[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