81 FR 51404 - Truth in Lending (Regulation Z)
FEDERAL RESERVE SYSTEM
BUREAU OF CONSUMER FINANCIAL PROTECTION Federal Register Volume 81, Issue 150 (August 4, 2016)
BUREAU OF CONSUMER FINANCIAL PROTECTION
Federal Register Volume 81, Issue 150 (August 4, 2016)
| Page Range | 51404-51412 | |
| FR Document | 2016-18062 |
[Federal Register Volume 81, Number 150 (Thursday, August 4, 2016)] [Proposed Rules] [Pages 51404-51412] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-18062] ----------------------------------------------------------------------- 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. ----------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \7\ See comments 3(b)-1 in Supplements I of 12 CFR part 226 and 12 CFR part 1026. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \8\ 80 FR 73947 (Nov. 27, 2015). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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.''). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \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.''). --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \12\ See 5 U.S.C. 601 et seq. --------------------------------------------------------------------------- 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\ --------------------------------------------------------------------------- \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. --------------------------------------------------------------------------- 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. --------------------------------------------------------------------------- \17\ 44 U.S.C. 3506; 5 CFR 1320. --------------------------------------------------------------------------- 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
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2(e) Consumer Lease effect during a particular period is the Consumer Price Index for Urban Wage
* * * * * amount stated below for that period. Earners and Clerical Workers (CPI–W).
9. Threshold amount. A consumer i. Prior to July 21, 2011, the threshold If there is no annual percentage increase
lease is exempt from the requirements of amount is $25,000. in the CPI–W, the Board and Bureau
this part if the total contractual ii. From July 21, 2011 through will not adjust this exemption threshold
obligation exceeds the threshold amount December 31, 2011, the threshold from the prior year. The proposal would
in effect at the time of consummation. amount is $50,000. memorialize this as well as the agencies’
The threshold amount in effect during a iii. From January 1, 2012 through calculation method for determining the
particular time period is the amount December 31, 2012, the threshold adjustment in years following a year in
stated in comment 2(e)–11 for that amount is $51,800. which there is no annual percentage
period. The threshold amount is iv. From January 1, 2013 through increase in the CPI–W.
adjusted effective January 1 of each year December 31, 2013, the threshold Because the Dodd-Frank Act also
by any annual percentage increase in amount is $53,000. requires similar adjustments in the
the Consumer Price Index for Urban v. From January 1, 2014 through Consumer Leasing Act’s threshold for
Wage Earners and Clerical Workers December 31, 2014, the threshold exempt consumer leases, the Board and
(CPI–W) that was in effect on the amount is $53,500. the Bureau are proposing similar
preceding June 1. Comment 2(e)–11 will vi. From January 1, 2015 through amendments to the commentaries to
be amended to provide the threshold December 31, 2015, the threshold each of their respective regulations
amount for the upcoming year after the amount is $54,600. implementing the Consumer Leasing
annual percentage change in the CPI–W vii. From January 1, 2016 through Act elsewhere in the Federal Register.
that was in effect on June 1 becomes December 31, 2016, the threshold DATES: Comments must be received on
available. Any increase in the threshold amount is $54,600. or before September 6, 2016.
amount will be rounded to the nearest ADDRESSES: Interested parties are
$100 increment. For example, if the By order of the Board of Governors of the
encouraged to submit written comments
annual percentage increase in the CPI– Federal Reserve System, July 19, 2016.
jointly to the Board and the Bureau.
W would result in a $950 increase in the Robert deV. Frierson,
Commenters are encouraged to use the
threshold amount, the threshold amount Secretary of the Board. title ‘‘Truth in Lending (Regulation Z)’’
will be increased by $1,000. However, if Dated: July 13, 2016. to facilitate the organization and
the annual percentage increase in the Richard Cordray, distribution of comments among the
CPI–W would result in a $949 increase Director, Bureau of Consumer Financial agencies. Interested parties are invited
in the threshold amount, the threshold Protection. to submit written comments to:
amount will be increased by $900. If a [FR Doc. 2016–18059 Filed 8–3–16; 8:45 am] Board: You may submit comments,
consumer lease is exempt from the BILLING CODE 6210–01–4810–AM–P identified by Docket No. R–7100 or RIN
requirements of this part because the 7100 AE–57, by any of the following
total contractual obligation exceeds the methods:
threshold amount in effect at the time of FEDERAL RESERVE SYSTEM • Agency Web site: http://
consummation, the lease remains www.federalreserve.gov. Follow the
exempt regardless of a subsequent 12 CFR Part 226
instructions for submitting comments at
increase in the threshold amount. http://www.federalreserve.gov/
[Docket No. R–1546]
10. No increase in the CPI–W. If the
generalinfo/foia/ProposedRegs.cfm.
CPI–W in effect on June 1 does not RIN 7100 AE–57
increase from the CPI–W in effect on • Federal eRulemaking Portal: http://
June 1 of the previous year, the BUREAU OF CONSUMER FINANCIAL www.regulations.gov. Follow the
threshold amount effective the PROTECTION instructions for submitting comments.
following January 1 through December • Email: regs.comments@
31 will not change from the previous 12 CFR Part 1026 federalreserve.gov. Include the docket
year. When this occurs, for the years number in the subject line of the
that follow, the threshold is calculated [Docket No. CFPB–2016–0037] message.
based on the annual percentage change • Fax: (202) 452–3819 or (202) 452–
Truth in Lending (Regulation Z) 3102.
in the CPI–W applied to the dollar
amount that would have resulted if AGENCY: Board of Governors of the • Mail: Robert deV. Frierson,
decreases and any subsequent increases Federal Reserve System (Board); and Secretary, Board of Governors of the
in the CPI–W had been taken into Bureau of Consumer Financial Federal Reserve System, 20th Street and
account. Protection (Bureau). Constitution Avenue NW., Washington,
i. Net increases. If the resulting ACTION: Proposed rule; official DC 20551.
amount is greater than the current interpretations. All public comments will be made
threshold, then the threshold effective available on the Board’s Web site at
January 1 the following year will SUMMARY: The Board and the Bureau are http://www.federalreserve.gov/
increase accordingly. proposing to amend the official generalinfo/foia/ProposedRegs.cfm as
ii. Net decreases. If the resulting interpretations and commentary for the submitted, unless modified for technical
rmajette on DSK2TPTVN1PROD with PROPOSALS
amount calculated is equal to or less agencies’ regulations that implement the reasons. Accordingly, comments will
than the current threshold, then the Truth in Lending Act (TILA). The Dodd- not be edited to remove any identifying
threshold effective January 1 the Frank Wall Street Reform and Consumer or contact information. Public
following year will not change, but Protection Act (Dodd-Frank Act) comments may also be viewed
future increases will be calculated based amended TILA by requiring that the electronically or in paper in Room MP–
on the amount that would have resulted. dollar threshold for exempt consumer 500 of the Board’s Martin Building (20th
11. Threshold. For purposes of credit transactions be adjusted annually and C Streets NW.) between 9:00 a.m.
§ 1013.2(e)(1), the threshold amount in by the annual percentage increase in the and 5:00 p.m. on weekdays.
VerDate Sep<11>2014 14:52 Aug 03, 2016 Jkt 238001 PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 E:\FR\FM\04AUP1.SGM 04AUP1](https://thefederalregister.org/doc/81_FR_51554/page/1.svg)
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the agencies round the threshold effective January 1 the following year benefits, costs, and impacts.10 In
calculation would remain in comment will increase accordingly. addition, the Bureau has consulted, or
3(b)–1. Current comments 3(b)–2, 3(b)– For example, assume that the offered to consult with, the prudential
3, 3(b)–4, 3(b)–5, and 3(b)–6 would be threshold in effect from January 1, 2019, regulators, the Securities and Exchange
renumbered as proposed comments through December 31, 2019, is $55,500 Commission, the Department of Housing
3(b)–4, 3(b)–5, 3(b)–6, 3(b)–7, and 3(b)– and that, due to a 1.1 percent decrease and Urban Development, the Federal
8, respectively. Cross-references to these from the CPI–W in effect on June 1, Housing Finance Agency, the Federal
comments would also be renumbered 2018, to the CPI–W in effect on June 1, Trade Commission, and the Department
accordingly. of the Treasury, including regarding
2019, the threshold in effect from
As stated in the Board Final consistency with any prudential,
January 1, 2020, through December 31,
Threshold Rules, if there is no annual market, or systemic objectives
2020, remains at $55,500. If, however,
percentage increase in the CPI–W, the administered by such agencies.
the threshold had been adjusted The Bureau has chosen to evaluate the
Board and Bureau will not adjust the downward to reflect the decrease in the
exemption threshold from the prior benefits, costs and impacts of the
CPI–W over that time period, the proposed commentary against the
year.9 This position is consistent with threshold in effect from January 1, 2020,
Section 1100E(b) of the Dodd-Frank Act, current state of the world, which takes
through December 31, 2020, would have into account the current regulatory
which states that the threshold must be been $54,900. Further assume that the
adjusted by the ‘‘annual percentage regime. The Bureau is not aware of any
CPI–W in effect on June 1, 2020, significant benefits or costs to
increase’’ in the CPI–W (emphasis increased by 1.6 percent from the CPI–
added). The Board and the Bureau are consumers or covered persons
W in effect on June 1, 2019. The associated with the proposal relative to
proposing to memorialize this concept calculation for the threshold that will be
in proposed comment 3(b)–2, which the baseline. The Board previously
in effect from January 1, 2021, through stated that if there is no annual
would provide that if the CPI–W in December 31, 2021, is based on the percentage increase in the CPI–W, then
effect on June 1 does not increase from impact of a 1.6 percent increase in the the Board (and now the Bureau) will not
the CPI–W in effect on June 1 of the CPI–W on $54,900, rather than $55,500, adjust the exemption threshold from the
previous year, the threshold amount resulting in a 2021 threshold of $55,800. prior year.11 The proposal memorializes
effective the following January 1
Furthermore, comment 3(b)–2.ii states this in official commentary. The
through December 31 will not change
that, if the resulting amount calculated proposal also clarifies how the
from the previous year. For example, if
is equal to or less than the current threshold would be calculated for years
the threshold in effect from January 1,
threshold, then the threshold effective after a year in which the threshold did
2019, through December 31, 2019, is
January 1 the following year will not not change. The Bureau believes that
$55,500 and the CPI–W in effect on June
change, but future increases will be this clarification memorializes the
1 of 2019, indicates a 1.1 percent
calculated based on the amount that method that the Bureau would be
decrease from the CPI–W in effect on
would have resulted. To illustrate, expected to use: This method holds the
June 1, 2018, the threshold in effect for
assume in the example above that the threshold fixed until a notional
January 1, 2020, through December 31,
CPI–W in effect on June 1, 2020, threshold calculated using the Bureau’s
2020, will remain $55,500.
increased by only 0.6 percent from the methodology, but taking into account
Proposed comment 3(b)–2 would both decreases and increases in the CPI–
CPI–W in effect on June 1, 2019. The
further set forth the calculation method W, exceeds the actual threshold. The
calculation for the threshold that will be
the agencies would use in years Bureau requests comment on this point.
in effect from January 1, 2021, through
following a year in which the exemption Thus, the Bureau believes that the
December 31, 2021, is based on the
threshold was not adjusted because proposed rule does not change the
impact of a 0.6 percent increase in the
there was no increase in the CPI–W regulatory regime relative to the
CPI–W on $54,900. The resulting
from the previous year. The proposed baseline and creates no significant
amount is $55,200, which is lower than
calculation method would ensure that benefits, costs, or impacts.
$55,500, the threshold in effect from
the values for the exemption threshold The proposed rule will have no
January 1, 2020, through December 31,
keep pace with the CPI–W as unique impact on depository
2020. Therefore, the threshold in effect
contemplated by Section 1100E(b) of the institutions or credit unions with $10
from January 1, 2021, through December
Dodd-Frank Act. billion or less in assets as described in
31, 2021, will remain $55,500. However,
Specifically, as set forth under the calculation for the threshold that section 1026(a) of the Dodd-Frank Act
proposed comment 3(b)–2, for the years will be in effect from January 1, 2022, or on rural consumers. The Bureau does
after a year in which the threshold did through December 31, 2022, will apply not expect this final rule to affect
not change because the CPI–W in effect the percentage change in the CPI–W to consumers’ access to credit.
on June 1 decreased from the CPI–W in $55,200, the amount that would have Regulatory Flexibility Act
effect on June 1 of the previous year, the resulted based on the 0.6 percent change
threshold is calculated by applying the from the CPI–W in effect on June 1, Board: The Regulatory Flexibility Act
annual percentage change in the CPI–W 2019, to the CPI–W in effect on June 1, (RFA) requires an agency to publish an
to the dollar amount that would have 2020. 10 Specifically, section 1022(b)(2)(A) calls for the
resulted if the decreases and any
subsequent increases in the CPI–W had The agencies request comment on all Bureau to consider the potential benefits and costs
rmajette on DSK2TPTVN1PROD with PROPOSALS
aspects of the proposed rule. of a regulation to consumers and covered persons,
been taken into account. Proposed including the potential reduction of access by
comment 3(b)–2.i further states that, if III. Regulatory Analysis consumers to consumer financial products or
the resulting amount is greater than the services; the impact on depository institutions and
Bureau’s Dodd-Frank Act Section credit unions with $10 billion or less in total assets
current threshold, then the threshold as described in section 1026 of the Act; and the
1022(b)(2) Analysis impact on consumers in rural areas.
9 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (‘‘[A]n 11 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (‘‘[A]n
annual period of deflation or no inflation would not
In developing this proposal, the annual period of deflation or no inflation would not
require a change in the threshold amount.’’). Bureau has considered potential require a change in the threshold amount.’’).
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![51412 Federal Register / Vol. 81, No. 150 / Thursday, August 4, 2016 / Proposed Rules
credit extended does not exceed the and the creditor must comply with all By order of the Board of Governors of the
threshold amount. of the applicable requirements of this Federal Reserve System, July 19, 2016.
ii. Subsequent changes. If a creditor part. See comment 3(b)–5. Robert deV. Frierson,
makes a closed-end extension of credit Secretary of the Board.
7. Application to extensions secured
or commitment to extend closed-end Dated: July 13, 2016.
credit that exceeds the threshold by mobile homes. Because a mobile
home can be a dwelling under Richard Cordray,
amount in effect at the time of Director, Bureau of Consumer Financial
consummation, the closed-end loan § 1026.2(a)(19), the exemption in
§ 1026.3(b) does not apply to a credit Protection.
remains exempt under § 1026.3(b)
extension secured by a mobile home [FR Doc. 2016–18062 Filed 8–3–16; 8:45 am]
regardless of a subsequent increase in
the threshold amount. However, a that is used or expected to be used as BILLING CODE 6210–01–P; 4810–AM–P
closed-end loan is not exempt under the principal dwelling of the consumer.
§ 1026.3(b) merely because it is used to See comment 3(b)–6.
satisfy and replace an existing exempt SOCIAL SECURITY ADMINISTRATION
8. Transition rule for open-end
loan, unless the new extension of credit accounts exempt prior to July 21, 2011. 20 CFR Part 404
is itself exempt under the applicable Section 1026.3(b)(2) applies only to
threshold amount. For example, assume open-end accounts opened prior to July [Docket No. SSA–2014–0052]
a closed-end loan that qualified for a 21, 2011. Section 1026.3(b)(2) does not RIN 0960–AH71
§ 1026.3(b) exemption at consummation
apply if a security interest is taken by
in year one is refinanced in year ten and Ensuring Program Uniformity at the
the creditor in real property, or in
that the new loan amount is less than Hearing and Appeals Council Levels of
the threshold amount in effect in year personal property used or expected to
be used as the consumer’s principal the Administrative Review Process
ten. In these circumstances, the creditor
must comply with all of the applicable dwelling. If, on July 20, 2011, an open- AGENCY: Social Security Administration.
requirements of this part with respect to end account is exempt under § 1026.3(b) ACTION: Notice of proposed rulemaking
the year ten transaction if the original based on a firm commitment to extend (NPRM); reopening of the comment
loan is satisfied and replaced by the credit in excess of $25,000, the account period.
new loan, which is not exempt under remains exempt under § 1026.3(b)(2)
§ 1026.3(b). See also comment 3(b)–6. until December 31, 2011 (unless the SUMMARY: On July 12, 2016, we
6. Addition of a security interest in firm commitment is reduced to $25,000 published in the Federal Register a
real property or a dwelling after account or less). If the firm commitment is notice of proposed rulemaking (NPRM)
opening or consummation. i. Open-end increased on or before December 31, for Ensuring Program Uniformity at the
credit. For open-end accounts, if after 2011 to an amount in excess of $50,000, Hearing and Appeals Council Levels of
account opening a security interest is the account remains exempt under the Administrative Review Process. We
taken in real property, or in personal § 1026.3(b)(1) regardless of subsequent provided a 30-day comment period
property used or expected to be used as increases in the threshold amount as a ending on August 11, 2016. We are
the consumer’s principal dwelling, a result of increases in the CPI–W. If the extending the comment period for 15
previously exempt account ceases to be days.
firm commitment is not increased on or
exempt under § 1026.3(b) and the
before December 31, 2011 to an amount DATES: The comment period for the
creditor must begin to comply with all
in excess of $50,000, the account ceases NPRM published on July 12, 2016 (81
of the applicable requirements of this
part within a reasonable period of time. to be exempt under § 1026.3(b) based on FR 45079), is extended by 15 days and
See comment 3(b)–4.ii. If a security a firm commitment to extend credit. For thus will end on August 26, 2016.
interest is taken in the consumer’s example: ADDRESSES: You may submit comments
principal dwelling, the creditor must i. Assume that, on July 20, 2011, the by any one of three methods—Internet,
also give the consumer the right to account is exempt under § 1026.3(b) fax, or mail. Do not submit the same
rescind the security interest consistent based on the creditor’s firm comments multiple times or by more
with § 1026.15. commitment to extend $30,000 in than one method. Regardless of which
ii. Closed-end credit. For closed-end credit. On November 1, 2011, the method you choose, please state that
loans, if after consummation a security your comments refer to Docket No.
creditor increases the firm commitment
interest is taken in real property, or in SSA–2014–0052 so that we may
on the account to $55,000. In these
personal property used or expected to associate your comments with the
circumstances, the account remains
be used as the consumer’s principal correct rule.
exempt under § 1026.3(b)(1) regardless Caution: You should be careful to
dwelling, an exempt loan remains
exempt under § 1026.3(b). However, the of subsequent increases in the threshold include in your comments only
addition of a security interest in the amount as a result of increases in the information that you wish to make
consumer’s principal dwelling is a CPI–W. publicly available. We strongly urge you
transaction for purposes of § 1026.23, ii. Same facts as paragraph i above not to include in your comments any
and the creditor must give the consumer except, on November 1, 2011, the personal information, such as Social
the right to rescind the security interest creditor increases the firm commitment Security numbers or medical
consistent with that section. See on the account to $40,000. In these information.
rmajette on DSK2TPTVN1PROD with PROPOSALS
§ 1026.23(a)(1) and its commentary. In circumstances, the account ceases to be 1. Internet: We strongly recommend
contrast, if a closed-end loan that is exempt under § 1026.3(b)(2) after that you submit your comments via the
exempt under § 1026.3(b) is satisfied December 31, 2011, and the creditor Internet. Please visit the Federal
and replaced by a loan that is secured must begin to comply with the eRulemaking portal at http://
by real property, or by personal property applicable requirements of this part. www.regulations.gov. Use the ‘‘Search’’
used or expected to be used as the function to find docket number SSA–
consumer’s principal dwelling, the new 2014–0052. The system will issue a
loan is not exempt under § 1026.3(b), tracking number to confirm your
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Document Created: 2016-08-04 02:53:04
Document Modified: 2016-08-04 02:53:04
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Proposed Rules | |
| Action | Proposed rule; official interpretations. | |
| Dates | Comments must be received on or before September 6, 2016. | |
| 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. | |
| FR Citation | 81 FR 51404 | |
| RIN Number | 7100 AE57 | |
| CFR Citation | 12
CFR
1026 12 CFR 226 | |
| CFR Associated | Appraisal; Appraiser; Banking; Banks; Credit; Credit Unions; Mortgages; National Banks; Savings Associations; Truth in Lending; Advertising; Consumer Protection; Federal Reserve System; Reporting and Recordkeeping Requirements and Truth in Lending |
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