[Federal Register Volume 76, Number 139 (Wednesday, July 20, 2011)]
[Rules and Regulations]
[Pages 43111-43112]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-18215]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 76, No. 139 / Wednesday, July 20, 2011 / 
Rules and Regulations  

[[Page 43111]]



FEDERAL RESERVE SYSTEM

[Docket No. R-1366]

12 CFR Part 226


Regulation Z; Truth in Lending

AGENCY: Board of Governors of the Federal Reserve System (Board).

ACTION: Final rule; official staff interpretation.

-----------------------------------------------------------------------

SUMMARY: The Board is publishing final revisions to the official staff 
commentary to Regulation Z, which implements the Truth in Lending Act 
(TILA). The commentary applies and interprets the requirements of 
Regulation Z. The Board is revising the commentary so that it 
accurately reflects the effective date of a final rule on loan 
originator compensation practices that was published in the Federal 
Register on September 24, 2010. At the time the final rule on loan 
originator compensation was issued, the Board intended it to become 
effective on April 1, 2011. However, on March 31, 2011, the United 
States Court of Appeals for the District of Columbia Circuit entered an 
administrative stay to temporarily delay implementation of the final 
rule. The administrative stay was in effect from April 1, 2011, until 
it was dissolved on April 5, 2011. Accordingly, the commentary is being 
revised to reflect that compliance with the final rule on loan 
originator compensation was not mandatory until April 6, 2011.

DATES: Effective Date: This final rule is effective July 20, 2011.

FOR FURTHER INFORMATION CONTACT: Lorna Neill or Nikita Pastor, Senior 
Attorneys, (202) 452-3667, Board of Governors of the Federal Reserve 
System, Division of Consumer and Community Affairs, 20th and C Streets, 
NW., Washington, DC 20551. For users of a Telecommunications Device for 
the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Background

    Congress enacted the Truth in Lending Act (TILA; 15 U.S.C. 1601 et 
seq.) based on findings that economic stability would be enhanced and 
competition among consumer credit providers would be strengthen by the 
informed use of credit resulting from consumers' awareness of the cost 
of credit. TILA directs the Board to prescribe regulations to carry out 
its purposes. See 15 U.S.C. 1604(a). In 1994, TILA was amended by the 
Home Ownership and Equity Protection Act (HOEPA). Among other things, 
HOEPA directs the Board to prohibit, by regulation or order, acts or 
practices in connection with mortgage loans that the Board finds to be 
unfair or deceptive. See 15 U.S.C. 1639(l)(2).
    TILA is implemented by the Board's Regulation Z (12 CFR part 226). 
The Board's official staff commentary interprets the regulation, and 
provides guidance to creditors in applying the regulation to specific 
transactions. See 12 CFR part 226 (Supp. I). Good faith compliance with 
the commentary affords protection from liability pursuant to section 
130(f) of TILA (15 U.S.C. 1640(f)). The commentary is a substitute for 
individual staff interpretations; it is updated periodically to address 
significant questions that arise.
    On September 24, 2010, the Board published a final rule amending 
Regulation Z to prohibit certain practices related to mortgage loan 
originator compensation (the September 2010 final rule). See 75 FR 
58509, Sept. 24, 2010. The purpose of the final rule is to protect 
consumers in the mortgage market from unfair or abusive practices that 
can arise from certain loan originator compensation practices, while 
preserving responsible lending and sustainable homeownership. The 
September 2010 final rule prohibits payments to loan originators (which 
include mortgage brokers and loan officers) based on the terms or 
conditions of the transaction other than the amount of credit extended. 
The rule also prohibits any person other than the consumer from paying 
compensation to a loan originator in a transaction where the consumer 
pays the loan originator directly. Under the September 2010 final rule, 
loan originators are prohibited from steering consumers to consummate a 
loan not in their interest based on the fact that the loan originator 
will receive greater compensation for that loan.

II. Summary of the Revisions

    At the time the September 2010 final rule on loan originator 
compensation was issued, it had an effective date of April 1, 2011. The 
commentary accompanying the final rule clarified that it would apply to 
closed-end transactions secured by a dwelling where the creditor 
receives a loan application on or after April 1, 2011. See comment 36-
2. However, on March 31, 2011, the United States Court of Appeals for 
the District of Columbia Circuit issued an administrative stay to 
temporarily delay implementation of the September 2010 final rule. 
(Case No. 11-5078). Consequently, compliance with the final rule on 
loan originator compensation was not mandatory on April 1, 2011, as 
originally intended. That administrative stay was dissolved by the 
Court on April 5, 2011.\1\
---------------------------------------------------------------------------

    \1\ The administrative stay was issued in connection with two 
lawsuits, filed by organizations representing mortgage loan 
originators, challenging the Board's authority to issue the 
September 2010 final rule. Both lawsuits were subsequently 
dismissed.
---------------------------------------------------------------------------

    Accordingly, the Board is revising the commentary so that it 
conforms to the Court's administrative stay. Based on the Court's 
order, during the period from April 1, 2011 to April 5, 2011, 
compliance with the September 2010 final rule on loan originator 
compensation was not required. Comment 36-2 is revised based on the 
fact that the mandatory compliance date was April 6, 2011. The example 
in comment 36-2 has also been revised to conform to the Court's order.

III. Authority To Issue Final Rule That Is Effective Immediately 
Without Notice and Comment

    The Administrative Procedures Act (APA), 5 U.S.C. 551 et seq., 
generally requires public notice before promulgation of regulations. 
See 5 U.S.C. 553(b). Unless public notice or a hearing is specifically 
required by statute, however, the APA also provides exceptions ``for 
interpretative rules'' and ``when the agency for good cause finds (and 
incorporates the finding and a brief statement of reasons therefore in 
the rules issued) that notice and public

[[Page 43112]]

procedure thereon are impracticable, unnecessary, or contrary to the 
public interest.'' 5 U.S.C. 553(b)(A) and (B). The APA also requires 
that rules generally be published not less than 30 days before their 
effective date. See 5 U.S.C. 553(d). As with the notice and comment 
requirement, however, the APA provides an exception when ``otherwise 
provided by the agency for good cause found and published with the 
rule.'' 5 U.S.C. 553(d)(3).
    TILA does not require Board to provide notice or a hearing with 
respect to this rulemaking. See TILA Section 105(a), 15 U.S.C. 1604(a). 
The revisions made to the commentary by this final rule are 
interpretative and merely explain that the April 1, 2011, mandatory 
compliance date that was specified in September 2010 was subsequently 
changed as a result of the Court's issuance of a temporary 
administrative stay. The Board finds that there is good cause to 
conclude that providing notice and an opportunity to comment before 
issuing this final rule is unnecessary and that there is good cause for 
the final rule to be effective immediately. The change that is noted in 
this final rule has already occurred as a result of the Court's prior 
order. The final rule merely makes conforming changes so that the 
commentary accurately reflects the effect that the Court's order had on 
mandatory compliance date.

List of Subjects in 12 CFR Part 226

    Advertising, Consumer protection, Federal Reserve System, 
Mortgages, Reporting and recordkeeping requirements, Truth in lending.

Text of Final Revisions

    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), and 
1639(l); Pub. L. 111-24 Sec.  2, 123 Stat. 1734; Pub. L. 111-203, 
124 Stat. 1376.


0
2. In Supplement I to part 226, in Subpart E, under Section 226.36--
Prohibited Acts or Practices in Connection With Credit Secured by a 
Dwelling, revise paragraph 2 to read as follows:

Supplement I To Part 226--Official Staff Interpretations

* * * * *

Subpart E--Special Rules for Certain Home Mortgage Transactions

* * * * *

Section 226.36--Prohibited Acts or Practices in Connection with Credit 
Secured by a Dwelling

* * * * *
    2. Mandatory compliance date for Sec. Sec.  226.36(d) and (e). 
The final rules on loan originator compensation in Sec.  226.36 
apply to transactions for which the creditor receives an application 
on or after the effective date. For example, assume a mortgage 
broker takes an application on March 10, 2011, which the creditor 
receives on March 25, 2011. This transaction is not covered. If, 
however, the creditor does not receive the application until April 
8, 2011, the transaction is covered.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, acting through the Director of the Division of Consumer and 
Community Affairs under delegated authority, July 14, 2011.

Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 2011-18215 Filed 7-19-11; 8:45 am]
BILLING CODE 6210-01-P