[Federal Register Volume 84, Number 210 (Wednesday, October 30, 2019)]
[Rules and Regulations]
[Pages 58020-58026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21557]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Docket No. R-1677]
RIN 7100-AF 60
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
Truth in Lending (Regulation Z)
AGENCY: Board of Governors of the Federal Reserve System (Board); and
Bureau of Consumer Financial Protection (Bureau).
ACTION: Final rules, official interpretations and commentary.
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SUMMARY: The Board and the Bureau are publishing final rules amending
the official interpretations and commentary for the agencies'
regulations that implement the Truth in Lending Act (TILA). The Dodd-
Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
amended TILA by requiring that the dollar threshold for exempt consumer
credit transactions be adjusted annually by the annual percentage
increase in the Consumer
[[Page 58021]]
Price Index for Urban Wage Earners and Clerical Workers (CPI-W). If
there is no annual percentage increase in the CPI-W, the Board and the
Bureau will not adjust this exemption threshold from the prior year.
However, in years following a year in which the exemption threshold was
not adjusted, the threshold is calculated by applying the annual
percentage change in the CPI-W to the dollar amount that would have
resulted, after rounding, if the decreases and any subsequent increases
in the CPI-W had been taken into account. Based on the annual
percentage increase in the CPI-W as of June 1, 2019, the exemption
threshold will increase from $57,200 to $58,300 effective January 1,
2020. Because the Dodd-Frank Act also requires similar adjustments in
the Consumer Leasing Act's threshold for exempt consumer leases, the
Board and the Bureau are making similar amendments to each of their
respective regulations implementing the Consumer Leasing Act elsewhere
in this issue of the Federal Register.
DATES: This final rule is effective January 1, 2020.
FOR FURTHER INFORMATION CONTACT:
Board: Vivian W. Wong, Senior Counsel, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve System, at
(202) 452-3667; for users of Telecommunications Device for the Deaf
(TDD) only, contact (202) 263-4869.
Bureau: Kristen Phinnessee, Counsel, Office of Regulations, Bureau
of Consumer Financial Protection, at (202) 435-7700. If you require
this document in an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (Dodd-Frank Act) increased the threshold in the Truth in Lending
Act (TILA) for exempt consumer credit transactions,\1\ and the
threshold in the Consumer Leasing Act (CLA) for exempt consumer leases,
from $25,000 to $50,000, effective July 21, 2011.\2\ In addition, the
Dodd-Frank Act requires that, on and after December 31, 2011, these
thresholds be adjusted annually for inflation by the annual percentage
increase in the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), as published by the Bureau of Labor
Statistics. In April 2011, the Board issued a final rule amending
Regulation Z (which implements TILA) consistent with these provisions
of the Dodd-Frank Act, along with a similar final rule amending
Regulation M (which implements the CLA) (collectively, the Board Final
Threshold Rules).\3\
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\1\ Although consumer credit transactions above the threshold
are generally exempt, loans secured by real property or by personal
property used or expected to be used as the principal dwelling of a
consumer and private education loans are covered by TILA regardless
of the loan amount. See 12 CFR 226.3(b)(1)(i) (Board) and 12 CFR
1026.3(b)(1)(i) (Bureau).
\2\ Public Law 111-203, section 1100E, 124 Stat. 1376, 2111
(2010).
\3\ 76 FR 18354 (Apr. 4, 2011); 76 FR 18349 (Apr. 4, 2011).
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Title X of the Dodd-Frank Act transferred rulemaking authority for
a number of consumer financial protection laws from the Board to the
Bureau, effective July 21, 2011. In connection with this transfer of
rulemaking authority, the Bureau issued its own Regulation Z
implementing TILA, 12 CFR part 1026, substantially duplicating the
Board's Regulation Z.\4\ Although the Bureau has the authority to issue
rules to implement TILA for most entities, the Board retains authority
to issue rules under TILA for certain motor vehicle dealers covered by
section 1029(a) of the Dodd-Frank Act, and the Board's Regulation Z
continues to apply to those entities.\5\
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\4\ See 76 FR 79768 (Dec. 22, 2011); 81 FR 25323 (Apr. 28,
2016).
\5\ Section 1029(a) of the Dodd-Frank Act states: ``Except as
permitted in subsection (b), the Bureau may not exercise any
rulemaking, supervisory, enforcement, or any other authority . . .
over a motor vehicle dealer that is predominantly engaged in the
sale and servicing of motor vehicles, the leasing and servicing of
motor vehicles, or both.'' 12 U.S.C. 5519(a). Section 1029(b) of the
Dodd-Frank Act provides that subsection (a) shall not apply to any
person, to the extent that such person (1) provides consumers with
any services related to residential or commercial mortgages or self-
financing transactions involving real property; (2) operates a line
of business (A) that involves the extension of retail credit or
retail leases involving motor vehicles; and (B) in which (i) the
extension of retail credit or retail leases are provided directly to
consumers; and (ii) the contract governing such extension of retail
credit or retail leases is not routinely assigned to an unaffiliated
third party finance or leasing source; or (3) offers or provides a
consumer financial product or service not involving or related to
the sale, financing, leasing, rental, repair, refurbishment,
maintenance, or other servicing of motor vehicles, motor vehicle
parts, or any related or ancillary product or service. 12 U.S.C.
5519(b).
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The Board's and the Bureau's regulations,\6\ and their accompanying
commentaries, provide that the exemption threshold will be adjusted
annually effective January 1 of each year based on any annual
percentage increase in the CPI-W that was in effect on the preceding
June 1. They further provide that any increase in the threshold amount
will be rounded to the nearest $100 increment. For example, if the
annual percentage increase in the CPI-W would result in a $950 increase
in the threshold amount, the threshold amount will be increased by
$1,000. However, if the annual percentage increase in the CPI-W would
result in a $949 increase in the threshold amount, the threshold amount
will be increased by $900.\7\ Since 2011, the Board and the Bureau have
adjusted the Regulation Z exemption threshold annually, in accordance
with these rules.
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\6\ 12 CFR 226.3(b)(1)(ii) (Board) and 12 CFR 1026.3(b)(1)(ii)
(Bureau).
\7\ See comments 3(b)-1 in Supplements I of 12 CFR parts 226 and
1026.
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On November 30, 2016, the Board and the Bureau published a final
rule in the Federal Register to memorialize the calculation method used
by the agencies each year to adjust the exemption threshold to ensure
that, as contemplated by section 1100E(b) of the Dodd-Frank Act, the
values for the exemption threshold keep pace with the CPI-W (Regulation
Z Adjustment Calculation Rule).\8\ The Regulation Z Adjustment
Calculation Rule memorialized the policy that, if there is no annual
percentage increase in the CPI-W, the Board and Bureau will not adjust
the exemption threshold from the prior year. The Regulation Z
Adjustment Calculation Rule also provided that, in years following a
year in which the exemption threshold was not adjusted because there
was a decrease in the CPI-W from the previous year, the threshold is
calculated by applying the annual percentage change in the CPI-W to the
dollar amount that would have resulted, after rounding, if the
decreases and any subsequent increases in the CPI-W had been taken into
account. If the resulting amount calculated, after rounding, is greater
than the current threshold, then the threshold effective January 1 the
following year will increase accordingly; if the resulting amount
calculated, after rounding, is equal to or less than the current
threshold, then the threshold effective January 1 the following year
will not change, but future increases will be calculated based on the
amount that would have resulted, after rounding.
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\8\ See 81 FR 86260 (Nov. 30, 2016).
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II. 2020 Adjustment and Commentary Revision
Effective January 1, 2020, the exemption threshold amount is
increased from $57,200 to $58,300. This is based on the CPI-W in effect
on June 1, 2019, which was reported on May 10, 2019. The Bureau of
Labor Statistics publishes consumer-based indices monthly, but does not
report a CPI
[[Page 58022]]
change on June 1; indices are reported in the middle of the prior
month. The CPI-W is a subset of the CPI-U index (based on all urban
consumers) and represents approximately 29 percent of the U.S.
population. The CPI-W reported on May 10, 2019 reflects a 1.9 percent
increase in the CPI-W from April 2018 to April 2019. Accordingly, the
1.9 percent increase in the CPI-W from April 2018 to April 2019 results
in an exemption threshold amount of $58,300. The Board and the Bureau
are revising the commentaries to their respective regulations to add
new comment 3(b)-3.xi to state that, from January 1, 2020 through
December 31, 2020, the threshold amount is $58,300. These revisions are
effective January 1, 2020.\9\
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\9\ The Office of the Federal Register requires the Board and
the Bureau to reprint sections of commentary being amended in their
entirety, rather than solely printing the amended portion.
Therefore, sections of commentary included in this document show the
language of those sections in their entirety.
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Additionally, the Board and the Bureau have made certain
nonsubstantive technical amendments to their respective commentaries in
order to bring certain internal cross-references into alignment with
the Office of the Federal Register's Code of Federal Regulations style
guidelines. These technical amendments have been made to Supplement I
to 12 CFR part 226, subpart A, Section 226.3--Exempt Transactions,
comments 3(b)-4.iv.B(2), 3(b)-4.iv.B(3),and 3(b)-8.ii; and Supplement I
to 12 CFR part 1026, subpart A, Section 1026.3--Exempt Transactions,
comments 3(b)-4.iv.B.2, 3(b)-4.iv.B.3, and 3(b)-8.ii.
III. Regulatory Analysis
Administrative Procedure Act
Under the Administrative Procedure Act, notice and opportunity for
public comment are not required if the Board and the Bureau find that
notice and public comment are impracticable, unnecessary, or contrary
to the public interest.\10\ The amendments in this rule are technical
and apply the method previously set forth in the Board Final Threshold
Rules and the Regulation Z Adjustment Calculation Rule. For these
reasons, the Board and the Bureau have determined that publishing a
notice of proposed rulemaking and providing opportunity for public
comment are unnecessary. Therefore, the amendments are adopted in final
form.
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\10\ 5 U.S.C. 553(b)(B).
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Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) does not apply to a rulemaking
where a general notice of proposed rulemaking is not required.\11\ As
noted previously, the agencies have determined that it is unnecessary
to publish a general notice of proposed rulemaking for this joint final
rule. Accordingly, the RFA's requirements relating to an initial and
final regulatory flexibility analysis do not apply.
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\11\ 5 U.S.C. 603(a), 604(a).
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Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995,\12\ the
agencies reviewed this final rule. No collections of information
pursuant to the Paperwork Reduction Act are contained in the final
rule.
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\12\ 44 U.S.C. 3506; 5 CFR part 1320.
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Bureau Congressional Review Act Statement
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Bureau will submit a report containing this rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the United States prior to the rule taking
effect. The Office of Information and Regulatory Affairs (OIRA) has
designated this rule as not a ``major rule'' as defined by 5 U.S.C.
804(2).
List of Subjects
12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System, Reporting
and recordkeeping requirements, Truth in lending.
12 CFR Part 1026
Advertising, Appraisal, Appraiser, Banking, Banks, Consumer
protection, Credit, Credit unions, Mortgages, National banks, Reporting
and recordkeeping requirements, Savings associations, Truth in lending.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Authority and Issuance
For the reasons set forth in the preamble, the Board amends
Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l)
and 1639h; Pub. L. 111-24, section 2, 123 Stat. 1734; Pub. L. 111-
203, 124 Stat. 1376.
0
2. In Supplement I to part 226, under Section 226.3--Exempt
Transactions, revise 3(b) Credit over applicable threshold amount to
read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
* * * * *
Section 226.3--Exempt Transactions
* * * * *
3(b) Credit over applicable threshold amount.
1. Threshold amount. For purposes of Sec. 226.3(b), the
threshold amount in effect during a particular period is the amount
stated in comment 3(b)-3 for that period. The threshold amount is
adjusted effective January 1 of each year by any annual percentage
increase in the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W) that was in effect on the preceding June 1.
Comment 3(b)-3 will be amended to provide the threshold amount for
the upcoming year after the annual percentage change in the CPI-W
that was in effect on June 1 becomes available. Any increase in the
threshold amount will be rounded to the nearest $100 increment. For
example, if the annual percentage increase in the CPI-W would result
in a $950 increase in the threshold amount, the threshold amount
will be increased by $1,000. However, if the annual percentage
increase in the CPI-W would result in a $949 increase in the
threshold amount, the threshold amount will be increased by $900.
2. No increase in the CPI-W. If the CPI-W in effect on June 1
does not increase from the CPI-W in effect on June 1 of the previous
year, the threshold amount effective the following January 1 through
December 31 will not change from the previous year. When this
occurs, for the years that follow, the threshold is calculated based
on the annual percentage change in the CPI-W applied to the dollar
amount that would have resulted, after rounding, if decreases and
any subsequent increases in the CPI-W had been taken into account.
i. Net increases. If the resulting amount calculated, after
rounding, is greater than the current threshold, then the threshold
effective January 1 the following year will increase accordingly.
ii. Net decreases. If the resulting amount calculated, after
rounding, is equal to or less than the current threshold, then the
threshold effective January 1 the following year will not change,
but future increases will be calculated based on the amount that
would have resulted.
3. Threshold. For purposes of Sec. 226.3(b), the threshold
amount in effect during a particular period is the amount stated
below for that period.
i. Prior to July 21, 2011, the threshold amount is $25,000.
ii. From July 21, 2011 through December 31, 2011, the threshold
amount is $50,000.
iii. From January 1, 2012 through December 31, 2012, the
threshold amount is $51,800.
iv. From January 1, 2013 through December 31, 2013, the
threshold amount is $53,000.
[[Page 58023]]
v. From January 1, 2014 through December 31, 2014, the threshold
amount is $53,500.
vi. From January 1, 2015 through December 31, 2015, the
threshold amount is $54,600.
vii. From January 1, 2016 through December 31, 2016, the
threshold amount is $54,600.
viii. From January 1, 2017 through December 31, 2017, the
threshold amount is $54,600.
ix. From January 1, 2018 through December 31, 2018, the
threshold amount is $55,800.
x. From January 1, 2019 through December 31, 2019, the threshold
amount is $57,200.
xi. From January 1, 2020 through December 31, 2020, the
threshold amount is $58,300.
4. Open-end credit.
i. Qualifying for exemption. An open-end account is exempt under
Sec. 226.3(b) (unless secured by any real property, or by personal
property used or expected to be used as the consumer's principal
dwelling) if either of the following conditions is met:
A. The creditor makes an initial extension of credit at or after
account opening that exceeds the threshold amount in effect at the
time the initial extension is made. If a creditor makes an initial
extension of credit after account opening that does not exceed the
threshold amount in effect at the time the extension is made, the
creditor must have satisfied all of the applicable requirements of
this part from the date the account was opened (or earlier, if
applicable), including but not limited to the requirements of Sec.
226.6 (account-opening disclosures), Sec. 226.7 (periodic
statements), Sec. 226.52 (limitations on fees), and Sec. 226.55
(limitations on increasing annual percentages rates, fees, and
charges). For example:
(1) Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does
not make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $60,000. In this
circumstance, no requirements of this part apply to the account.
(2) Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does
not make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $50,000 or less. In
this circumstance, the account is not exempt and the creditor must
have satisfied all of the applicable requirements of this part from
the date the account was opened (or earlier, if applicable).
B. The creditor makes a firm written commitment at account
opening to extend a total amount of credit in excess of the
threshold amount in effect at the time the account is opened with no
requirement of additional credit information for any advances on the
account (except as permitted from time to time with respect to open-
end accounts pursuant to Sec. 226.2(a)(20)).
ii. Subsequent changes generally. Subsequent changes to an open-
end account or the threshold amount may result in the account no
longer qualifying for the exemption in Sec. 226.3(b). In these
circumstances, the creditor must begin to comply with all of the
applicable requirements of this part within a reasonable period of
time after the account ceases to be exempt. Once an account ceases
to be exempt, the requirements of this part apply to any balances on
the account. The creditor, however, is not required to comply with
the requirements of this part with respect to the period of time
during which the account was exempt. For example, if an open-end
credit account ceases to be exempt, the creditor must within a
reasonable period of time provide the disclosures required by Sec.
226.6 reflecting the current terms of the account and begin to
provide periodic statements consistent with Sec. 226.7. However,
the creditor is not required to disclose fees or charges imposed
while the account was exempt. Furthermore, if the creditor provided
disclosures consistent with the requirements of this part while the
account was exempt, it is not required to provide disclosures
required by Sec. 226.6 reflecting the current terms of the account.
See also comment 3(b)-6.
iii. Subsequent changes when exemption is based on initial
extension of credit. If a creditor makes an initial extension of
credit that exceeds the threshold amount in effect at that time, the
open-end account remains exempt under Sec. 226.3(b) regardless of a
subsequent increase in the threshold amount, including an increase
pursuant to Sec. 226.3(b)(1)(ii) as a result of an increase in the
CPI-W. Furthermore, in these circumstances, the account remains
exempt even if there are no further extensions of credit, subsequent
extensions of credit do not exceed the threshold amount, the account
balance is subsequently reduced below the threshold amount (such as
through repayment of the extension), or the credit limit for the
account is subsequently reduced below the threshold amount. However,
if the initial extension of credit on an account does not exceed the
threshold amount in effect at the time of the extension, the account
is not exempt under Sec. 226.3(b) even if a subsequent extension
exceeds the threshold amount or if the account balance later exceeds
the threshold amount (for example, due to the subsequent accrual of
interest).
iv. Subsequent changes when exemption is based on firm
commitment.
A. General. If a creditor makes a firm written commitment at
account opening to extend a total amount of credit that exceeds the
threshold amount in effect at that time, the open-end account
remains exempt under Sec. 226.3(b) regardless of a subsequent
increase in the threshold amount pursuant to Sec. 226.3(b)(1)(ii)
as a result of an increase in the CPI-W. However, see comment 3(b)-8
with respect to the increase in the threshold amount from $25,000 to
$50,000. If an open-end account is exempt under Sec. 226.3(b) based
on a firm commitment to extend credit, the account remains exempt
even if the amount of credit actually extended does not exceed the
threshold amount. In contrast, if the firm commitment does not
exceed the threshold amount at account opening, the account is not
exempt under Sec. 226.3(b) even if the account balance later
exceeds the threshold amount. In addition, if a creditor reduces a
firm commitment, the account ceases to be exempt unless the reduced
firm commitment exceeds the threshold amount in effect at the time
of the reduction. For example:
(1) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $55,000
in credit. If during year one the creditor reduces its firm
commitment to $53,000, the account remains exempt under Sec.
226.3(b). However, if during year one the creditor reduces its firm
commitment to $40,000, the account is no longer exempt under Sec.
226.3(b).
(2) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $55,000
in credit. If the threshold amount is $56,000 on January 1 of year
six as a result of increases in the CPI-W, the account remains
exempt. However, if the creditor reduces its firm commitment to
$54,000 on July 1 of year six, the account ceases to be exempt under
Sec. 226.3(b).
B. Initial extension of credit. If an open-end account qualifies
for a Sec. 226.3(b) exemption at account opening based on a firm
commitment, that account may also subsequently qualify for a Sec.
226.3(b) exemption based on an initial extension of credit. However,
that initial extension must be a single advance in excess of the
threshold amount in effect at the time the extension is made. In
addition, the account must continue to qualify for an exemption
based on the firm commitment until the initial extension of credit
is made. For example:
(1) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $55,000
in credit. The account is not used for an extension of credit during
year one. On January 1 of year two, the threshold amount is
increased to $51,000 pursuant to Sec. 226.3(b)(1)(ii) as a result
of an increase in the CPI-W. On July 1 of year two, the consumer
uses the account for an initial extension of $52,000. As a result of
this extension of credit, the account remains exempt under Sec.
226.3(b) even if, after July 1 of year two, the creditor reduces the
firm commitment to $51,000 or less.
(2) Same facts as in paragraph 4.iv.B(1) of this section except
that the consumer uses the account for an initial extension of
$30,000 on July 1 of year two and for an extension of $22,000 on
July 15 of year two. In these circumstances, the account is not
exempt under Sec. 226.3(b) based on the $30,000 initial extension
of credit because that extension did not exceed the applicable
threshold amount ($51,000), although the account remains exempt
based on the firm commitment to extend $55,000 in credit.
(3) Same facts as in paragraph 4.iv.B(1) of this section except
that, on April 1 of year two, the creditor reduces the firm
commitment to $50,000, which is below the $51,000 threshold then in
effect. Because the account ceases to qualify for a Sec. 226.3(b)
exemption on April 1 of year two, the account does not qualify for a
Sec. 226.3(b) exemption based on a $52,000 initial extension of
credit on July 1 of year two.
5. Closed-end credit.
i. Qualifying for exemption. A closed-end loan is exempt under
Sec. 226.3(b) (unless the
[[Page 58024]]
extension of credit is secured by any real property, or by personal
property used or expected to be used as the consumer's principal
dwelling; or is a private education loan as defined in Sec.
226.46(b)(5)), if either of the following conditions is met.
A. The creditor makes an extension of credit at consummation
that exceeds the threshold amount in effect at the time of
consummation. In these circumstances, the loan remains exempt under
Sec. 226.3(b) even if the amount owed is subsequently reduced below
the threshold amount (such as through repayment of the loan).
B. The creditor makes a commitment at consummation to extend a
total amount of credit in excess of the threshold amount in effect
at the time of consummation. In these circumstances, the loan
remains exempt under Sec. 226.3(b) even if the total amount of
credit extended does not exceed the threshold amount.
ii. Subsequent changes. If a creditor makes a closed-end
extension of credit or commitment to extend closed-end credit that
exceeds the threshold amount in effect at the time of consummation,
the closed-end loan remains exempt under Sec. 226.3(b) regardless
of a subsequent increase in the threshold amount. However, a closed-
end loan is not exempt under Sec. 226.3(b) merely because it is
used to satisfy and replace an existing exempt loan, unless the new
extension of credit is itself exempt under the applicable threshold
amount. For example, assume a closed-end loan that qualified for a
Sec. 226.3(b) exemption at consummation in year one is refinanced
in year ten and that the new loan amount is less than the threshold
amount in effect in year ten. In these circumstances, the creditor
must comply with all of the applicable requirements of this part
with respect to the year ten transaction if the original loan is
satisfied and replaced by the new loan, which is not exempt under
Sec. 226.3(b). See also comment 3(b)-6.
6. Addition of a security interest in real property or a
dwelling after account opening or consummation.
i. Open-end credit. For open-end accounts, if, after account
opening, a security interest is taken in real property, or in
personal property used or expected to be used as the consumer's
principal dwelling, a previously exempt account ceases to be exempt
under Sec. 226.3(b) and the creditor must begin to comply with all
of the applicable requirements of this part within a reasonable
period of time. See comment 3(b)-4.ii. If a security interest is
taken in the consumer's principal dwelling, the creditor must also
give the consumer the right to rescind the security interest
consistent with Sec. 226.15.
ii. Closed-end credit. For closed-end loans, if, after
consummation, a security interest is taken in any real property, or
in personal property used or expected to be used as the consumer's
principal dwelling, an exempt loan remains exempt under Sec.
226.3(b). However, the addition of a security interest in the
consumer's principal dwelling is a transaction for purposes of Sec.
226.23, and the creditor must give the consumer the right to rescind
the security interest consistent with that section. See Sec.
226.23(a)(1) and the accompanying commentary. In contrast, if a
closed-end loan that is exempt under Sec. 226.3(b) is satisfied and
replaced by a loan that is secured by any real property, or by
personal property used or expected to be used as the consumer's
principal dwelling, the new loan is not exempt under Sec. 226.3(b)
and the creditor must comply with all of the applicable requirements
of this part. See comment 3(b)-5.
7. Application to extensions secured by mobile homes. Because a
mobile home can be a dwelling under Sec. 226.2(a)(19), the
exemption in Sec. 226.3(b) does not apply to a credit extension
secured by a mobile home that is used or expected to be used as the
principal dwelling of the consumer. See comment 3(b)-6.
8. Transition rule for open-end accounts exempt prior to July
21, 2011. Section 226.3(b)(2) applies only to open-end accounts
opened prior to July 21, 2011. Section 226.3(b)(2) does not apply if
a security interest is taken by the creditor in any real property,
or in personal property used or expected to be used as the
consumer's principal dwelling. If, on July 20, 2011, an open-end
account is exempt under Sec. 226.3(b) based on a firm commitment to
extend credit in excess of $25,000, the account remains exempt under
Sec. 226.3(b)(2) until December 31, 2011 (unless the firm
commitment is reduced to $25,000 or less). If the firm commitment is
increased on or before December 31, 2011 to an amount in excess of
$50,000, the account remains exempt under Sec. 226.3(b)(1)
regardless of subsequent increases in the threshold amount as a
result of increases in the CPI-W. If the firm commitment is not
increased on or before December 31, 2011 to an amount in excess of
$50,000, the account ceases to be exempt under Sec. 226.3(b) based
on a firm commitment to extend credit. For example:
i. Assume that, on July 20, 2011, the account is exempt under
Sec. 226.3(b) based on the creditor's firm commitment to extend
$30,000 in credit. On November 1, 2011, the creditor increases the
firm commitment on the account to $55,000. In these circumstances,
the account remains exempt under Sec. 226.3(b)(1) regardless of
subsequent increases in the threshold amount as a result of
increases in the CPI-W.
ii. Same facts as paragraph 8.i. of this section except, on
November 1, 2011, the creditor increases the firm commitment on the
account to $40,000. In these circumstances, the account ceases to be
exempt under Sec. 226.3(b)(2) after December 31, 2011, and the
creditor must begin to comply with the applicable requirements of
this part.
* * * * *
BUREAU OF CONSUMER FINANCIAL PROTECTION
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends
Regulation Z, 12 CFR part 1026, as set forth below:
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
3. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353,
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
0
4. In Supplement I to part 1026, under Section 1026.3--Exempt
Transactions, revise 3(b) Credit Over Applicable Threshold Amount to
read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Section 1026.3--Exempt Transactions
* * * * *
3(b) Credit Over Applicable Threshold Amount
1. Threshold amount. For purposes of Sec. 1026.3(b), the
threshold amount in effect during a particular period is the amount
stated in comment 3(b)-3 below for that period. The threshold amount
is adjusted effective January 1 of each year by any annual
percentage increase in the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W) that was in effect on the
preceding June 1. Comment 3(b)-3 will be amended to provide the
threshold amount for the upcoming year after the annual percentage
change in the CPI-W that was in effect on June 1 becomes available.
Any increase in the threshold amount will be rounded to the nearest
$100 increment. For example, if the annual percentage increase in
the CPI-W would result in a $950 increase in the threshold amount,
the threshold amount will be increased by $1,000. However, if the
annual percentage increase in the CPI-W would result in a $949
increase in the threshold amount, the threshold amount will be
increased by $900.
2. No increase in the CPI-W. If the CPI-W in effect on June 1
does not increase from the CPI-W in effect on June 1 of the previous
year, the threshold amount effective the following January 1 through
December 31 will not change from the previous year. When this
occurs, for the years that follow, the threshold is calculated based
on the annual percentage change in the CPI-W applied to the dollar
amount that would have resulted, after rounding, if decreases and
any subsequent increases in the CPI-W had been taken into account.
i. Net increases. If the resulting amount calculated, after
rounding, is greater than the current threshold, then the threshold
effective January 1 the following year will increase accordingly.
ii. Net decreases. If the resulting amount calculated, after
rounding, is equal to or less than the current threshold, then the
threshold effective January 1 the following year will not change,
but future increases will be calculated based on the amount that
would have resulted.
3. Threshold. For purposes of Sec. 1026.3(b), the threshold
amount in effect during a particular period is the amount stated
below for that period.
[[Page 58025]]
i. Prior to July 21, 2011, the threshold amount is $25,000.
ii. From July 21, 2011 through December 31, 2011, the threshold
amount is $50,000.
iii. From January 1, 2012 through December 31, 2012, the
threshold amount is $51,800.
iv. From January 1, 2013 through December 31, 2013, the
threshold amount is $53,000.
v. From January 1, 2014 through December 31, 2014, the threshold
amount is $53,500.
vi. From January 1, 2015 through December 31, 2015, the
threshold amount is $54,600.
vii. From January 1, 2016 through December 31, 2016, the
threshold amount is $54,600.
viii. From January 1, 2017 through December 31, 2017, the
threshold amount is $54,600.
ix. From January 1, 2018 through December 31, 2018, the
threshold amount is $55,800.
x. From January 1, 2019 through December 31, 2019, the threshold
amount is $57,200.
xi. From January 1, 2020 through December 31, 2020, the
threshold amount is $58,300.
4. Open-end credit.
i. Qualifying for exemption. An open-end account is exempt under
Sec. 1026.3(b) (unless secured by real property, or by personal
property used or expected to be used as the consumer's principal
dwelling) if either of the following conditions is met:
A. The creditor makes an initial extension of credit at or after
account opening that exceeds the threshold amount in effect at the
time the initial extension is made. If a creditor makes an initial
extension of credit after account opening that does not exceed the
threshold amount in effect at the time the extension is made, the
creditor must have satisfied all of the applicable requirements of
this part from the date the account was opened (or earlier, if
applicable), including but not limited to the requirements of Sec.
1026.6 (account-opening disclosures), Sec. 1026.7 (periodic
statements), Sec. 1026.52 (limitations on fees), and Sec. 1026.55
(limitations on increasing annual percentage rates, fees, and
charges). For example:
1. Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does
not make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $60,000. In this
circumstance, no requirements of this part apply to the account.
2. Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does
not make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $50,000 or less. In
this circumstance, the account is not exempt and the creditor must
have satisfied all of the applicable requirements of this part from
the date the account was opened (or earlier, if applicable).
B. The creditor makes a firm written commitment at account
opening to extend a total amount of credit in excess of the
threshold amount in effect at the time the account is opened with no
requirement of additional credit information for any advances on the
account (except as permitted from time to time with respect to open-
end accounts pursuant to Sec. 1026.2(a)(20)).
ii. Subsequent changes generally. Subsequent changes to an open-
end account or the threshold amount may result in the account no
longer qualifying for the exemption in Sec. 1026.3(b). In these
circumstances, the creditor must begin to comply with all of the
applicable requirements of this part within a reasonable period of
time after the account ceases to be exempt. Once an account ceases
to be exempt, the requirements of this part apply to any balances on
the account. The creditor, however, is not required to comply with
the requirements of this part with respect to the period of time
during which the account was exempt. For example, if an open-end
credit account ceases to be exempt, the creditor must within a
reasonable period of time provide the disclosures required by Sec.
1026.6 reflecting the current terms of the account and begin to
provide periodic statements consistent with Sec. 1026.7. However,
the creditor is not required to disclose fees or charges imposed
while the account was exempt. Furthermore, if the creditor provided
disclosures consistent with the requirements of this part while the
account was exempt, it is not required to provide disclosures
required by Sec. 1026.6 reflecting the current terms of the
account. See also comment 3(b)-6.
iii. Subsequent changes when exemption is based on initial
extension of credit. If a creditor makes an initial extension of
credit that exceeds the threshold amount in effect at that time, the
open-end account remains exempt under Sec. 1026.3(b) regardless of
a subsequent increase in the threshold amount, including an increase
pursuant to Sec. 1026.3(b)(1)(ii) as a result of an increase in the
CPI-W. Furthermore, in these circumstances, the account remains
exempt even if there are no further extensions of credit, subsequent
extensions of credit do not exceed the threshold amount, the account
balance is subsequently reduced below the threshold amount (such as
through repayment of the extension), or the credit limit for the
account is subsequently reduced below the threshold amount. However,
if the initial extension of credit on an account does not exceed the
threshold amount in effect at the time of the extension, the account
is not exempt under Sec. 1026.3(b) even if a subsequent extension
exceeds the threshold amount or if the account balance later exceeds
the threshold amount (for example, due to the subsequent accrual of
interest).
iv. Subsequent changes when exemption is based on firm
commitment.
A. General. If a creditor makes a firm written commitment at
account opening to extend a total amount of credit that exceeds the
threshold amount in effect at that time, the open-end account
remains exempt under Sec. 1026.3(b) regardless of a subsequent
increase in the threshold amount pursuant to Sec. 1026.3(b)(1)(ii)
as a result of an increase in the CPI-W. However, see comment 3(b)-8
with respect to the increase in the threshold amount from $25,000 to
$50,000. If an open-end account is exempt under Sec. 1026.3(b)
based on a firm commitment to extend credit, the account remains
exempt even if the amount of credit actually extended does not
exceed the threshold amount. In contrast, if the firm commitment
does not exceed the threshold amount at account opening, the account
is not exempt under Sec. 1026.3(b) even if the account balance
later exceeds the threshold amount. In addition, if a creditor
reduces a firm commitment, the account ceases to be exempt unless
the reduced firm commitment exceeds the threshold amount in effect
at the time of the reduction. For example:
1. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000
in credit. If during year one the creditor reduces its firm
commitment to $53,000, the account remains exempt under Sec.
1026.3(b). However, if during year one the creditor reduces its firm
commitment to $40,000, the account is no longer exempt under Sec.
1026.3(b).
2. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000
in credit. If the threshold amount is $56,000 on January 1 of year
six as a result of increases in the CPI-W, the account remains
exempt. However, if the creditor reduces its firm commitment to
$54,000 on July 1 of year six, the account ceases to be exempt under
Sec. 1026.3(b).
B. Initial extension of credit. If an open-end account qualifies
for a Sec. 1026.3(b) exemption at account opening based on a firm
commitment, that account may also subsequently qualify for a Sec.
1026.3(b) exemption based on an initial extension of credit.
However, that initial extension must be a single advance in excess
of the threshold amount in effect at the time the extension is made.
In addition, the account must continue to qualify for an exemption
based on the firm commitment until the initial extension of credit
is made. For example:
1. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000
in credit. The account is not used for an extension of credit during
year one. On January 1 of year two, the threshold amount is
increased to $51,000 pursuant to Sec. 1026.3(b)(1)(ii) as a result
of an increase in the CPI-W. On July 1 of year two, the consumer
uses the account for an initial extension of $52,000. As a result of
this extension of credit, the account remains exempt under Sec.
1026.3(b) even if, after July 1 of year two, the creditor reduces
the firm commitment to $51,000 or less.
2. Same facts as in paragraph 4.iv.B.1 of this section except
that the consumer uses the account for an initial extension of
$30,000 on July 1 of year two and for an extension of $22,000 on
July 15 of year two. In these circumstances, the account is not
exempt under Sec. 1026.3(b) based on the $30,000 initial extension
of credit because that extension did not exceed the applicable
threshold amount ($51,000), although the account remains exempt
based on the firm commitment to extend $55,000 in credit.
3. Same facts as in paragraph 4.iv.B.1 of this section except
that, on April 1 of year
[[Page 58026]]
two, the creditor reduces the firm commitment to $50,000, which is
below the $51,000 threshold then in effect. Because the account
ceases to qualify for a Sec. 1026.3(b) exemption on April 1 of year
two, the account does not qualify for a Sec. 1026.3(b) exemption
based on a $52,000 initial extension of credit on July 1 of year
two.
5. Closed-end credit.
i. Qualifying for exemption. A closed-end loan is exempt under
Sec. 1026.3(b) (unless the extension of credit is secured by real
property, or by personal property used or expected to be used as the
consumer's principal dwelling; or is a private education loan as
defined in Sec. 1026.46(b)(5)), if either of the following
conditions is met:
A. The creditor makes an extension of credit at consummation
that exceeds the threshold amount in effect at the time of
consummation. In these circumstances, the loan remains exempt under
Sec. 1026.3(b) even if the amount owed is subsequently reduced
below the threshold amount (such as through repayment of the loan).
B. The creditor makes a commitment at consummation to extend a
total amount of credit in excess of the threshold amount in effect
at the time of consummation. In these circumstances, the loan
remains exempt under Sec. 1026.3(b) even if the total amount of
credit extended does not exceed the threshold amount.
ii. Subsequent changes. If a creditor makes a closed-end
extension of credit or commitment to extend closed-end credit that
exceeds the threshold amount in effect at the time of consummation,
the closed-end loan remains exempt under Sec. 1026.3(b) regardless
of a subsequent increase in the threshold amount. However, a closed-
end loan is not exempt under Sec. 1026.3(b) merely because it is
used to satisfy and replace an existing exempt loan, unless the new
extension of credit is itself exempt under the applicable threshold
amount. For example, assume a closed-end loan that qualified for a
Sec. 1026.3(b) exemption at consummation in year one is refinanced
in year ten and that the new loan amount is less than the threshold
amount in effect in year ten. In these circumstances, the creditor
must comply with all of the applicable requirements of this part
with respect to the year ten transaction if the original loan is
satisfied and replaced by the new loan, which is not exempt under
Sec. 1026.3(b). See also comment 3(b)-6.
6. Addition of a security interest in real property or a
dwelling after account opening or consummation.
i. Open-end credit. For open-end accounts, if after account
opening a security interest is taken in real property, or in
personal property used or expected to be used as the consumer's
principal dwelling, a previously exempt account ceases to be exempt
under Sec. 1026.3(b) and the creditor must begin to comply with all
of the applicable requirements of this part within a reasonable
period of time. See comment 3(b)-4.ii. If a security interest is
taken in the consumer's principal dwelling, the creditor must also
give the consumer the right to rescind the security interest
consistent with Sec. 1026.15.
ii. Closed-end credit. For closed-end loans, if after
consummation a security interest is taken in real property, or in
personal property used or expected to be used as the consumer's
principal dwelling, an exempt loan remains exempt under Sec.
1026.3(b). However, the addition of a security interest in the
consumer's principal dwelling is a transaction for purposes of Sec.
1026.23, and the creditor must give the consumer the right to
rescind the security interest consistent with that section. See
Sec. 1026.23(a)(1) and its commentary. In contrast, if a closed-end
loan that is exempt under Sec. 1026.3(b) is satisfied and replaced
by a loan that is secured by real property, or by personal property
used or expected to be used as the consumer's principal dwelling,
the new loan is not exempt under Sec. 1026.3(b), and the creditor
must comply with all of the applicable requirements of this part.
See comment 3(b)-5.
7. Application to extensions secured by mobile homes. Because a
mobile home can be a dwelling under Sec. 1026.2(a)(19), the
exemption in Sec. 1026.3(b) does not apply to a credit extension
secured by a mobile home that is used or expected to be used as the
principal dwelling of the consumer. See comment 3(b)-6.
8. Transition rule for open-end accounts exempt prior to July
21, 2011. Section 1026.3(b)(2) applies only to open-end accounts
opened prior to July 21, 2011. Section 1026.3(b)(2) does not apply
if a security interest is taken by the creditor in real property, or
in personal property used or expected to be used as the consumer's
principal dwelling. If, on July 20, 2011, an open-end account is
exempt under Sec. 1026.3(b) based on a firm commitment to extend
credit in excess of $25,000, the account remains exempt under Sec.
1026.3(b)(2) until December 31, 2011 (unless the firm commitment is
reduced to $25,000 or less). If the firm commitment is increased on
or before December 31, 2011 to an amount in excess of $50,000, the
account remains exempt under Sec. 1026.3(b)(1) regardless of
subsequent increases in the threshold amount as a result of
increases in the CPI-W. If the firm commitment is not increased on
or before December 31, 2011 to an amount in excess of $50,000, the
account ceases to be exempt under Sec. 1026.3(b) based on a firm
commitment to extend credit. For example:
i. Assume that, on July 20, 2011, the account is exempt under
Sec. 1026.3(b) based on the creditor's firm commitment to extend
$30,000 in credit. On November 1, 2011, the creditor increases the
firm commitment on the account to $55,000. In these circumstances,
the account remains exempt under Sec. 1026.3(b)(1) regardless of
subsequent increases in the threshold amount as a result of
increases in the CPI-W.
ii. Same facts as paragraph 8.i of this section except, on
November 1, 2011, the creditor increases the firm commitment on the
account to $40,000. In these circumstances, the account ceases to be
exempt under Sec. 1026.3(b)(2) after December 31, 2011, and the
creditor must begin to comply with the applicable requirements of
this part.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority, September 20, 2019.
Ann E. Misback,
Secretary of the Board.
Dated: September 21, 2019.
Thomas Pahl,
Policy Associate Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-21557 Filed 10-29-19; 8:45 am]
BILLING CODE 4801-AM-6210-01-P