[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)]
[Proposed Rules]
[Pages 51404-51412]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18062]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Docket No. R-1546]
RIN 7100 AE-57
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2016-0037]
Truth in Lending (Regulation Z)
AGENCY: Board of Governors of the Federal Reserve System (Board); and
Bureau of Consumer Financial Protection (Bureau).
ACTION: Proposed rule; official interpretations.
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SUMMARY: The Board and the Bureau are proposing to amend 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 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 Bureau will not adjust this exemption threshold from the
prior year. The proposal would memorialize this as well as the
agencies' calculation method for determining the adjustment in years
following a year in which there is no annual percentage increase in the
CPI-W.
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 proposing similar amendments to the commentaries to
each of their respective regulations implementing the Consumer Leasing
Act elsewhere in the Federal Register.
DATES: Comments must be received on or before September 6, 2016.
ADDRESSES: Interested parties are encouraged to submit written comments
jointly to the Board and the Bureau. Commenters are encouraged to use
the title ``Truth in Lending (Regulation Z)'' to facilitate the
organization and distribution of comments among the agencies.
Interested parties are invited to submit written comments to:
Board: You may submit comments, identified by Docket No. R-7100 or
RIN 7100 AE-57, by any of the following methods:
Agency Web site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Email: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Robert deV. Frierson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue NW.,
Washington, DC 20551.
All public comments will be made available on the Board's Web site
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, comments
will not be edited to remove any identifying or contact information.
Public comments may also be viewed electronically or in paper in Room
MP-500 of the Board's Martin Building (20th and C Streets NW.) between
9:00 a.m. and 5:00 p.m. on weekdays.
[[Page 51405]]
Bureau: You may submit comments, identified by Docket No. CFPB-
2016-0037 by any of the following methods:
Email: [email protected]. Include Docket
No. CFPB-2016-0037 in the subject line of the email.
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Monica Jackson, Office of the Executive Secretary,
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC
20552.
Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1275 First
Street NE., Washington, DC 20002.
Instructions: All submissions should include the agency name and
docket number or Regulatory Information Number (RIN) for this
rulemaking. Because paper mail in the Washington, DC area and at the
Bureau is subject to delay, commenters are encouraged to submit
comments electronically. In general, all comments received will be
posted without change to http://www.regulations.gov. In addition,
comments will be available for public inspection and copying at 1275
First Street NE., Washington, DC 20002, on official business days
between the hours of 10 a.m. and 5 p.m. eastern time. You can make an
appointment to inspect the documents by telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or Social
Security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.
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: Shaakira Gold-Ramirez, Paralegal Specialist, Jaclyn Maier,
Counsel, Office of Regulations, Consumer Financial Protection Bureau,
at (202) 435-7700.
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\ 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, this threshold 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
Consumer Leasing Act) (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 (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 in an interim final rule, 12 CFR part 1026 (Bureau
Interim Final Rule).\4\ The Bureau Interim Final Rule substantially
duplicated the Board's Regulation Z, including the revisions to the
threshold for exempt transactions made by the Board in April 2011. In
April 2016, the Bureau adopted the Bureau Interim Final Rule as final,
subject to intervening final rules published by the Bureau.\5\ 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.\6\
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\4\ 76 FR 79768 (Dec. 22, 2011).
\5\ 81 FR 25323 (April 28, 2016).
\6\ 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 states: ``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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Section 226.3(b)(1)(ii) of the Board's Regulation Z and Sec.
1026.3(b)(1)(ii) of the Bureau's Regulation Z, 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. 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\ 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.
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\7\ See comments 3(b)-1 in Supplements I of 12 CFR part 226 and
12 CFR part 1026.
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Since 2011, the Board and the Bureau have adjusted the Regulation Z
exemption threshold annually, consistent with these rules. The Board
and the Bureau last published final rules implementing the exemption
threshold in effect for January 1, 2016, through December 31, 2016, in
November 2015.\8\
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\8\ 80 FR 73947 (Nov. 27, 2015).
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II. Commentary Revision
The Board and the Bureau are proposing new commentary to
memorialize the calculation method used by the agencies each year to
adjust the exemption threshold. Comment 3(b)-1 to the Board's and
Bureau's Regulation Z currently provides the threshold amount in effect
during a particular period and details the rules the agencies use for
rounding the threshold calculation to the nearest $100 or $1,000
increment, as discussed above in part I, ``Background.''
The Board and the Bureau are proposing to revise comment 3(b)-1 by
moving the text regarding the threshold amount that is in effect during
a particular period to a new proposed comment 3(b)-3. The discussion of
how
[[Page 51406]]
the agencies round the threshold calculation would remain in comment
3(b)-1. Current comments 3(b)-2, 3(b)-3, 3(b)-4, 3(b)-5, and 3(b)-6
would be renumbered as proposed comments 3(b)-4, 3(b)-5, 3(b)-6, 3(b)-
7, and 3(b)-8, respectively. Cross-references to these comments would
also be renumbered accordingly.
As stated in the Board Final Threshold Rules, 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.\9\ This position is
consistent with Section 1100E(b) of the Dodd-Frank Act, which states
that the threshold must be adjusted by the ``annual percentage
increase'' in the CPI-W (emphasis added). The Board and the Bureau are
proposing to memorialize this concept in proposed comment 3(b)-2, which
would provide that 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. For example, if the threshold in effect
from January 1, 2019, through December 31, 2019, is $55,500 and the
CPI-W in effect on June 1 of 2019, indicates a 1.1 percent decrease
from the CPI-W in effect on June 1, 2018, the threshold in effect for
January 1, 2020, through December 31, 2020, will remain $55,500.
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\9\ 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (``[A]n annual period
of deflation or no inflation would not require a change in the
threshold amount.'').
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Proposed comment 3(b)-2 would further set forth the calculation
method the agencies would use in years following a year in which the
exemption threshold was not adjusted because there was no increase in
the CPI-W from the previous year. The proposed calculation method would
ensure that the values for the exemption threshold keep pace with the
CPI-W as contemplated by Section 1100E(b) of the Dodd-Frank Act.
Specifically, as set forth under proposed comment 3(b)-2, for the
years after a year in which the threshold did not change because the
CPI-W in effect on June 1 decreased from the CPI-W in effect on June 1
of 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 if the decreases and any subsequent increases in the CPI-
W had been taken into account. Proposed comment 3(b)-2.i further states
that, if the resulting amount is greater than the current threshold,
then the threshold effective January 1 the following year will increase
accordingly.
For example, assume that the threshold in effect from January 1,
2019, through December 31, 2019, is $55,500 and that, due to a 1.1
percent decrease from the CPI-W in effect on June 1, 2018, to the CPI-W
in effect on June 1, 2019, the threshold in effect from January 1,
2020, through December 31, 2020, remains at $55,500. If, however, the
threshold had been adjusted downward to reflect the decrease in the
CPI-W over that time period, the threshold in effect from January 1,
2020, through December 31, 2020, would have been $54,900. Further
assume that the CPI-W in effect on June 1, 2020, increased by 1.6
percent from the CPI-W in effect on June 1, 2019. The calculation for
the threshold that will be in effect from January 1, 2021, through
December 31, 2021, is based on the impact of a 1.6 percent increase in
the CPI-W on $54,900, rather than $55,500, resulting in a 2021
threshold of $55,800.
Furthermore, comment 3(b)-2.ii states that, if the resulting amount
calculated 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. To illustrate, assume in the example above that the CPI-W in
effect on June 1, 2020, increased by only 0.6 percent from the CPI-W in
effect on June 1, 2019. The calculation for the threshold that will be
in effect from January 1, 2021, through December 31, 2021, is based on
the impact of a 0.6 percent increase in the CPI-W on $54,900. The
resulting amount is $55,200, which is lower than $55,500, the threshold
in effect from January 1, 2020, through December 31, 2020. Therefore,
the threshold in effect from January 1, 2021, through December 31,
2021, will remain $55,500. However, the calculation for the threshold
that will be in effect from January 1, 2022, through December 31, 2022,
will apply the percentage change in the CPI-W to $55,200, the amount
that would have resulted based on the 0.6 percent change from the CPI-W
in effect on June 1, 2019, to the CPI-W in effect on June 1, 2020.
The agencies request comment on all aspects of the proposed rule.
III. Regulatory Analysis
Bureau's Dodd-Frank Act Section 1022(b)(2) Analysis
In developing this proposal, the Bureau has considered potential
benefits, costs, and impacts.\10\ In addition, the Bureau has
consulted, or offered to consult with, the prudential regulators, the
Securities and Exchange Commission, the Department of Housing and Urban
Development, the Federal Housing Finance Agency, the Federal Trade
Commission, and the Department of the Treasury, including regarding
consistency with any prudential, market, or systemic objectives
administered by such agencies.
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\10\ Specifically, section 1022(b)(2)(A) calls for the Bureau to
consider the potential benefits and costs of a regulation to
consumers and covered persons, including the potential reduction of
access by consumers to consumer financial products or services; the
impact on depository institutions and credit unions with $10 billion
or less in total assets as described in section 1026 of the Act; and
the impact on consumers in rural areas.
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The Bureau has chosen to evaluate the benefits, costs and impacts
of the proposed commentary against the current state of the world,
which takes into account the current regulatory regime. The Bureau is
not aware of any significant benefits or costs to consumers or covered
persons associated with the proposal relative to the baseline. The
Board previously stated that if there is no annual percentage increase
in the CPI-W, then the Board (and now the Bureau) will not adjust the
exemption threshold from the prior year.\11\ The proposal memorializes
this in official commentary. The proposal also clarifies how the
threshold would be calculated for years after a year in which the
threshold did not change. The Bureau believes that this clarification
memorializes the method that the Bureau would be expected to use: This
method holds the threshold fixed until a notional threshold calculated
using the Bureau's methodology, but taking into account both decreases
and increases in the CPI-W, exceeds the actual threshold. The Bureau
requests comment on this point. Thus, the Bureau believes that the
proposed rule does not change the regulatory regime relative to the
baseline and creates no significant benefits, costs, or impacts.
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\11\ 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (``[A]n annual period
of deflation or no inflation would not require a change in the
threshold amount.'').
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The proposed rule will have no unique impact on depository
institutions or credit unions with $10 billion or less in assets as
described in section 1026(a) of the Dodd-Frank Act or on rural
consumers. The Bureau does not expect this final rule to affect
consumers' access to credit.
Regulatory Flexibility Act
Board: The Regulatory Flexibility Act (RFA) requires an agency to
publish an
[[Page 51407]]
initial regulatory flexibility analysis with a proposed rule or certify
that the proposed rule will not have a significant economic impact on a
substantial number of small entities.\12\ Based on its analysis, and
for the reasons stated below, the Board believes that the rule will not
have a significant economic impact on a substantial number of small
entities. Nevertheless, the Board is publishing an initial regulatory
flexibility analysis and requests public comment on all aspects of its
analysis. The Board will, if necessary, conduct a final regulatory
flexibility analysis after considering the comments received during the
public comment period.
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\12\ See 5 U.S.C. 601 et seq.
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1. Statement of the need for, and objectives of, the proposed rule.
The proposed rule would memorialize the calculation method used by the
Board each year to adjust the exemption threshold in accordance with
Section 1100E of the Dodd-Frank Act.
2. Small entities affected by the proposed rule. Motor vehicle
dealers that are subject to the Board's Regulation Z and offer closed-
end or open-end credit that may be exempt from Regulation Z under 12
CFR 226.3(b) would be affected. While the total number of small
entities likely to be affected by the proposed rule is unknown, the
Board does not believe the proposed rule will have a significant
economic impact on the entities that it affects. The Board invites
comment on the effect of the proposed rule on small entities.
3. Recordkeeping, reporting, and compliance requirements. The
proposed rule would not impose any recordkeeping, reporting, or
compliance requirements.
4. Other Federal rules. The Board has not identified any likely
duplication, overlap and/or potential conflict between the proposed
rule and any Federal rule.
5. Significant alternatives to the proposed revisions. The Board
solicits comment on any significant alternatives that would reduce the
regulatory burden on small entities associated with this proposed rule.
Bureau: The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements.\13\ These analyses must ``describe the impact
of the proposed rule on small entities''.\14\ An IRFA or FRFA is not
required if the agency certifies that the rule will not have a
significant economic impact on a substantial number of small
entities.\15\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\16\
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\13\ 5 U.S.C. 601 et seq.
\14\ Id. at 603(a). For purposes of assessing the impacts of the
proposed rule on small entities, ``small entities'' is defined in
the RFA to include small businesses, small not-for-profit
organizations, and small government jurisdictions. Id. at 601(6). A
``small business'' is determined by application of Small Business
Administration regulations and reference to the North American
Industry Classification System (NAICS) classifications and size
standards. Id. at 601(3). A ``small organization'' is any ``not-for-
profit enterprise which is independently owned and operated and is
not dominant in its field.'' Id. at 601(4). A ``small governmental
jurisdiction'' is the government of a city, county, town, township,
village, school district, or special district with a population of
less than 50,000. Id. at 601(5).
\15\ Id. at 605(b).
\16\ Id. at 609.
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An IRFA is not required for this proposal because if adopted it
would not have a significant economic impact on a substantial number of
small entities. As discussed in the Bureau's Section 1022(b)(2)
Analysis above, this proposal does not introduce costs or benefits to
covered persons because the proposal seeks only to clarify the method
of threshold adjustment which has already been established in previous
Agency rules. Therefore this proposed rule would not have a significant
impact on small entities.
Certification
Accordingly, the Bureau Director, by signing below, certifies that
this proposal, if adopted, would not have a significant economic impact
on a substantial number of small entities.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995,\17\ the
agencies reviewed this proposed rule. No collections of information
pursuant to the Paperwork Reduction Act are contained in the proposed
rule.
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\17\ 44 U.S.C. 3506; 5 CFR 1320.
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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
Text of Proposed Revisions
For the reasons set forth in the preamble, the Board proposes to
amend 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.
Subpart A--General
0
2. In Supplement I to part 226, under Section 226.3--Exempt
Transactions, under 3(b) Credit over applicable threshold amount,
paragraphs 1 through 6 are revised, and paragraphs 7 and 8 are added,
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 section 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.
[[Page 51408]]
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 if decreases and any subsequent increases in the CPI-W
had been taken into account.
i. Net increases. If the resulting amount 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 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.
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.
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 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. 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:
[[Page 51409]]
(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 iv.B(1) above 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 iv.B(1) above 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 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
[[Page 51410]]
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 i. above 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 proposes to
amend 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, under 3(b)--Credit Over Applicable Threshold Amount,
paragraphs 1 through 6 are revised, and paragraphs 7 and 8 are added,
to read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Subpart A--General
* * * * *
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)-4 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)-4 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. 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 if decreases and any subsequent increases in the CPI-W
had been taken into account.
i. Net increases. If the resulting amount is greater than the
current threshold, then the threshold effective January 1 the following
year will increase accordingly.
ii. Net decreases. If the resulting threshold calculated 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 threshold 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.
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.
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 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
[[Page 51411]]
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)-9 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 iv.B.1 above 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 iv.B.1 above 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. 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
[[Page 51412]]
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 i above 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, July 19, 2016.
Robert deV. Frierson,
Secretary of the Board.
Dated: July 13, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-18062 Filed 8-3-16; 8:45 am]
BILLING CODE 6210-01-P; 4810-AM-P