Comptroller of
the Currency (OCC) and the Board of Governors of the Federal Reserve
System (FRB) have already proposed amendments to their regulations
concerning recordkeeping and confirmation requirements for securities
transactions by national and state member banks, respectively. See 60
FR 66517 (December 22, 1995) and 60 FR 66759 (December 26, 1995).
Before drafting and publishing a proposed regulation, the FDIC wishes
to receive public comment on several basic issues underlying the
purposes of part 344. The FDIC requests comments at this stage of
regulatory review to assist development of a specific proposal.
[[Page 26136]]
Summary of Concerns
Part 344 sets forth the recordkeeping and confirmation requirements
with respect to securities transactions effected for the customers of
state nonmember banks. State nonmember banks are required to keep four
types of records (1) Chronological records of original entry containing
an itemized daily record of all purchases and sales, (2) Account
records for each customer, (3) Separate order tickets for each
transaction, and (4) A record of all broker/dealers used and the
commissions paid. Section 344.3(a) through (d). Banks must keep these
records for at least three years. Section 344.3.
Part 344 addresses both the ``form'' and ``timing'' of notification
to customers for whom the bank has effected a securities transaction.
Sections 344.4 through 344.5. Banks may provide one of two different
types of notification forms to the customer. Both notification forms
are required to contain such basic information as the name of the
customer, the identity, price and number of shares or units of the
security purchased or sold by the customer, the source and amount of
any remuneration to be received by the broker/dealer and the bank
(unless such remuneration is determined by a prior written agreement
between the bank and the customer), and the name of the broker/dealer
used. Banks are again required to retain copies of the notification
form which is provided to customers for at least three years. Id.
As a general rule, banks are required to mail the notification form
to customers within five business days of the transaction. Section
344.5. If a broker/dealer is used, the bank has 5 business days from
the date of receipt of the broker/dealer's confirmation to mail
notification to the customer. Id. Banks are permitted, however, to use
alternate time of notification procedures depending upon the type of
account involved. Section 344.5(a) through (e). The time of
notification periods vary greatly from ``as promptly as possible''
after the transaction for periodic plans to annual statements for
collective investment funds. Section 344.5(e) and (d), respectively.
Part 344 also requires banks effecting securities transactions for
customers to establish written policies and procedures regarding
securities trading. Section 344.6 Such policies and procedures must
address supervision of officers and employees who place orders and
execute transactions, allocation of securities and prices to accounts
when orders are received at approximately the same time, the crossing
of buy/sell orders, and the reporting of personal securities
transactions by bank officers and employees who participate in or make
investment recommendations or decisions for customer accounts.
The purpose of the FDIC implementing recordkeeping and confirmation
requirements for securities transactions is to ensure that purchasers
of securities in transactions effected by an insured nonmember bank are
provided adequate information concerning the transactions. The
regulations also are designed to ensure that insured nonmember banks
maintain adequate records and controls with respect to securities
transactions for their customers.
As the financial marketplace has grown, new delivery systems for
bank customer's securities transactions have emerged. This array of
delivery systems has led to the overlap of jurisdiction between the
Federal banking agencies and the Federal securities regulators. The
FDIC supports minimizing overlapping jurisdiction through a concept
referred to as ``functional regulation''. In order for functional
regulation to work properly, it is important that securities
transactions do not go unregulated and leave customers unprotected. As
currently written, part 344 overlaps existing securities regulation in
certain areas. Although this overlap ensures that securities
transactions for bank customers are adequately covered in relation to
confirmation and recordkeeping requirements, it can create a
competitive imbalance for banks, create customer confusion, regulatory
uncertainty and additional costs to banks.
Delivery Systems
There are a variety of ways in which banks play a role in
delivering securities brokerage services to their customers. Customers
of banks may engage in securities transactions by either dealing
directly with the bank or by dealing with a third party who has
contracted with the bank to conduct securities transactions for, or
through, the bank. Third parties may operate on bank premises using
their own employees, or use persons who are dual employees of the bank
and the third party. Third party providers may operate both on and off
the bank's premises with the bank receiving remuneration for
transactions originating from the bank. Other third party providers
operate solely off bank premises. The bank may or may not receive
remuneration for referring customers to the provider.
Categories of third party providers also vary by whether or not the
provider is affiliated with the bank and the type of affiliation. Third
party providers may be owned by the bank, while in other situations the
bank and third party provider are commonly owned or have common
officers or directors. In other cases, the bank may be an advisor to a
mutual fund sponsored by a third party.
Within the bank itself, the institution may be engaged in retail
recommendation and sale of securities, or the bank may be engaging in
accommodation transactions only for customers of the bank. A limited
number of banks operate municipal and government securities dealer
departments separately registered under government securities
regulations or regulations of the Municipal Securities Rulemaking Board
(MSRB). Where there is sufficient demand, banks may engage in private
banking for their higher income customers. In areas where capital
markets are not well established, banks may engage in the sale of their
own stock or the stock of their affiliates.
Historically banks have been most commonly involved in securities
transactions through their Trust Departments. These transactions occur
both when the bank has some fiduciary responsibility and when the bank
is acting as an agent or custodian. A bank may have no investment
discretion, partial investment discretion or full investment discretion
over its trust accounts. Trust Departments often sponsor collective
investment funds for their customers. They may also act as the
customers' agent under a periodic investment plan, such as a stock-
purchase plan or a dividend reinvestment plan. Each situation presents
different customer needs relative to confirmation and recordkeeping
requirements related to securities transactions.
Request for Comment
The FDIC is seeking comment from interested parties concerning the
applicability of part 344 to securities transactions conducted under
each of these delivery systems. Specifically, if the transactions under
a specific delivery system are covered by another regulatory system,
what coverage should an FDIC regulation provide, if any? Additionally,
the FDIC seeks comment on whether other delivery systems, i.e.,
dedicated phone lines to broker/dealers and mutual fund complexes, or
internet sites, should be considered in deciding on the scope of
coverage of part 344. Commenters are asked to identify types of
securities transactions which by their unique characteristics should be
[[Page 26137]]
exempted, either completely or in part, from the requirements of part
344. The OCC and FRB proposals do not approach the delivery systems and
regulatory coverage issues in the same manner as the FDIC.
Effecting a Transaction
The recordkeeping and confirmation requirements of part 344 are
generally triggered when a bank effects a securities transaction on
behalf of a customer. The regulation does not define the term
``effecting a securities transaction''. The term was borrowed from the
Federal Securities laws, where it is quite common but also not defined.
See Securities and Exchange Act of 1934, 15 U.S.C. 78o(a)(1), (c)(1)(A)
through (B), Government Securities Act, 15 U.S.C. 78o-5(a)(1)(B)(i),
(a)(4) and (b)(1), and SEC Rule 10b-10(a), 12 CFR 240.10b-10(a). The
FDIC has taken a broad view of the term to include not only those
situations in which securities transactions are effected by bank
employees but also those situations in which third parties who are
located on bank premises conduct the transactions for the bank and the
bank receives transaction based compensation in connection with the
transactions. This is so even if the transaction takes place off bank
premises. The FDIC is considering various alternatives in defining the
term ``effecting a securities transaction'' and seeks comment as to how
the term should be defined. If securities transactions are conducted by
third parties, should such transactions be excluded from the
definition? If so, how should such exclusion/exemption be drawn? If
specific bank activities or certain types of delivery systems should be
exempted from the definition, what factors should be considered in
determining which bank activities and delivery systems should be
exempted? The OCC and FRB proposals do not address the definition or
scope of the term ``effecting a securities transaction'' issue.
Retail Sales Through Trust Departments
As noted above, historically banks have been involved in securities
activities through their Trust Departments. Trust Departments have
accounting systems, internal controls and investment expertise with
respect to securities transactions due to their investment management
activities for trust clients. Banks may, however, be directing
customers with retail securities transactions to their Trust
Departments, even though such customers have no formal trust agreement
with the bank. The FDIC specifically requests comment on whether this
situation is commonplace in the industry and to what extent the
requirements of part 344 should apply to such retail securities
transactions for nontrust customers. The OCC and FRB proposals do not
specifically address the retail sales through bank Trust Department
issue.
Disclosure of the Source and Amount of Remuneration
Members of the public, including bank customers, normally pay
commissions or sales loads when buying or selling securities through a
registered broker/dealer which has no association with a bank. The
securities transactions effected by the bank may be somewhat different
in that the bank may share in that commission or load or the bank may
charge a fee in addition to the usual commission or load. In order to
make this difference clear to those customers who purchase or sell
securities through their bank, part 344 requires that the bank disclose
the source and amount of its remuneration. The regulation does not
distinguish between those commissions or loads which the bank shares
with another party (but the total cost to the customers remains the
same) and fees which may be added by the bank to those commissions or
loads.
As banks have become more heavily involved in effecting securities
transactions for their customers, it has come to the FDIC's attention
that there are practical problems concerning the timely disclosure of
the source and amount of the bank's remuneration. Many insured
nonmember banks have entered into what are commonly known as
``networking agreements'' with registered broker/dealers. Under these
agreements the broker/dealer typically leases space on the bank's
premises to sell securities. In some instances banks receive a fixed
monthly payment plus a portion of the commissions which varies
depending upon the volume of sales over a given period. The result is
that in some situations banks are unable to determine and disclose the
total amount of their remuneration within the general 5 business day
time frame provided for under Sec. 344.5.
On March 21, 1995, the FDIC Board of Directors granted a limited
waiver of the remuneration disclosure requirement contained in
Sec. 344.4 based on the timing problem identified above. The waiver
extends to any insured state nonmember bank which receives transaction-
based compensation on a regular basis with respect to securities
transactions effected for customers. The waiver is subject to the
provisos that (1) no additional fees are added by the bank other than
those described in the prospectus (if the securities are sold under a
prospectus); (2) the sale is made by a registered broker/dealer subject
to rules and supervision of the National Association of Securities
Dealers (NASD) and the Securities and Exchange Commission (SEC); and
(3) the sale is conducted in a fashion which meets the requirements of
the NASD and SEC. The waiver does not relieve banks of the obligation
to disclose the source of their remuneration. Nor does the waiver apply
in the case of (1) services provided in a fiduciary capacity, or (2)
services for which a flat fee has been paid which includes securities
brokerage.
At the time the waiver was granted, the FDIC committed to working
with the other Federal banking agencies to find an acceptable solution
to the timing of the remuneration disclosure problem. The FDIC's
current waiver differs from the position reflected in the OCC's
proposal in that the FDIC continues to require that banks disclose the
source of their remuneration and that the FDIC waiver extends to all
securities transactions and not just to mutual fund transactions.
In attempting to keep customers who purchase securities on the
premises of a bank informed of potential conflicts of interest, the
FDIC has taken the position that the customer should be aware of the
fact that the bank has a financial interest in the transaction. Thus,
the FDIC has concluded that in all cases, the source of the
remuneration should be disclosed. The timing of that disclosure may be
important in determining how much burden this requirement places on the
bank.
We note that the SEC's position regarding the disclosure of the
source and amount of remuneration is much more limited than that under
which the FDIC is currently operating. Pursuant to SEC Rule 10b-10,
broker/dealers are required to disclose the source and amount of
remuneration at or before completion of a transaction only when the
broker/dealer is (1) participating in the distribution of a securities
issuance or (2) participating in a tender offer. See 17 CFR 240.10b-
10(a)(7)(iv). Otherwise, the broker/dealer is required to provide only
a notice which states that the source and amount of other remuneration
will be furnished ``upon the written request of the customer.'' Id.
With respect to the sale of mutual funds, the SEC is considering
changing a long standing no action position on the broker/dealer
disclosure of source and remuneration. See Investment Company
Institute, SEC No-Action Letter, 1994 WL 131068 (S.E.C.) (March 16,
1994).
[[Page 26138]]
Since 1979 the SEC's position has been that a broker/dealer does not
need to disclose on confirmations the source and amount of remuneration
received on the sale of open end management company shares if a
prospectus with current fees, loads and expenses is provided to the
customer. See Investment Company Institute, SEC No-Action Letter,
[1979] Fed. Sec. L. Rep. (CCH) P82,041 (Mar. 19, 1979). Should the SEC
change its position, broker/dealers would be required to provide
confirmations which disclose both the source and amount of remuneration
received on confirmations rather than relying upon the disclosure
provided in the prospectus.
The FDIC specifically requests comments concerning the need for
disclosure of the source of remuneration and, if necessary, when that
disclosure should be made. In addition, the FDIC requests comment on
the circumstances under which a bank should disclose the amount of the
remuneration and, if necessary, the timing of these disclosures. If
disclosures concerning the amount of remuneration are made, should
there be a differentiation concerning disclosure of the bank's portion
of loads and commissions normally charged and those fees which may be
charged in excess of normal commissions and loads? If FDIC mandated
disclosures are necessary, how should these disclosures interrelate
with similar disclosures required under the Federal Securities laws?
The OCC and FRB proposals do not address all of the issues raised
herein.
Definition of Security
In part 344, the term ``security'' is defined in order to determine
the scope of the regulation's coverage. Section 344.2(e). The
definition is crafted specifically for the purposes of this regulation
and does not mirror the definition of ``security'' in the Federal
Securities laws. Specifically, there are eight exemptions to the
definition of ``security'':
(1) A deposit or share account in a federally insured depository
institution;
(2) A loan participation;
(3) A letter of credit or other form of bank indebtedness incurred
in the ordinary course of business;
(4) Currency;
(5) Any note, draft, bill of exchange, or bankers acceptance which
has a maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited;
(6) Units of a collective investment fund;
(7) Interests in a variable amount (master) note of a borrower of
prime credit; and
(8) U.S. Savings Bonds.
The FDIC specifically requests comment on the adequacy of the
definition of the term ``security'' currently used in part 344 and if
there are other exceptions which should be made to the definition.
Comment is invited concerning the practicability of using the
definition of ``security'' which is used in the Securities Exchange Act
of 1934, 15 U.S.C. 78c(a)(10).
Other Definitions
The OCC and FRB proposals add definitions of ``asset-backed
security'', ``completion of the transaction'', ``crossing of buy and
sell orders'', ``debt security'', ``government security'' and
``municipal security'' to their respective regulations. The new
definitions are based on definitions contained in the Federal
Securities laws and the SEC's confirmation rule, Rule 10b-10, 17 CFR
240.10b-10, and are necessary for applying the proposed confirmation
disclosure and three day settlement requirements. Rule 15c6-1, 17 CFR
240.15c6-1. The definitions of the above terms contained in the OCC and
FRB proposals are:
``Asset-backed security'' shall mean a security that is serviced
primarily by the cash flows of a discrete pool of receivables or other
financial assets, either fixed or revolving, that by their terms
convert into cash within a finite time period plus any rights or other
assets designed to assure the servicing or timely distribution of
proceeds to the security holders.
``Completion of the transaction effected by or through a bank''
shall mean:
(1) For purchase transactions, the time when the customer pays the
bank any part of the purchase price (or the time when the bank makes
the book entry for any part of the purchase price, if applicable),
however, if the customer pays for the security prior to the time
payment is requested or becomes due, then the transaction shall be
completed when the bank transfers the security into the account of the
customer; and
(2) For sale transactions, the time when the bank transfers the
security out of the account of the customer or, if the security is not
in the bank's custody, then the time when the security is delivered to
the bank, however, if the customer delivers the security to the bank
prior to the time delivery is requested or becomes due then the
transaction shall be completed when the bank makes payment into the
account of the customer.
``Crossing of buy and sell orders'' shall mean a security
transaction in which the same banks acts as agent for both the buyer
and the seller.
``Debt security'' shall mean any security, such as a bond,
debenture, note or any other similar instrument which evidences a
liability of the issuer (including any security of this type that is
convertible into stock or similar security) and fractional or
participation interests in one or more of any of the foregoing;
provided, however, that securities issued by an investment company
registered under the Investment Company Act of 1940, 15 U.S.C. 80a-1 et
seq., shall not be included in this definition.
``Government security'' shall mean:
(1) A security that is a direct obligation of, or obligation
guaranteed as to principal and interest by, the United States;
(2) A security that is issued or guaranteed by a corporation in
which the United States has a direct or indirect interest and which is
designated by the Secretary of the Treasury for exemption as necessary
or appropriate in the public interest or for the protection of
investors;
(3) A security issued or guaranteed as to principal and interest by
any corporation whose securities are designated, by statute
specifically naming the corporation, to constitute exempt securities
within the meaning of the laws administered by the SEC; or
(4) Any put, call, straddle, option, or privilege on a security as
described in paragraph (1), (2), or (3) of this definition other than a
put, call, straddle, option, or privilege that is traded on one or more
national securities exchanges, or for which quotations are disseminated
through an automated quotation system operated by a registered
securities association.
``Municipal security'' shall mean a security which is a direct
obligation of, or obligation guaranteed as to principal or interest
by a State or any political subdivision thereof, or any agency or
instrumentality of a State or any political subdivision thereof, or
any municipal corporate instrumentality of one or more States, or
any security which is an industrial development bond.
The FDIC is considering using identical definitions in revising
part 344 and requests comment concerning these definitions.
Specifically, the FDIC wishes to know if these definitions should be
expanded in any manner or if they exclude transactions which should be
covered by the scope of the definition. The FDIC proposal is consistent
with the OCC and FRB proposals on the new definitions.
[[Page 26139]]
Exceptions
Under the current regulation, certain requirements concerning
recordkeeping and securities trading policies and procedures do not
apply to banks having an average of less than 200 securities
transactions per calendar year for customers over the prior three-
calendar-year period, exclusive of transactions in U.S. Government and
Federal agency obligations. Section 344.7(a). The FDIC specifically
requests comment concerning the continued appropriateness of this
exemption and whether the current 200 transaction limit should be
raised, and if so, what transaction or dollar limit should be adopted.
Commenters are requested to address whether any increase in the
threshold would (1) result in any material diminution in the
protections to investors, and (2) how the applicability of and
compliance with the Department of Treasury's Government Securities
Dealer regulations would be affected. The OCC and FRB proposals do not
address all the Government Securities trading issues raised herein.
Since part 344 was originally implemented, regulation of government
securities has changed as a result of the enactment of the Government
Securities Act of 1986 (Government Securities Act). 15 U.S.C. 78o-5.
Under this statute, the Department of the Treasury has authority over
government securities transactions (including United States Treasury
securities and securities issued or guaranteed by Federal government
agencies and government-sponsored enterprises). State nonmember banks
which are government securities brokers and dealers are not required to
follow certain recordkeeping requirements established by the Department
of the Treasury regulations because they are subject to part 344.
Consistent with the requirements of the Government Securities Act,
state nonmember banks that conduct fewer than 500 government securities
brokerage transactions per year would not have to comply with certain
recordkeeping requirements of part 344 if the exemption contained in
the Government Securities Act is carried over to the FDIC's regulation.
See 17 CFR 401.3(a). The FDIC specifically requests comment if there is
a need to adopt this exemption in its regulations. The FDIC proposal is
consistent with the OCC and FRB proposals on this issue.
Safe and Sound Operations
As noted above, both the FRB and the OCC have issued proposed
amendments to their regulations relating to recordkeeping and
confirmation requirements for securities transactions. Those proposed
amendments include a provision concerning safe and sound operations.
See proposed Sec. 208.24(h) of the FRB's regulations and
Sec. 12.1(c)(3) of the OCC's regulations. The provisions would require
that a bank maintain effective systems of records and controls
regarding customer securities transactions that reflect accurate
information and are sufficient to provide an adequate basis for an
audit of the information. The provisions are intended to emphasize the
importance of effective internal controls with respect to all
securities transactions. The FDIC requests comment on the desirability
of adding this type of provision to its regulation.
Settlement of Securities Transactions
In October 1993, the SEC adopted a securities settlement rule,
effective June 7, 1995, requiring the payment of funds and delivery of
most securities by the third business day after the date of the
contract (T+3). Rule 15c6-1, 17 CFR 240.15c6-1. Many banks effecting
customer securities transactions use a clearing broker which would be
subject to the T+3 rule. In these situations securities transactions
for bank customers would routinely settle within three days. However,
some banks may clear and settle their securities trades directly. For
this reason, the FDIC is considering revising part 344 to include a
separate T+3 settlement requirement that tracks the language of the
SEC's securities settlement rule. Alternatively, the FDIC could cross-
reference the language of the SEC rule.
The FDIC seeks comment on the need for and the effect of adopting
the T+3 securities settlement requirement and specifically invites
comment on the feasibility of alternate approaches to implement the T+3
settlement cycle. The FDIC's position is consistent with the OCC and
FRB proposals on this issue.
Securities Transactions for Banks
The FDIC seeks comment on how part 344 affects small banks which
use the services of other banks to buy and sell securities for their
own account. Small banks are active buyers and sellers of U.S.
Government and Municipal securities for their own accounts. It is not
clear what effect, if any, part 344's recordkeeping, disclosure and
settlement requirements have had on the banks which are the securities
customers of other banks. The FDIC solicits comments from the banks
which are consumers of other bank's securities services on what
concerns they have and what improvements can be made to part 344. The
OCC and FRB proposals do not address the bank as customer issues raised
herein.
Sweep Accounts and Confirmations
It has now become commonplace for banks to offer ``sweep accounts''
to retail, commercial and trust customers. These ``sweep accounts'' are
cash management services which permit customers to earn interest on
otherwise idle cash balances. Sweep accounts automatically ``sweep''
excess cash out of a checking or non interest bearing deposit account
into a money market mutual fund as frequently as every day after the
close of business at the bank. The ``sweep'' is triggered by the amount
of cash in the deposit account, which can be set by the depositor. The
``sweep'' may also be reversed so that shares in the money market
mutual fund are redeemed and cash is deposited into the checking or non
interest bearing account at certain times or when certain dollar limits
are reached. Banks receive a fee for the ``sweep'' service.
The FDIC notes that ``sweep accounts'' bear some similarities to
``periodic plans,'' which is a defined term under part 344. See
Sec. 344.1(d). Under the current part 344, banks which are effecting
securities transactions under periodic plans are required to provide
confirmations to customers ``as promptly as possible after each
transaction. * * * `` See Sec. 344.5(e). The SEC permits broker/
dealers, under certain conditions, to send confirmations for sweep
transactions out of brokerage accounts into money market mutual funds
to be provided on a quarterly basis. See 12 CFR Sec. 240.10b-10(b). The
OCC and FRB have proposed amending their regulations to permit banks to
provide confirmations for periodic plan transactions on a quarterly
basis. The FDIC supports such a change, as it will reduce regulatory
burden for banks and will harmonize securities and banking regulation.
The FDIC requests comment on whether the definition of ``periodic
plans'' in part 344 needs to be revised to specifically include ``sweep
accounts'' or whether the term and activity is sufficiently distinct to
warrant its own definition. In addition, the FDIC solicits comment
regarding whether all ``sweep accounts'' should receive such treatment
or just ``sweep accounts'' which invest in certain types of securities,
e.g., money market mutual funds, and under certain conditions, e.g., no
sales commission is charged for either purchases or sales. The FDIC
also requests comment on whether ``sweep
[[Page 26140]]
accounts'' raise any issues peculiar to bank Trust Departments. The OCC
and FRB proposals do not specifically address the ``sweep account''
issues identified herein.
Reporting of Personal Trading
Part 344 currently requires certain bank officers and bank
employees engaged in or aware of the investment decisions or
recommendations for customer accounts to provide quarterly reports
regarding their personal trading of securities. Section 344.6(d). The
regulation does not require reporting of personal trading where the
securities transactions aggregate $10,000 or less during the calendar
quarter. The SEC has a similar reporting requirement for principal
underwriters and investment advisers of registered investment companies
under the Investment Company Act of 1940. See SEC Rule 17j-1, 12 CFR
270.17j-1. The SEC Rule does not provide an exemption for securities
transactions involving in the aggregate $10,000 or less. The FDIC
requests comments on whether the exemption from reporting personal
trading by bank officers and employees engaged in or aware of the
investment decisions or recommendations for customer accounts in
section 344.6(d) is appropriate. Additionally, the FDIC requests
comment on whether all bank directors, as opposed to just those bank
directors who are also officers or employees of the bank, should be
required to report on their personal trading. The OCC and FRB proposals
do not address the personal trading issues raised herein.
Additional Comment
The FDIC is interested in receiving any additional comments
regarding part 344 which the public feels should be taken into account
as the agency undertakes to modernize the regulation.
By Order of the Board of Directors.
Dated at Washington, DC, this 14th day of May, 1996.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Deputy Executive Secretary.
[FR Doc. 96-12928 Filed 5-23-96; 8:45 am]
BILLING CODE 6714-01-P
Complete official Federal Register PDF
FR Doc. 96-12685 Truth in Lending
[Federal Register Volume 61, Number 102 (Friday, May 24, 1996)]
[Proposed Rules]
[Pages 26126-26135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-12685]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 61, No. 102 / Friday, May 24, 1996 / Proposed
Rules
[[Page 26126]]
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-0927]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing for comment proposed revisions to
Regulation Z (Truth in Lending). The revisions would implement the
Truth in Lending Act Amendments of 1995 (1995 Amendments), which
establish new creditor-liability rules for closed-end loans secured by
real property or dwellings consummated on or after September 30, 1995.
The 1995 Amendments create several tolerances for accuracy in
disclosing the amount of the finance charge, and creditors have no
civil or administrative liability if the finance charge or affected
disclosures are within the applicable tolerances. The amendments also
clarify how lenders must disclose certain fees connected with mortgage
loans. In addition, the Board is proposing a new rule regarding the
treatment of fees charged in connection with debt cancellation
agreements, which would be similar to the existing rule regarding
credit insurance premiums, and provide for more uniform treatment of
these fees.
DATES: Comments must be received on or before June 24, 1996.
ADDRESSES: Comments should refer to Docket No. R-0927, and may be
mailed to William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments also may be delivered to Room B-2222 of
the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to the
guard station in the Eccles Building courtyard on 20th Street, N.W.
(between Constitution Avenue and C Street) at any time. Comments may be
inspected in Room MP-500 of the Martin Building between 9:00 a.m. and
5:00 p.m. weekdays, except as provided in 12 CFR 261.8 of the Board's
rules regarding the availability of information.
FOR FURTHER INFORMATION CONTACT: James A. Michaels, Senior Attorney, or
Natalie E. Taylor or Michael L. Hentrel, Staff Attorneys, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, at (202) 452-3667 or 452-2412; for users of
Telecommunications Device for the Deaf (TDD) only, please contact
Dorothea Thompson at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The purpose of the Truth in Lending Act (TILA) (15 U.S.C. 1601 et
seq.) is to promote the informed use of consumer credit by requiring
disclosures about its terms and cost. The act requires creditors to
disclose credit terms and the cost of credit as a dollar amount (the
finance charge) and as an annual percentage rate (the APR). The TILA
requires additional disclosures for loans secured by a consumer's home
and permits consumers to rescind certain transactions that involve
their principal dwelling. The act is implemented by the Board's
Regulation Z (12 CFR Part 226).
II. Proposed Regulatory Provisions
On September 30, 1995, the Congress enacted the Truth in Lending
Act Amendments of 1995 (1995 Amendments), Public Law 104-29, 109 Stat.
271. The 1995 Amendments address the concerns of mortgage lenders
stemming from a 1994 court decision, Rodash v. AIB Mortgage Co., 16
F.3d 1142 (11th Cir. 1994). In that case, the U.S. Court of Appeals
affirmed a district court opinion that allowed a consumer to rescind a
mortgage loan and recover all fees and finance charges that had been
paid, based in part on errors in the creditor's TILA disclosures.
Subsequently, a number of class action lawsuits were filed, involving
thousands of mortgage loans, alleging similar violations and seeking
the remedy of rescission.
In May 1995, in response to mortgage lenders' concerns about their
potential liability for finance charge violations that they viewed as
minor, the Congress enacted a temporary moratorium on such litigation.
The moratorium expired on October 1, 1995, and has been replaced by the
1995 Amendments, which establish new liability rules for loans
consummated both before and after September 30. The Board is proposing
regulations only regarding loans made after September 30, 1995.
Remarks by the Congressional sponsors, made after enactment of the
amendments, reflect their intent to apply the new rules only to closed-
end loans secured by real property or dwellings (including manufactured
or mobile homes). 141 Cong. Rec. E1918 (daily ed. Oct. 11, 1995)
(Statement of Rep. McCollum and Rep. Gonzalez). The 1995 Amendments
contain several provisions, however, stating that they apply to any
consumer credit transaction.
Sections 2 and 3 of the 1995 Amendments amend section 106 of the
TILA, concerning the determination of the finance charge to clarify how
creditors must disclose certain fees connected with mortgage loans. The
proposed regulation would incorporate the statutory amendments without
substantive change. For the most part, the treatment of these fees
under the revised regulation is consistent with existing Board
interpretations. The only significant departure from current law
concerns mortgage broker fees. Under the revised regulation--as
mandated by the statutory amendments--all fees charged by a mortgage
broker would be included in the finance charge unless it is the type of
fee that would be excluded when it is charged by the creditor.
Presently, fees charged by a mortgage broker are only included if the
creditor requires the use of the broker or retains any part of the fee.
Section 3 of the 1995 Amendments provides that disclosures
regarding per diem interest charges will be considered accurate so long
as they are based on information known to the creditor when the
disclosures are prepared, even if the actual charges differ by the time
disclosures are provided to the consumer. This provision would be
incorporated in the regulation without change.
The 1995 Amendments also establish several tolerances for accuracy
in disclosing the finance charge in connection with closed-end loans
secured by real property or dwellings. Previously, the TILA contained
no tolerance for finance charge errors, although Regulation Z contains
a de
[[Page 26127]]
minimis $10 tolerance that will continue to apply to non-mortgage
loans. For mortgage loans, the proposed regulation contains a general
$100 tolerance for finance charge disclosures. Three separate finance
charge tolerances would apply in determining whether a consumer may
rescind a mortgage loan on the grounds that the creditor failed to
provide accurate disclosures; the tolerance varies depending on the
type of loan, amount of credit extended and whether foreclosure
proceedings have been initiated.
Sections 5 and 8 of the 1995 Amendments revise section 125 of the
TILA, which allows consumers to rescind certain mortgage loans and
requires that they receive notice of their rescission rights. Section 5
clarifies that a creditor will not be liable for the form of notice
given to the consumer if the creditor has used the appropriate form
published by the Board or a comparable notice. Section 8 establishes
special rules that apply when the consumer seeks to rescind the loan
after foreclosure proceedings have been initiated. The proposed
regulation would incorporate these provisions.
While the 1995 Amendments do not explicitly amend the existing
tolerance for the annual percentage rate (APR) disclosures, the
proposed regulation would establish additional APR tolerances in
mortgage transactions where the disclosed APR results from a finance
charge that is understated or overstated but within the tolerance
established under the amendments. Accordingly, the APR would be
considered accurate if it results from a finance charge that would also
be considered accurate, even if the disclosed APR falls outside of the
existing TILA tolerance of one-fourth or one-eighth of one percent.
The proposed regulation would also provide an additional tolerance
for mortgage transactions, to avoid creditor liability for a disclosed
APR that is incorrect but is closer to the actual APR than the APR that
would be considered accurate under the new statutory tolerance. The
purpose of this tolerance is to reduce or eliminate litigation over
disclosure errors that are less serious than the errors allowed under
the new finance charge tolerance.
The Board is also proposing amendments to Regulation Z regarding
the treatment of fees charged in connection with debt cancellation
agreements, which provide similar benefits to credit insurance. Public
comment was solicited last fall regarding the treatment of these fees
under the existing rules, in connection with proposed changes to the
Official Staff Commentary (60 FR 62764, December 7, 1995). The
comments, mostly from creditors or their trade associations, expressed
concern about the need under the current rule to determine, on a state-
by-state basis, whether debt cancellation fees should be treated as
insurance premiums. In response to the commenters' concerns, the
proposed interpretation was withdrawn based on the belief that the
issues raised by the commenters would be better addressed in the
context of a regulatory amendment (61 FR 14952, April 4, 1996). The
proposed revisions to Regulation Z would provide uniform treatment for
the disclosure of debt cancellation fees under the TILA, consistent
with the existing rule for credit life, health, and accident insurance.
Finally, the Board is proposing a technical amendment to the
definition of ``business day.'' The revision clarifies that for
purposes of the Board's rules implementing the Home Ownership and
Equity Protection Act of 1994 in Subpart E of Regulation Z, the term
``business day'' has the same meaning as in the rules regarding
rescission.
The Board expects to adopt a final rule in September 1996. Under
the 1995 Amendments, the new rule regarding the treatment of mortgage
broker fees will become effective on September 30, 1996, or 60 days
after the Board issues a final regulation, whichever is earlier. The
other provisions of the 1995 Amendments became effective upon their
enactment on September 30, 1995, and the Board believes that its
proposed changes to Regulation Z do not impose any additional
disclosure requirements beyond those already required under the
statute. Accordingly, the Board expects the proposed revisions to
Regulation Z (other than the provision regarding the treatment of
mortgage broker fees) to become effective 30 days after the final
regulation is issued.
III. Section-by-Section Analysis
Subpart A--General
Section 226.2--Definitions and Rules of Construction
2(a) Definitions
2(a)(6)
The definition of the term ``business day'' in paragraph 2(a)(6)
would be revised to clarify that for purposes of the rules implementing
the Home Ownership and Equity Protection Act of 1994 in Subpart E of
Regulation Z, the term ``business day'' has the same meaning as in the
rescission rules in sections 226.15 and 226.23. The proposed revision
also updates the list of legal public holidays to include the Birthday
of Martin Luther King, Jr.
Section 226.4--Finance Charge
4(a)(1) Charges by Third Parties
Proposed paragraph 4(a)(1) reflects the general rule for third
party charges currently contained in comment 4(a)-3 of the Official
Staff Commentary.
4(a)(2) Special Rule; Closing Agent Charges
Proposed paragraph 4(a)(2) incorporates the substance of section
2(a) of the 1995 Amendments, which excludes from the finance charge,
any fees charged by third-party closing agents provided that the
creditor does not require the imposition of the charge or provision of
the services, and does not retain any portion of the charge. The
amendment is consistent with the existing interpretation in comment
4(a)-4 of the Official Staff Commentary.
4(a)(3) Special Rule; Mortgage Broker Fees
Proposed paragraph 4(a)(3) contains a new rule regarding the
treatment of mortgage broker fees, to implement section 106(a)(6) of
the TILA (15 U.S.C. Sec. 1605(a)(6)). The rule requires that all fees
charged by a mortgage broker and paid by the consumer be included in
the finance charge, without regard to whether the fee is paid to the
broker or to the lender for delivery to the broker. A fee charged by a
mortgage broker will be excluded from the finance charge only if it is
the type of fee that would also be excluded when it is charged by the
creditor. Fees paid by the funding party to a broker as a ``yield
spread premium,'' that are already included in the finance charge,
either as interest or as points, should not be double counted.
4(b) Example of Finance Charge
4(b)(10) Debt Cancellation Fees
Proposed paragraph 4(b)(10) clarifies that fees charged by
creditors in connection with debt cancellation agreements are
considered finance charges. The conditions under which voluntary debt
cancellation fees may be excluded from the finance charge are set forth
in proposed paragraph 4(d)(3).
4(c) Charges Excluded From the Finance Charge
4(c)(7) Real-Estate Related Fees
4(c)(7)(ii)
Paragraph 4(c)(7)(ii) would be revised to implement the amendment
to section 106(e)(2) of the TILA (15 U.S.C. 1605(e)(2)). Formerly, the
TILA excluded fees for preparation of a ``deed, settlement statement,
or other
[[Page 26128]]
documents'' from the finance charge, and the existing regulation
clarified that the exclusion applied only to the preparation of
``similar documents.'' The regulation would be revised to reflect the
new statutory language, which further clarifies that the documents must
be ``loan-related.'' The Board believes that the amendment does not
represent a substantive change from the current rule.
4(c)(7)(iii)
Paragraph 4(c)(7)(iii) would be revised by deleting the reference
to appraisal fees, which would be addressed separately in revised
paragraph 4(c)(7)(iv).
4(c)(7)(iv)
Paragraph 4(c)(7)(iv) would be redesignated as 4(c)(7)(v).
Paragraph 4(c)(7)(iv) would be revised consistent with section
106(e)(5) of the TILA (15 U.S.C. 1605(e)(5)), which clarifies that fees
related to property inspections conducted prior to closing, in order to
check for pest infestation or flood hazards, may be excluded from the
finance charge. The proposed revision is consistent with comment
4(c)(7)-3 of the Official Staff Commentary, which states that excluded
fees are those charged solely in connection with the initial decision
to extend credit. The exclusion does not apply to fees for services to
be performed periodically during the term of the loan.
4(d) Insurance and Debt Cancellation Agreements
The Board proposes to amend Regulation Z by adding a provision
regarding the requirements for disclosing the cost of debt cancellation
agreements, which provide consumers with benefits similar to credit
insurance. Under these agreements, generally in return for a fee, the
creditor agrees to cancel all or part of any remaining debt in the
event of a certain occurrence, such as the death, disability or
unemployment of the consumer or the destruction or theft of goods
securing the loan. The creditor may or may not purchase insurance to
cover this risk.
During the past year, the Board received a significant number of
inquiries concerning the proper treatment of fees paid for a form of
debt cancellation agreement known as guaranteed automobile protection
or ``GAP,'' which is sold in connection with motor vehicle loans. GAP
agreements cancel the remaining debt when the vehicle securing the loan
is stolen or destroyed and the settlement payment made by the
consumer's primary automobile insurance is insufficient to pay the loan
balance.
Debt cancellation fees are not specifically addressed in the
existing regulation; however, under the current rules they would not
receive uniform treatment in Truth in Lending disclosures. For example,
in some states, charges for debt cancellation agreements may be
considered credit insurance premiums. Regulation Z currently allows
such fees to be excluded from the finance charge only if the agreement
insures against the death, disability or loss of income of the borrower
and certain disclosures are provided. On the other hand, fees for GAP
coverage offered by a creditor, which does not protect against the
types of risk covered in sections 226.4(d) (1) and (2), are always
included in the finance charge, as are other types of debt cancellation
fees in states where the agreements are not considered to be insurance.
Pursuant to its authority under section 105 of the TILA, the Board
is proposing a rule that would specifically address debt cancellation
fees and provide uniform treatment for their disclosure. The proposed
rule would exclude debt cancellation fees from the finance charge if
the consumer's purchase of the product is voluntary, the extension of
credit is not conditioned on the purchase, and specified disclosures
are provided to the consumer. This is consistent with the existing rule
for credit life, health, and accident insurance.
4(d)(1) Voluntary Credit Insurance Premiums
Paragraph 4(d)(1)(i) would be modified consistent with existing
comment 4(d)-1 of the Official Staff Commentary, to clarify that a
disclosure that insurance coverage is not required by the creditor must
be in writing.
4(d)(3) Debt cancellation fees
Proposed paragraph 4(d)(3) addresses the treatment of fees paid for
GAP coverage and other debt cancellation agreements. The new provision
closely follows the existing rule pertaining to credit insurance in
section 226.4(d)(1), and would exclude fees for debt cancellation from
the finance charge if the specified conditions are met. The provision
would apply without regard to whether the debt cancellation agreement
is considered to be insurance under state law.
Fees for GAP coverage must be disclosed according to this rule
rather than the provisions in paragraph 4(d)(2). Even though GAP
coverage is triggered by the loss of or damage to property, GAP
agreements do not insure against such loss or damage. Instead they
insure against the credit risk that remains if there is a balance due
on the obligation after traditional property insurance benefits are
exhausted.
4(e) Certain Security-interest Charges
4(e)(3) Taxes on Security Instruments
Proposed paragraph 4(e)(3) would be added consistent with section
106(d)(3) of the TILA (15 U.S.C. Sec. 1605(d)(3)). The new provision
would provide that taxes levied on security instruments or on documents
evidencing indebtedness (``intangible property taxes''), that must be
paid in order to record the security instrument, are excluded from the
finance charge. The 1995 Amendments and proposed rule are consistent
with existing comment 4(e)-1(i) of the Official Staff Commentary.
Subpart C--Closed-End Credit
Section 226.17--General Disclosure Requirements
17(a) Form of Disclosures
17(a)(1)
Footnote 38 in paragraph 17(a)(1) would be revised to include the
disclosures relating to debt cancellation agreements among those that
may be made together with or separately from the other required
disclosures.
17(c) Basis of Disclosures and Use of Estimates
17(c)(2)
Paragraph 17(c)(2) would be redesignated as 17(c)(2)(i) and
modified slightly to reflect the general rule that disclosures must be
based on the best information reasonably available to the creditor at
the time the disclosures are provided to the consumer. This is
consistent with existing comment 17(c)(2)-1 of the Official Staff
Commentary, which would be redesignated as comment 17(c)(2)(i)-1.
17(c)(2)(ii)
Proposed paragraph 17(c)(2)(ii) reflects the 1995 amendment to
section 121(c) of the TILA (15 U.S.C. 1631(c)), which deals with the
disclosure of per diem interest charges collected upon loan
consummation.
Per diem interest, also known as ``odd-days interest,'' is the
interest that will accrue between consummation and the first regularly-
scheduled payment. Previously, the general requirement that TILA
disclosures must be accurate at the time the disclosures are provided
to consumers applied to the disclosure of per diem interest. Under the
1995 Amendments, a disclosure with respect
[[Page 26129]]
to the amount of per diem interest to be collected at consummation will
be considered accurate if the disclosure is based on the information
actually known to the creditor at the time the disclosure is prepared,
even if the actual charges differ by the time disclosures are provided
to the borrower. Creditors should exercise reasonable diligence in
ascertaining the necessary information when preparing disclosures. This
change is intended to eliminate the need to revise the TILA disclosures
if a change in the closing date also changes the amount of the per diem
interest that is paid at closing.
The 1995 Amendments state that this provision applies to ``any
consumer credit transaction,'' although remarks by the Congressional
sponsors suggest that it may have been intended to apply only to
closed-end mortgage loans. The Board proposes to limit the provision to
closed-end loans; the provision does not appear relevant to open-end
lines of credit. Accordingly, the amended regulation would apply the
new rule to any closed-end loan involving per diem interest charges.
Comment is solicited on whether the statutory provision would have any
applicability in open-end credit transactions.
17(f) Early Disclosures
Paragraph 17(f) would be revised for clarification and divided into
paragraphs 17(f) (1) and (2). As revised, the rule more clearly
reflects the interpretation presently contained in comment 17(f)-1 of
the Official Staff Commentary. The revisions also clarify that the
creditor's duty to provide new disclosures is determined by comparing
the APR disclosed under section 226.18(e) with the APR disclosed in the
consummated transaction, even though the actual APR determined in
accordance with Regulation Z may differ.
Also, a new footnote 41 has been added to cross reference and
distinguish this rule from the rule on redisclosures contained in
section 226.19(a)(2). Section 226.19(a)(2), which only applies to
certain residential mortgage transactions, provides additional leeway
by allowing a creditor to make the new disclosures prior to
consummation or settlement, whichever occurs later.
Section 226.18--Content of Disclosures
18(d) Finance Charge
Section 106(f) of the TILA (15 U.S.C. Sec. 1605(f)) establishes a
new tolerance for accuracy in disclosing the finance charge for closed-
end loans secured by real property or dwellings. Section 226.18(d) has
been revised and reorganized to incorporate this change.
18(d)(1) Mortgage Loans
Proposed paragraph 18(d)(1) provides a new finance charge tolerance
applicable to mortgage loans consummated on or after September 30,
1995. For covered transactions, the disclosed finance charge will be
considered accurate if it is understated by $100 or less or if the
finance charge is overstated. The new tolerance applies to the
disclosed finance charge as well as any disclosure affected by the
finance charge, including the annual percentage rate (APR). The effect
of the new finance charge tolerance on the disclosed APR is explained
in more detail in connection with the proposed revisions to section
226.22(a).
18(d)(2) Other Credit
The existing tolerance for finance charge disclosures, currently in
footnote 41, continues to apply to all other closed-end loans
consummated on or after September 30, 1995, and has been moved into
proposed paragraph 18(d)(2).
18(n) Insurance and Debt Cancellation Agreements
Paragraph 18(n) would be revised to include disclosures made in
connection with debt cancellation agreements.
Section 226.19--Certain Residential Mortgage and Variable Rate
Transactions
19(a)(2) Redisclosure Required
Paragraph 19(a)(2) would be revised to make it consistent with the
revision made to section 226.17(f)(2). The change clarifies that a
creditor's duty to provide new disclosures is determined by comparing
the APR that was disclosed under section 226.18(e) with the APR
disclosed in the consummated transaction.
Section 226.22--Determination of Annual Percentage Rate
22(a) Accuracy of Annual Percentage Rate
Paragraph 22(a) would be revised to add new paragraphs (a)(4) and
(a)(5). The TILA contains tolerances for the APR, which are either one-
quarter or one-eighth of one percent, depending on the type of
transaction. These existing statutory APR tolerances are not altered by
the 1995 Amendments, although the amendments create a tolerance for the
finance charge disclosed for mortgage loans as well as ``any disclosure
affected by the finance charge.'' Although this language could be
viewed as applying only to numerical amounts for which there is no
statutory tolerance (such as the amount financed) the Board is of the
view that the 1995 Amendments should be interpreted broadly to include
the APR as one of the ``affected disclosures.'' Otherwise, transactions
in which the disclosed finance charge is misstated but considered
accurate under the new tolerance might be subject to legal challenge
based on the disclosed APR, which seems inconsistent with the
legislative intent. For closed-end loans secured by real property or
dwellings, the proposed revisions would establish two additional
tolerances for accuracy in disclosing the APR when the disclosed
finance charge is within the tolerances established by the 1995
Amendments.
22(a)(4) Mortgage Loans
Proposed paragraph 22(a)(4) provides an additional tolerance for
APR disclosures in transactions where the finance charge is understated
or overstated but is considered accurate under the 1995 Amendments. For
example, in a secured home-improvement loan, if a creditor improperly
omits a $100 fee from the finance charge, the understated finance
charge would now be considered accurate under section 226.18(d)(1).
Under paragraph 22(a)(4), the APR resulting from the understated
finance charge would also be considered accurate, even if the disclosed
APR falls outside of the existing tolerance of one-eighth of one
percent provided under section 107(c) of the TILA. For purposes of
determining a borrower's right to rescind a mortgage loan, an APR
resulting from a finance charge that is considered accurate in
accordance with the applicable rule in section 226.23(g) or (h)(2),
would also be considered accurate.
22(a)(5) Additional Tolerance for Mortgage Loans
In light of the new APR tolerance established under the 1995
Amendments, the Board proposes to adopt an additional APR tolerance
(not required by the statute), in section 226.22(a)(5). The purpose
would be to avoid the anomalous result of imposing liability on a
creditor for a disclosed APR that is incorrect but is closer to the
actual APR than the APR that would be considered accurate under the
statutory tolerance in paragraph 22(a)(4).
For instance, if the omission of a $100 fee from the finance charge
would result in understatement of the finance charge and a disclosed
APR that is understated by one-half of one percent, that APR would be
considered accurate under
[[Page 26130]]
paragraph 22(a)(4), even though it is outside of the existing APR
tolerance of one-eighth of one percent. Under proposed paragraph
22(a)(5), the disclosed APR would also be considered accurate if it is
understated by less than one-half of one percent. Thus, if the actual
APR in this example was 9.00 percent and the $100 omission would result
in an APR of 8.50 that would be considered accurate under paragraph
22(a)(4), a disclosed APR of 8.75 percent would be within the tolerance
in paragraph 22(a)(5). Similarly, if an overstated finance charge
results in an overstated APR, the creditor would not be liable for an
overstatement that is closer to the actual APR.
Under section 105 of the TILA, the Board is authorized to adopt
exceptions to the TILA that will facilitate compliance. Proposed
paragraph 22(a)(5) would treat as accurate, a disclosed APR that is
more accurate than the one resulting from a misstated finance charge
that is considered accurate under the 1995 Amendments. The Board
believes that this rule will facilitate compliance with the TILA, and
prevent disputes over errors that have no greater effect on consumers
beyond the effects already contemplated by the statutory tolerances.
The Board recognizes that this rule might allow a creditor to disclose
an inaccurate APR that is not derived from either the actual or the
disclosed finance charge. Presumably, this situation would not be
common. On balance, however, the Board believes the proposed rule is
consistent with the intent of the 1995 Amendments.
Section 226.23--Right of Rescission
23(b) Notice of Right To Rescind
Proposed paragraph 23(b)(2) implements amendments to TILA section
125 (15 U.S.C. 1635). Under the 1995 amendments, creditors will not be
liable for the form of rescission notice they give to the consumer if
the creditor uses the appropriate form published by the Board or a
comparable notice. Proposed paragraph 23(b)(2) requires proper use of
the model form approved by the Board or a comparable form. Creditors
properly completing the appropriate form in Appendix H would be deemed
in compliance with the regulation for those disclosures. The model form
in Appendix H-9 has been revised slightly to ease compliance and
clarify that it may be used in loan refinancings with the original
creditor, without regard to whether the creditor is the holder of the
note at the time of refinancing.
23(g) Tolerances for Accuracy
Proposed paragraph 23(g) would implement section 106(f)(2) of the
TILA (15 U.S.C. Sec. 1605(f)(2)), which creates separate finance charge
tolerances that apply in determining whether a consumer may rescind a
loan based on inaccurate TILA disclosures. These tolerances are
intended to limit rescission as a remedy available to consumers for
TILA disclosure violations. Under the rescission tolerances, the
finance charge and other disclosures affected by the finance charge are
deemed accurate if they do not vary from the actual finance charge by
more than a certain amount; either one-half of one percent of the total
amount of credit extended, or one percent of the total amount of credit
extended, depending on the type of transaction.
The Board proposes to apply the rescission in section 106(f)(2) in
addition to, rather than in lieu of, the general tolerances in section
106(f)(1). The Board believes that it is unlikely that the Congress
intended to allow the rescission remedy to be invoked when the
disclosures would otherwise be considered accurate under the general
tolerance rules. As a result, when the rescission tolerance based on a
percentage of the amount of credit extended is less than $100, the
general $100 tolerance in section 106(f)(1) would apply. For example,
in the case of a small home improvement loan, the one-half of one
percent rescission tolerance would be less than $100 for loans under
$20,000. In such cases, the $100 tolerance would apply in determining
the borrower's right to rescind the transaction. The Board also
proposes to apply the general rule in section 106(f)(1)(B), that
overstated finance charges of any amount shall be treated as accurate,
as the applicable rule in determining whether a consumer may rescind a
loan.
The Board also proposes in paragraph (g), to interpret the
statutory phrase ``total amount of credit extended'' to be the ``face
amount of the note'' for purposes of calculating the rescission
tolerances. For purposes of paragraph (g)(2), the Board interprets the
statutory language ``no new consolidation'' to mean that this tolerance
applies where the transaction does not involve the consolidation of an
existing loan. The Board believes that this promotes ease of compliance
and consistency.
23(h) Special Rules for Foreclosures
Proposed paragraph 23(h) implements section 125(i)(2) of the TILA
(15 U.S.C. Sec. 1635(i)(2)), which provides special rescission rules
after a foreclosure action has been initiated. The Board interprets
this provision in its context to apply only to closed-end credit; there
does not appear to be any basis for applying it to open-end lines of
credit. For example, the 1995 Amendments allow a consumer to rescind a
loan in foreclosure if a mortgage broker fee was not properly
disclosed; broker fees, however, are not generally associated with
open-end lines of credit.
The special tolerances applicable to foreclosures are intended to
provide additional consumer protection in light of the new finance
charge tolerance that generally limits the consumer's right to rescind
a closed-end mortgage loan. Once foreclosure is initiated, the consumer
may rescind the loan if the finance charge is understated by more than
$35, even though a larger tolerance would apply before foreclosure.
Because open-end home equity loans currently have no tolerance for
finance charge errors, applying the $35 foreclosure tolerance to open-
end loans would result in less protection for consumers. The Board
believes this result would be inconsistent with the intent of the
special foreclosure rules.
Subpart E--Special Rules for Certain Mortgage Transactions
Section 226.31--General Rules
31(d) Basis of Disclosures and Use of Estimates
Paragraph 31(d) would be revised and reorganized, consistent with
the revisions made to section 226.17(c).
31(d)(3)
Proposed paragraph 31(d)(3) would incorporate the new rule
regarding the disclosure of per diem interest charges, consistent with
the proposed amendment in section 226.17(c)(2)(ii). Under the 1995
Amendments, a disclosure with respect to per diem interest charges
collected upon loan consummation will be considered accurate if the
disclosure is based on the information actually known to the creditor
at the time the disclosure is prepared. In preparing disclosures,
creditors are expected to exercise reasonable diligence in ascertaining
the necessary information. Proposed paragraph 31(d)(3) would clarify
that the same rule applies to a disclosure made pursuant to Subpart E
(such as the APR) that would be affected by the per diem interest
charge.
31(g) Accuracy of Annual Percentage Rate
Paragraph 31(g) would be revised to clarify that a creditor may
rely on the
[[Page 26131]]
APR tolerances provided in section 226.22 for purposes of determining
whether a transaction is covered under section 226.32(a) and making the
disclosures required by section 226.32(c).
Appendix H to Part 226--Closed-end Model Forms and Clauses
H-9 Rescission Model Form
The 1995 Amendments clarify that creditors will not be liable for
the form of rescission notice they give to the consumer if the creditor
uses the appropriate form published by the Board or a comparable
notice. In order to ease compliance, model form H-9 has been revised
slightly to clarify that it may be used in loan refinancings with the
original creditor, without regard to whether the original creditor is
the holder of the note at the time of refinancing. Creditors may,
however, continue to use the original forms H-8 and H-9 as appropriate.
Supplement I--Official Staff Interpretations
The proposed revisions would conform the Official Staff Commentary
consistent with the proposed amendments to Regulation Z.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-0927 and, when
possible, should use a standard Courier typeface with a type size of 10
or 12 characters per inch. This will enable the Board to convert the
text to machine-readable form through electronic scanning, and will
facilitate automated retrieval of comments for review. Also, if
accompanied by an original document in paper form, comments may be
submitted on 3\1/2\ inch or 5\1/4\ inch computer diskettes in any IBM-
compatible DOS-based format.
The comment period ends on June 24, 1996. Normally, the Board
provides a 60-day comment period, in keeping with the Board's policy
statement on rulemaking (44 FR 3957, January 19, 1979). The proposed
regulatory revisions implement changes in the law made by the 1995
Amendments and with the exception of one provision related to mortgage
broker fees, the statutory amendments are already in effect. The
amendments regarding the disclosure of mortgage broker fees will become
effective on or before September 30, 1996. The Board believes that an
abbreviated comment period is desirable to ensure that a final rule is
in place as soon as possible to provide guidance to creditors affected
by the new rules.
V. Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(5 U.S.C. Sec. 603), the Board's Office of the Secretary has reviewed
the proposed amendments to Regulation Z. Overall, the amendments are
not expected to have any significant impact on small entities. The
proposed regulatory revisions required to implement the 1995 Amendments
clarify the existing disclosure requirements and ease compliance by
providing new tolerances. Under the existing rules, fees charged in
connection with debt cancellation agreements are generally treated as
finance charges; the proposed rule allows creditors to exclude these
fees from the finance charge if additional disclosures are provided to
the consumer. A final regulatory flexibility analysis will be conducted
after consideration of comments received during the public comment
period.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Sec. 3501 et seq.), the Board has reviewed the proposed amendments
under the authority delegated to the Board by the Office of Management
and Budget. 5 CFR 1320 Appendix A.1. Comments on the collection or
disclosure of information associated with this regulation should be
sent to the Office of Management and Budget, Paperwork Reduction
Project (7100-0199), Washington, DC 20503, with copies of such comments
to be sent to Mary M. McLaughlin, Federal Reserve Board Clearance
Officer, Division of Research and Statistics, Mail Stop 97, Board of
Governors of the Federal Reserve System, Washington, DC 20551.
The respondents are individuals or businesses that regularly offer
or extend consumer credit. The purpose of the TILA and Regulation Z is
to promote the informed use of consumer credit by requiring creditors
to disclose its terms and cost. Records must be retained by creditors
for 24 months. The revisions to the requirements in this proposed
regulation are found in 12 CFR 226.2, 226.4, 226.17, 226.18, 226.19,
226.22, 226.23, and 226.31.
The Board's Regulation Z applies to all types of creditors, not
just state member banks. Under the Paperwork Reduction Act, however,
the Federal Reserve accounts for the paperwork burden associated with
Regulation Z only for state member banks. Any estimates of paperwork
burden for institutions other than state member banks that would be
affected by the proposed amendments would be provided by the federal
agency or agencies that supervise those lenders.
The proposed changes are not expected to increase the ongoing
annual burden of Regulation Z. There are 1,042 state member banks with
an average frequency of 136,294 responses per bank each year. The
current estimated burden for Regulation Z ranges from 5 seconds per
response (for disclosures prior to opening a credit card account) to 30
minutes per response (for inclusion of information in an
advertisement). The combined annual burden for all state member banks
under Regulation Z is estimated to be 1,975,600 hours; based on an
hourly cost of $20, the combined annual cost is estimated to be $39.5
million (an average of $37,920 per state member bank). Using the same
hourly cost, the Federal Reserve estimates that there would be
associated start up cost in the amount of $160 per respondent for
changing disclosures (or disclosure-producing software) to include
disclosures relating to voluntary debt cancellation agreements.
The disclosures made by creditors to consumers under Regulation Z
are mandatory. Since the Federal Reserve does not collect any
information, no issue of confidentiality arises. Disclosures relating
to specific transactions or accounts are not publicly available.
Comments are invited on: (a) whether the proposed revision to
Regulation Z is necessary for the proper performance of the Federal
Reserve's functions; including whether the disclosed information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed disclosures, including the cost of
compliance; (c) ways to enhance the quality, utility, and clarity of
the information disclosures; and (d) ways to minimize the burden of
information disclosures on respondents, including through the use of
automated techniques or other forms of information technology.
An agency may not collect or sponsor the collection or disclosure
of information, and an organization is not required to collect or
disclose information unless a currently valid OMB control number is
displayed. The OMB control number for Regulation Z is 7100-0199
List of Subjects in 12 CFR Part 226
Advertising, Banks, banking, Consumer protection, Credit, Federal
Reserve System, Mortgages, Reporting and recordkeeping requirements,
Truth in lending.
[[Page 26132]]
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
revisions to the regulation. New language is shown inside bold-faced
arrows, while language that would be deleted is set off with bold-faced
brackets.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR Part 226 as follows:
PART 226--TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as
follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
2. Section 226.2 would be amended by revising paragraph (a)(6) to
read as follows:
Sec. 226.2 Definitions and rules of construction.
(a) Definitions. * * *
* * * * *
(6) Business day means a day on which the creditor's offices are
open to the public for carrying on substantially all of its business
functions. However, for purposes of rescission under Secs. 226.15 and
226.23, and for purposes of Sec. 226.31, the term
means all calendar days except Sundays and the legal public holidays
specified in 5 USC 6103(a), such as New Year's Day, the
Birthday of Martin Luther King, Jr., Washington's Birthday,
Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day.
* * * * *
3. Section 226.4 would be amended as follows:
a. Paragraph (a) would be revised;
b. New paragraph (b)(10) would be added;
c. A heading would be added to paragraph (c)(7), paragraph (c)(7)
introductory text would be republished, paragraphs (c)(7)(ii) and
(c)(7)(iii) would be revised, paragraph (c)(7)(iv) would be
redesignated as paragraph (c)(7)(v) and republished, and a new
paragraph (c)(7)(iv) would be added;
d. Paragraph (d) heading would be revised, paragraph (d)(1) heading
and introductory text and paragraph (d)(1)(i) would be revised, and a
new paragraph (d)(3) would be added.
e. A new paragraph (e)(3) would be added.
The revisions and additions would read as follows:
Sec. 226.4 Finance charge.
(a) Definition. The finance charge is the cost of consumer credit
as a dollar amount. It includes any charge payable directly or
indirectly by the consumer and imposed directly or indirectly by the
creditor as an incident to or a condition of the extension of credit.
It does not include any charge of a type payable in a comparable cash
transaction.
(1) Charges by third parties. The finance charge
includes fees and amounts charged by someone other than the creditor
(unless otherwise excluded under this section) if the creditor requires
the use of the third party as a condition of or incident to the
extension of credit (even if the consumer can choose the third party)
or retains the charge.
(2) Special rule; closing agent charges. Fees charged by a third-
party closing agent are finance charges only if the creditor requires
the particular services for which the consumer is charged or requires
the imposition of the charge, or retains any portion of the charge.
(3) Special rule; mortgage broker fees. Fees charged by a mortgage
broker (including fees paid directly to the broker or paid to the
creditor for delivery to the broker) are finance charges even if the
creditor does not require the consumer to use a mortgage broker and the
creditor does not retain any portion of the charge.
(b) Example of finance charge * * *
* * * * *
(10) Debt cancellation fees. Premiums or other charges
paid in connection with a debt cancellation agreement, without regard
to whether the agreement is insurance under applicable law.
(c) Charges excluded from the finance charge. * * *
* * * * *
(7) Real-estate related fees. The following
fees in a transaction secured by real property or in a residential
mortgage transaction, if the fees are bona fide and reasonable in
amount:
* * * * *
(ii) Fees for preparing loan-related documents, such
as deeds, mortgages, and reconveyance[,]
or settlement [, and similar] documents.
(iii) Notary [, appraisal,] and credit report fees.
(iv) Property appraisal fees, including fees related to
any pest infestation or flood hazard inspections conducted prior to
closing.
(v) Amounts required to be paid into escrow
or trustee accounts if the amounts would not otherwise be included in
the finance charge.
* * * * *
(d) Insurance and debt cancellation
agreements. (1) Voluntary credit insurance
premiums. Premiums for credit life, accident, health or loss
of income insurance may be excluded from the finance charge if the
following conditions are met:
(i) The insurance coverage is not required by the creditor, and
this fact is disclosed in writing.
* * * * *
(3) Debt cancellation fees. Charges or premiums paid in
connection with an agreement that provides for cancellation of all or
part of the debtor's liability for amounts exceeding the value of the
collateral securing the debtor's obligation, or in connection with any
other debt cancellation agreement, may be excluded from the finance
charge, without regard to whether the agreement is insurance, if the
following conditions are met:
(i) The agreement or coverage is not required by the creditor, and
this fact is disclosed in writing.
(ii) The fee or premium for the initial term of coverage is
disclosed. If the term of coverage is less than the term of the credit
transaction, the term of coverage also shall be disclosed. The fee or
premium may be disclosed on a unit-cost basis only in open-end credit
transactions, closed-end credit transactions by mail or telephone under
226.17(g), and certain closed-end credit transactions involving an
insurance plan that limits the total amount of indebtedness subject to
coverage.
(iii) The consumer signs or initials an affirmative written request
for the coverage after receiving the disclosures specified in this
paragraph. Any consumer in the transaction may sign or initial the
request.
(e) Certain security interest charges. * * *
* * * * *
(3) Taxes on security instruments. Any tax levied on
security instruments or on documents evidencing indebtedness if the
payment of such taxes is a precondition for recording the instrument
securing the evidence of indebtedness.
* * * * *
4. Section 226.17 would be amended as follows:
a. In paragraph (a)(1), footnote 38 would be revised;
b. Paragraph (c)(2) would be redesignated as paragraph (c)(2)(i)
and revised, and paragraph (c)(2)(ii) would be added;
c. Paragraph (f) would be revised.
The revisions and additions would read as follows:
[[Page 26133]]
Sec. 226.17 General disclosure requirements.
(a) Form of disclosures. (1) * * * \38\ * * *
---------------------------------------------------------------------------
\38\ The following disclosures may be made together
with or separately from other required
disclosures: the creditor's identity under Sec. 226.18(a), the
variable rate example under Sec. 226.18(f)(4), insurance
or debt cancellation agreements under
Sec. 226.18(n), and certain security interest charges under
Sec. 226.18(o).
---------------------------------------------------------------------------
* * * * *
(c) Basis of disclosures and use of estimates. * * *
(2)(i) If any information necessary for an
accurate disclosure is unknown to the creditor, it shall make the
disclosure based on the best information reasonably available
at the time the disclosure is provided to the
consumer, and shall state that the disclosure is an
estimate.
(ii) For a transaction in which a portion of the
interest is determined on a per diem basis and collected upon
consummation, any disclosure with respect to the per diem interest
shall be deemed to be accurate if the disclosure is based on
information actually known to the creditor at the time that the
disclosure documents are prepared for consummation of the
transaction.
* * * * *
(f) Early disclosures. If disclosures are given before the date of
consummation of a transaction and a subsequent event makes them
inaccurate, before consummation \39\ the creditor
shall disclose [the changed terms before consummation]
---------------------------------------------------------------------------
\39\ For certain residential mortgage transactions,
Sec. 226.19(a)(2) permits redisclosure no later than consummation or
settlement, whichever is later.
---------------------------------------------------------------------------
(1) any changed term that was not based on an estimate
in accordance with Sec. 226.17(c)(2) and labelled as such;
(2) all changed terms, if the annual percentage rate
disclosed in the consummated transaction varies
from the annual percentage rate disclosed under Sec. 226.18(e) by more
than \1/8\ of 1 percentage point in a regular transaction, or more than
\1/4\ of 1 percentage point in an irregular transaction, as defined in
Sec. 226.22(a).
* * * * *
5. Section 226.18 would be amended as follows:
a. Footnote 41 in paragraph (d) would be removed and paragraph (d)
introductory text would be republished;
b. New paragraphs (d)(1) and (d)(2) would be added;
c. Footnotes 39 and 40 in paragraph (c) would be redesignated as
footnotes 40 and 41 respectively; and
d. Paragraph (n) would be revised.
The revisions and additions would read as follows:
Sec. 226.18 Content of disclosures.
* * * * *
(d) Finance charge. The finance charge, using that term, and a
brief description such as ``the dollar amount the credit will cost
you.'' [\41\]
---------------------------------------------------------------------------
[\41\ The finance charge shall be considered accurate if it is
not more than $5 above or below the exact finance charge in a
transaction involving an amount financed of $1,000 or less, or not
more than $10 above or below the exact finance charge in a
transaction involving an amount financed of more than $1,000.]
---------------------------------------------------------------------------
(1) Mortgage loans. In a transaction secured by real
property or a dwelling, the disclosed finance charge and other
disclosures affected by the disclosed finance charge (such as the
amount financed and the annual percentage rate) shall be treated as
accurate if the amount disclosed as the finance charge:
(i) is greater than the amount required to be disclosed; or
(ii) is understated by no more than $100.
(2) Other credit. In any other transaction, the amount disclosed as
the finance charge shall be treated as accurate if it is not more than
$5 above or below the amount required to be disclosed in a transaction
involving an amount financed of $1,000 or less, or not more than $10
above or below the amount required to be disclosed in a transaction
involving an amount financed of more than $1,000.
* * * * *
(n) Insurance and debt cancellation
agreements. The items required by Sec. 226.4(d) in order to
exclude certain insurance premiums and debt cancellation
fees from the finance charge.
* * * * *
6. Section 226.19 would be amended by revising paragraph (a)(2) to
read as follows:
Sec. 226.19 Certain residential mortgage and variable-rate
transactions.
(a) * * *
(2) Redisclosure required. If the annual percentage rate
disclosed in the consummated transaction varies
from the annual percentage rate disclosed under Sec. 226.18(e) by more
than \1/8\ of 1 percentage point in a regular transaction or more than
\1/4\ of 1 percentage point in an irregular transaction, as defined in
Sec. 226.22, the creditor shall disclose the changed terms no later
than consummation or settlement.
* * * * *
7. Section 226.22 would be amended by adding new paragraphs (a)(4)
and (a)(5) to read as follows:
Sec. 226.22 Determination of annual percentage rate.
(a) Accuracy of annual percentage rate. * * *
* * * * *
(4) Mortgage loans. If the annual percentage rate
disclosed in a transaction secured by real property or a dwelling
varies from the actual rate determined in accordance with paragraph
(a)(1) of this section, the disclosed annual percentage rate shall be
considered accurate if:
(i) It is the rate resulting from the disclosed finance charge; and
(ii) The disclosed finance charge would be considered accurate
under Sec. 226.18(d)(1) or Sec. 226.23 (g) or (h).
(5) Additional tolerance for mortgage loans. In a transaction
secured by real property or a dwelling, if the disclosed finance charge
is calculated incorrectly but considered accurate under
Sec. 226.18(d)(1) or Sec. 226.23 (g) or (h), the disclosed annual
percentage rate shall be considered accurate:
(i) If the disclosed finance charge is understated, and the
disclosed annual percentage rate is also understated but is closer to
the actual annual percentage rate than the rate that would be
considered accurate under paragraph (a)(4) of this section;
(ii) If the disclosed finance charge is overstated, and the
disclosed annual percentage rate is also overstated but is closer to
the actual annual percentage rate than the rate that would be
considered accurate under paragraph (a)(4) of this section.
* * * * *
8. Section 226.23 would be amended as follows:
a. Paragraphs (b)(1) through (b)(5) would be redesignated as
paragraphs (b)(1)(i) through (b)(1)(v);
b. Paragraph (b) would be redesignated as paragraph (b)(1) and
republished;
c. A new paragraph (b)(2) would be added; and
d. New paragraphs (g) and (h) would be added.
The revisions and additions would read as follows:
Sec. 226.23 Right of rescission.
* * * * *
(b) (1) Notice of right to rescind. In a
transaction subject to rescission, a creditor shall deliver two copies
of the notice of the right to rescind to each consumer entitled to
rescind. The notice shall be on a separate document that identifies the
transaction and shall clearly and conspicuously disclose the following:
[[Page 26134]]
[(1)](i) The retention or acquisition of a
security interest in the consumer's principal dwelling.
[(2)](ii) The consumer's right to rescind the
transaction.
[(3)](iii) How to exercise the right to
rescind, with a form for that purpose, designating the address of the
creditor's place of business.
[(4)](iv) The effects of rescission, as
described in paragraph (d) of this section.
[(5)](v) The date the rescission period
expires.
(2) Proper form of notice. To satisfy the disclosure
requirements of paragraph (b)(1) of this section, the creditor shall
provide a notice that conforms with the model forms in Appendix H of
this part, as appropriate, or a notice that is substantially
similar.
* * * * *
(g) Tolerances for accuracy. (1) Except as provided in
paragraphs (g)(2) and (h)(2) of this section, the finance charge and
other disclosures affected by the finance charge (such as the amount
financed and the annual percentage rate) shall be considered accurate
for purposes of this section if the disclosed finance charge is:
(i) Greater than the amount required to be disclosed; or
(ii) Understated by no more than \1/2\ of one percent of the face
amount of the note or $100, whichever is greater.
(2) In a refinancing of a residential mortgage transaction (other
than a transaction covered by Sec. 226.32) with a creditor where no new
money is advanced and there is no consolidation of an existing loan,
the finance charge and other disclosures affected by the finance charge
(such as the amount financed and the annual percentage rate) shall be
considered accurate for purposes of this section if the disclosed
finance charge is:
(i) Greater than the amount required to be disclosed; or
(ii) Understated by no more than one percent of the face amount of
the note or $100, whichever is greater.
(h) Special rules for foreclosures--(1) Right to rescind. After the
initiation of a foreclosure on the consumer's principal dwelling which
secures the credit obligation, the consumer shall have the right to
rescind the transaction if:
(i) A mortgage broker fee was not included in the finance charge,
if required by the laws and regulations in effect at the time of
consummation; or
(ii) The creditor did not provide the appropriate form of notice,
in accordance with Appendix H of this part, or a substantially similar
notice.
(2) Tolerance for disclosures. After the initiation of foreclosure,
the finance charge and other disclosures affected by the finance charge
(such as the amount financed and the annual percentage rate) shall be
considered accurate for purposes of this section if the disclosed
finance charge is:
(i) Greater than the amount required to be disclosed; or
(ii) Understated by no more than $35.
9. Section 226.31 would be amended by revising paragraphs (d) and
(g) as follows:
Sec. 226.31 General rules.
* * * * *
(d) Basis of disclosures and use of estimates.
(1) Disclosures shall reflect the terms of the
legal obligation between the parties.
(2) If any information necessary for accurate
disclosure is unknown to the creditor, the creditor shall make the
disclosure based on the best information reasonably available at
the time the disclosures are provided and shall
state clearly that the disclosure is an estimate.
(3) For a transaction in which a portion of the interest
is determined on a per diem basis and collected upon consummation, any
disclosure with respect to the per diem interest shall be deemed to be
accurate if the disclosure is based on the information actually known
to the creditor at the time that the disclosure documents are prepared
for consummation of the transaction.
* * * * *
(g) Accuracy of annual percentage rate. For purposes of
Sec. 226.32, the annual percentage rate shall be considered
accurate, and may be used in determining whether a
transaction is covered by Sec. 226.32, if it is accurate
according to the requirements and within the tolerances set forth in
Sec. 226.22.
10. In Part 226, Appendix H is amended by revising the entry for H-
9 Rescission Model Form in the contents listing at the beginning of the
appendix and the H-9 Rescission Model Form to read as follows:
Appendix H to Part 226--Closed-end Model Forms and Clauses
* * * * *
H-9--Rescission Model Form (Refinancing[)] with Original
Creditor) (Sec. 226.23)
* * * * *
H-9--Rescission Model Form (Refinancing[)] with Original
Creditor)
Notice of Right To Cancel
Your Right To Cancel
You are entering into a new transaction to increase the amount
of credit provided to you. [We acquired a [mortgage/lien/security
interest] [on/in] your home under the original transaction and will
retain that [mortgage/lien/security interest] in the new
transaction.] Your home is the security for this new
transaction. You have a legal right under federal law to
cancel the new transaction, without cost, within three business days
from whichever of the following events occurs last:
(1) The date of the new transaction, which is
____________________; or
(2) The date you received your new Truth in Lending disclosures;
or
(3) The date you received this notice of your right to cancel.
If you cancel the new transaction, your cancellation will apply
only to the increase in the amount of credit. It will not affect the
amount that you presently owe or the [mortgage/lien/security
interest] we already have [on/in] your home. If you cancel, the
[mortgage/lien/security interest] as it applies to the increased
amount is also cancelled. Within 20 calendar days after we receive
your notice of cancellation of the new transaction, we must take the
steps necessary to reflect the fact that our [mortgage/lien/security
interest] [on/in] your home no longer applies to the increase of
credit. We must also return any money you have given to us or anyone
else in connection with the new transaction.
You may keep any money we have given you in the new transaction
until we have done the things mentioned above, but you must then
offer to return the money at the address below. If we do not take
possession of the money within 20 calendar days of your offer, you
may keep it without further obligation.
How To Cancel
If you decide to cancel the new transaction, you may do so by
notifying us in writing, at (creditor's name and business address).
You may use any written statement that is signed and dated by
you and states your intention to cancel, or you may use this notice
by dating and signing below. Keep one copy of this notice because it
contains important information about your rights.
If you cancel by mail or telegram, you must send the notice no
later than midnight of ____________________ (date) (or midnight of
the third business day following the latest of the three events
listed above).
If you send or deliver your written notice to cancel some other
way, it must be
[[Page 26135]]
delivered to the above address no later than that time.
I Wish to Cancel
----------------------------------------------------------------------
Consumer's Signature
----------------------------------------------------------------------
Date
Supplement I--[Amended]
11. In Supplement I to Part 226, under Section 226.4--Finance
Charge, under 4(a) Definition, paragraph 3. ii. would be removed.
12. In Supplement I to Part 226, under Section 226.17--General
Disclosure Requirements, under 17(c) Basis of disclosures and use of
estimates, Paragraph 17(c)(2) would be redesignated as Paragraph
17(c)(2)(i):
Supplement I--Official Staff Interpretations
* * * * *
Section 226.17--General Disclosure Requirements
* * * * *
17(c) Basis of Disclosures and Use of Estimates
* * * * *
Paragraph 17(c)(2)(i).
* * * * *
13. In Supplement I to Part 226, under Section 226.18--Content of
Disclosures, under 18(d) Finance charge, paragraph 2 would be removed.
14. In Supplement I to Part 226, under Section 226.23--Right of
Rescission, under 23(b) Notice of right to rescind, the first sentence
of paragraph 3 would be revised to read as follows:
* * * * *
Section 226.23--right of rescission
* * * * *
23(b) Notice of right to rescind.
* * * * *
3. Content. The notice must include all of the information outlined
in Section 226.23(b)(1)(i) through (v) [through
5]. * * *
* * * * *
By order of the Board of Governors of the Federal Reserve
System, May 15, 1996.
William W. Wiles,
Secretary of the Board
[FR Doc. 96-12685 Filed 5-23-96; 8:45 am]
BILLING CODE 6210-01-P
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