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)

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.

[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]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Docket No. R-1546]
RIN 7100 AE-57

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1026

[Docket No. CFPB-2016-0037]


Truth in Lending (Regulation Z)

AGENCY: Board of Governors of the Federal Reserve System (Board); and 
Bureau of Consumer Financial Protection (Bureau).

ACTION: Proposed rule; official interpretations.

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SUMMARY: The Board and the Bureau are proposing to amend the official 
interpretations and commentary for the agencies' regulations that 
implement the Truth in Lending Act (TILA). The Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by 
requiring that the dollar threshold for exempt consumer credit 
transactions be adjusted annually by the annual percentage increase in 
the Consumer Price Index for Urban Wage Earners and Clerical Workers 
(CPI-W). If there is no annual percentage increase in the CPI-W, the 
Board and Bureau will not adjust this exemption threshold from the 
prior year. The proposal would memorialize this as well as the 
agencies' calculation method for determining the adjustment in years 
following a year in which there is no annual percentage increase in the 
CPI-W.
    Because the Dodd-Frank Act also requires similar adjustments in the 
Consumer Leasing Act's threshold for exempt consumer leases, the Board 
and the Bureau are proposing similar amendments to the commentaries to 
each of their respective regulations implementing the Consumer Leasing 
Act elsewhere in the Federal Register.

DATES: Comments must be received on or before September 6, 2016.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to the Board and the Bureau. Commenters are encouraged to use 
the title ``Truth in Lending (Regulation Z)'' to facilitate the 
organization and distribution of comments among the agencies. 
Interested parties are invited to submit written comments to:
    Board: You may submit comments, identified by Docket No. R-7100 or 
RIN 7100 AE-57, by any of the following methods:
     Agency Web site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Email: [email protected]. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Robert deV. Frierson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue NW., 
Washington, DC 20551.
    All public comments will be made available on the Board's Web site 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, comments 
will not be edited to remove any identifying or contact information. 
Public comments may also be viewed electronically or in paper in Room 
MP-500 of the Board's Martin Building (20th and C Streets NW.) between 
9:00 a.m. and 5:00 p.m. on weekdays.

[[Page 51405]]

    Bureau: You may submit comments, identified by Docket No. CFPB-
2016-0037 by any of the following methods:
     Email: [email protected]. Include Docket 
No. CFPB-2016-0037 in the subject line of the email.
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    Instructions: All submissions should include the agency name and 
docket number or Regulatory Information Number (RIN) for this 
rulemaking. Because paper mail in the Washington, DC area and at the 
Bureau is subject to delay, commenters are encouraged to submit 
comments electronically. In general, all comments received will be 
posted without change to http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1275 
First Street NE., Washington, DC 20002, on official business days 
between the hours of 10 a.m. and 5 p.m. eastern time. You can make an 
appointment to inspect the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or Social 
Security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: 
    Board: Vivian W. Wong, Senior Counsel, Division of Consumer and 
Community Affairs, Board of Governors of the Federal Reserve System, at 
(202) 452-3667; for users of Telecommunications Device for the Deaf 
(TDD) only, contact (202) 263-4869.
    Bureau: Shaakira Gold-Ramirez, Paralegal Specialist, Jaclyn Maier, 
Counsel, Office of Regulations, Consumer Financial Protection Bureau, 
at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act) increased the threshold in the Truth in Lending 
Act (TILA) for exempt consumer credit transactions \1\ from $25,000 to 
$50,000, effective July 21, 2011.\2\ In addition, the Dodd-Frank Act 
requires that, on and after December 31, 2011, this threshold be 
adjusted annually for inflation by the annual percentage increase in 
the Consumer Price Index for Urban Wage Earners and Clerical Workers 
(CPI-W), as published by the Bureau of Labor Statistics. In April 2011, 
the Board issued a final rule amending Regulation Z (which implements 
TILA) consistent with these provisions of the Dodd-Frank Act along with 
a similar final rule amending Regulation M (which implements the 
Consumer Leasing Act) (collectively, the Board Final Threshold 
Rules).\3\
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    \1\ Although consumer credit transactions above the threshold 
are generally exempt, loans secured by real property or by personal 
property used or expected to be used as the principal dwelling of a 
consumer and private education loans are covered by TILA regardless 
of the loan amount. See 12 CFR 226.3(b)(1)(i) (Board) and 12 CFR 
1026.3(b)(1)(i) (Bureau).
    \2\ Public Law 111-203, section 1100E, 124 Stat. 1376 (2010).
    \3\ 76 FR 18354 (Apr. 4, 2011); 76 FR 18349 (Apr. 4, 2011).
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    Title X of the Dodd-Frank Act transferred rulemaking authority for 
a number of consumer financial protection laws from the Board to the 
Bureau, effective July 21, 2011. In connection with this transfer of 
rulemaking authority, the Bureau issued its own Regulation Z 
implementing TILA in an interim final rule, 12 CFR part 1026 (Bureau 
Interim Final Rule).\4\ The Bureau Interim Final Rule substantially 
duplicated the Board's Regulation Z, including the revisions to the 
threshold for exempt transactions made by the Board in April 2011. In 
April 2016, the Bureau adopted the Bureau Interim Final Rule as final, 
subject to intervening final rules published by the Bureau.\5\ Although 
the Bureau has the authority to issue rules to implement TILA for most 
entities, the Board retains authority to issue rules under TILA for 
certain motor vehicle dealers covered by section 1029(a) of the Dodd-
Frank Act, and the Board's Regulation Z continues to apply to those 
entities.\6\
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    \4\ 76 FR 79768 (Dec. 22, 2011).
    \5\ 81 FR 25323 (April 28, 2016).
    \6\ Section 1029(a) of the Dodd-Frank Act states: ``Except as 
permitted in subsection (b), the Bureau may not exercise any 
rulemaking, supervisory, enforcement, or any other authority . . . 
over a motor vehicle dealer that is predominantly engaged in the 
sale and servicing of motor vehicles, the leasing and servicing of 
motor vehicles, or both.'' 12 U.S.C. 5519(a). Section 1029(b) of the 
Dodd-Frank Act states: ``Subsection (a) shall not apply to any 
person, to the extent that such person (1) provides consumers with 
any services related to residential or commercial mortgages or self-
financing transactions involving real property; (2) operates a line 
of business (A) that involves the extension of retail credit or 
retail leases involving motor vehicles; and (B) in which (i) the 
extension of retail credit or retail leases are provided directly to 
consumers; and (ii) the contract governing such extension of retail 
credit or retail leases is not routinely assigned to an unaffiliated 
third party finance or leasing source; or (3) offers or provides a 
consumer financial product or service not involving or related to 
the sale, financing, leasing, rental, repair, refurbishment, 
maintenance, or other servicing of motor vehicles, motor vehicle 
parts, or any related or ancillary product or service.'' 12 U.S.C. 
5519(b).
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    Section 226.3(b)(1)(ii) of the Board's Regulation Z and Sec.  
1026.3(b)(1)(ii) of the Bureau's Regulation Z, and their accompanying 
commentaries, provide that the exemption threshold will be adjusted 
annually effective January 1 of each year based on any annual 
percentage increase in the CPI-W that was in effect on the preceding 
June 1. Any increase in the threshold amount will be rounded to the 
nearest $100 increment. For example, if the annual percentage increase 
in the CPI-W would result in a $950 increase in the threshold amount, 
the threshold amount will be increased by $1,000. However, if the 
annual percentage increase in the CPI-W would result in a $949 increase 
in the threshold amount, the threshold amount will be increased by 
$900.\7\ If there is no annual percentage increase in the CPI-W, the 
Board and Bureau will not adjust the exemption threshold from the prior 
year.
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    \7\ See comments 3(b)-1 in Supplements I of 12 CFR part 226 and 
12 CFR part 1026.
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    Since 2011, the Board and the Bureau have adjusted the Regulation Z 
exemption threshold annually, consistent with these rules. The Board 
and the Bureau last published final rules implementing the exemption 
threshold in effect for January 1, 2016, through December 31, 2016, in 
November 2015.\8\
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    \8\ 80 FR 73947 (Nov. 27, 2015).
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II. Commentary Revision

    The Board and the Bureau are proposing new commentary to 
memorialize the calculation method used by the agencies each year to 
adjust the exemption threshold. Comment 3(b)-1 to the Board's and 
Bureau's Regulation Z currently provides the threshold amount in effect 
during a particular period and details the rules the agencies use for 
rounding the threshold calculation to the nearest $100 or $1,000 
increment, as discussed above in part I, ``Background.''
    The Board and the Bureau are proposing to revise comment 3(b)-1 by 
moving the text regarding the threshold amount that is in effect during 
a particular period to a new proposed comment 3(b)-3. The discussion of 
how

[[Page 51406]]

the agencies round the threshold calculation would remain in comment 
3(b)-1. Current comments 3(b)-2, 3(b)-3, 3(b)-4, 3(b)-5, and 3(b)-6 
would be renumbered as proposed comments 3(b)-4, 3(b)-5, 3(b)-6, 3(b)-
7, and 3(b)-8, respectively. Cross-references to these comments would 
also be renumbered accordingly.
    As stated in the Board Final Threshold Rules, if there is no annual 
percentage increase in the CPI-W, the Board and Bureau will not adjust 
the exemption threshold from the prior year.\9\ This position is 
consistent with Section 1100E(b) of the Dodd-Frank Act, which states 
that the threshold must be adjusted by the ``annual percentage 
increase'' in the CPI-W (emphasis added). The Board and the Bureau are 
proposing to memorialize this concept in proposed comment 3(b)-2, which 
would provide that if the CPI-W in effect on June 1 does not increase 
from the CPI-W in effect on June 1 of the previous year, the threshold 
amount effective the following January 1 through December 31 will not 
change from the previous year. For example, if the threshold in effect 
from January 1, 2019, through December 31, 2019, is $55,500 and the 
CPI-W in effect on June 1 of 2019, indicates a 1.1 percent decrease 
from the CPI-W in effect on June 1, 2018, the threshold in effect for 
January 1, 2020, through December 31, 2020, will remain $55,500.
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    \9\ 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (``[A]n annual period 
of deflation or no inflation would not require a change in the 
threshold amount.'').
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    Proposed comment 3(b)-2 would further set forth the calculation 
method the agencies would use in years following a year in which the 
exemption threshold was not adjusted because there was no increase in 
the CPI-W from the previous year. The proposed calculation method would 
ensure that the values for the exemption threshold keep pace with the 
CPI-W as contemplated by Section 1100E(b) of the Dodd-Frank Act.
    Specifically, as set forth under proposed comment 3(b)-2, for the 
years after a year in which the threshold did not change because the 
CPI-W in effect on June 1 decreased from the CPI-W in effect on June 1 
of the previous year, the threshold is calculated by applying the 
annual percentage change in the CPI-W to the dollar amount that would 
have resulted if the decreases and any subsequent increases in the CPI-
W had been taken into account. Proposed comment 3(b)-2.i further states 
that, if the resulting amount is greater than the current threshold, 
then the threshold effective January 1 the following year will increase 
accordingly.
    For example, assume that the threshold in effect from January 1, 
2019, through December 31, 2019, is $55,500 and that, due to a 1.1 
percent decrease from the CPI-W in effect on June 1, 2018, to the CPI-W 
in effect on June 1, 2019, the threshold in effect from January 1, 
2020, through December 31, 2020, remains at $55,500. If, however, the 
threshold had been adjusted downward to reflect the decrease in the 
CPI-W over that time period, the threshold in effect from January 1, 
2020, through December 31, 2020, would have been $54,900. Further 
assume that the CPI-W in effect on June 1, 2020, increased by 1.6 
percent from the CPI-W in effect on June 1, 2019. The calculation for 
the threshold that will be in effect from January 1, 2021, through 
December 31, 2021, is based on the impact of a 1.6 percent increase in 
the CPI-W on $54,900, rather than $55,500, resulting in a 2021 
threshold of $55,800.
    Furthermore, comment 3(b)-2.ii states that, if the resulting amount 
calculated is equal to or less than the current threshold, then the 
threshold effective January 1 the following year will not change, but 
future increases will be calculated based on the amount that would have 
resulted. To illustrate, assume in the example above that the CPI-W in 
effect on June 1, 2020, increased by only 0.6 percent from the CPI-W in 
effect on June 1, 2019. The calculation for the threshold that will be 
in effect from January 1, 2021, through December 31, 2021, is based on 
the impact of a 0.6 percent increase in the CPI-W on $54,900. The 
resulting amount is $55,200, which is lower than $55,500, the threshold 
in effect from January 1, 2020, through December 31, 2020. Therefore, 
the threshold in effect from January 1, 2021, through December 31, 
2021, will remain $55,500. However, the calculation for the threshold 
that will be in effect from January 1, 2022, through December 31, 2022, 
will apply the percentage change in the CPI-W to $55,200, the amount 
that would have resulted based on the 0.6 percent change from the CPI-W 
in effect on June 1, 2019, to the CPI-W in effect on June 1, 2020.
    The agencies request comment on all aspects of the proposed rule.

III. Regulatory Analysis

Bureau's Dodd-Frank Act Section 1022(b)(2) Analysis

    In developing this proposal, the Bureau has considered potential 
benefits, costs, and impacts.\10\ In addition, the Bureau has 
consulted, or offered to consult with, the prudential regulators, the 
Securities and Exchange Commission, the Department of Housing and Urban 
Development, the Federal Housing Finance Agency, the Federal Trade 
Commission, and the Department of the Treasury, including regarding 
consistency with any prudential, market, or systemic objectives 
administered by such agencies.
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    \10\ Specifically, section 1022(b)(2)(A) calls for the Bureau to 
consider the potential benefits and costs of a regulation to 
consumers and covered persons, including the potential reduction of 
access by consumers to consumer financial products or services; the 
impact on depository institutions and credit unions with $10 billion 
or less in total assets as described in section 1026 of the Act; and 
the impact on consumers in rural areas.
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    The Bureau has chosen to evaluate the benefits, costs and impacts 
of the proposed commentary against the current state of the world, 
which takes into account the current regulatory regime. The Bureau is 
not aware of any significant benefits or costs to consumers or covered 
persons associated with the proposal relative to the baseline. The 
Board previously stated that if there is no annual percentage increase 
in the CPI-W, then the Board (and now the Bureau) will not adjust the 
exemption threshold from the prior year.\11\ The proposal memorializes 
this in official commentary. The proposal also clarifies how the 
threshold would be calculated for years after a year in which the 
threshold did not change. The Bureau believes that this clarification 
memorializes the method that the Bureau would be expected to use: This 
method holds the threshold fixed until a notional threshold calculated 
using the Bureau's methodology, but taking into account both decreases 
and increases in the CPI-W, exceeds the actual threshold. The Bureau 
requests comment on this point. Thus, the Bureau believes that the 
proposed rule does not change the regulatory regime relative to the 
baseline and creates no significant benefits, costs, or impacts.
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    \11\ 76 FR 18354, 18355 n.1 (Apr. 4, 2011) (``[A]n annual period 
of deflation or no inflation would not require a change in the 
threshold amount.'').
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    The proposed rule will have no unique impact on depository 
institutions or credit unions with $10 billion or less in assets as 
described in section 1026(a) of the Dodd-Frank Act or on rural 
consumers. The Bureau does not expect this final rule to affect 
consumers' access to credit.

Regulatory Flexibility Act

    Board: The Regulatory Flexibility Act (RFA) requires an agency to 
publish an

[[Page 51407]]

initial regulatory flexibility analysis with a proposed rule or certify 
that the proposed rule will not have a significant economic impact on a 
substantial number of small entities.\12\ Based on its analysis, and 
for the reasons stated below, the Board believes that the rule will not 
have a significant economic impact on a substantial number of small 
entities. Nevertheless, the Board is publishing an initial regulatory 
flexibility analysis and requests public comment on all aspects of its 
analysis. The Board will, if necessary, conduct a final regulatory 
flexibility analysis after considering the comments received during the 
public comment period.
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    \12\ See 5 U.S.C. 601 et seq.
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    1. Statement of the need for, and objectives of, the proposed rule. 
The proposed rule would memorialize the calculation method used by the 
Board each year to adjust the exemption threshold in accordance with 
Section 1100E of the Dodd-Frank Act.
    2. Small entities affected by the proposed rule. Motor vehicle 
dealers that are subject to the Board's Regulation Z and offer closed-
end or open-end credit that may be exempt from Regulation Z under 12 
CFR 226.3(b) would be affected. While the total number of small 
entities likely to be affected by the proposed rule is unknown, the 
Board does not believe the proposed rule will have a significant 
economic impact on the entities that it affects. The Board invites 
comment on the effect of the proposed rule on small entities.
    3. Recordkeeping, reporting, and compliance requirements. The 
proposed rule would not impose any recordkeeping, reporting, or 
compliance requirements.
    4. Other Federal rules. The Board has not identified any likely 
duplication, overlap and/or potential conflict between the proposed 
rule and any Federal rule.
    5. Significant alternatives to the proposed revisions. The Board 
solicits comment on any significant alternatives that would reduce the 
regulatory burden on small entities associated with this proposed rule.
    Bureau: The RFA generally requires an agency to conduct an initial 
regulatory flexibility analysis (IRFA) and a final regulatory 
flexibility analysis (FRFA) of any rule subject to notice-and-comment 
rulemaking requirements.\13\ These analyses must ``describe the impact 
of the proposed rule on small entities''.\14\ An IRFA or FRFA is not 
required if the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small 
entities.\15\ The Bureau also is subject to certain additional 
procedures under the RFA involving the convening of a panel to consult 
with small business representatives prior to proposing a rule for which 
an IRFA is required.\16\
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    \13\ 5 U.S.C. 601 et seq.
    \14\ Id. at 603(a). For purposes of assessing the impacts of the 
proposed rule on small entities, ``small entities'' is defined in 
the RFA to include small businesses, small not-for-profit 
organizations, and small government jurisdictions. Id. at 601(6). A 
``small business'' is determined by application of Small Business 
Administration regulations and reference to the North American 
Industry Classification System (NAICS) classifications and size 
standards. Id. at 601(3). A ``small organization'' is any ``not-for-
profit enterprise which is independently owned and operated and is 
not dominant in its field.'' Id. at 601(4). A ``small governmental 
jurisdiction'' is the government of a city, county, town, township, 
village, school district, or special district with a population of 
less than 50,000. Id. at 601(5).
    \15\ Id. at 605(b).
    \16\ Id. at 609.
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    An IRFA is not required for this proposal because if adopted it 
would not have a significant economic impact on a substantial number of 
small entities. As discussed in the Bureau's Section 1022(b)(2) 
Analysis above, this proposal does not introduce costs or benefits to 
covered persons because the proposal seeks only to clarify the method 
of threshold adjustment which has already been established in previous 
Agency rules. Therefore this proposed rule would not have a significant 
impact on small entities.
Certification
    Accordingly, the Bureau Director, by signing below, certifies that 
this proposal, if adopted, would not have a significant economic impact 
on a substantial number of small entities.
Paperwork Reduction Act
    In accordance with the Paperwork Reduction Act of 1995,\17\ the 
agencies reviewed this proposed rule. No collections of information 
pursuant to the Paperwork Reduction Act are contained in the proposed 
rule.
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    \17\ 44 U.S.C. 3506; 5 CFR 1320.
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List of Subjects

12 CFR Part 226

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

12 CFR Part 1026

    Advertising, Appraisal, Appraiser, Banking, Banks, Consumer 
protection, Credit, Credit unions, Mortgages, National banks, Reporting 
and recordkeeping requirements, Savings associations, Truth in Lending.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Text of Proposed Revisions

    For the reasons set forth in the preamble, the Board proposes to 
amend Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 226 continues to read as follows:

    Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), and 
1639(l); Pub. L. 111-24 Sec.  2, 123 Stat. 1734; Pub. L. 111-203, 
124 Stat. 1376.

Subpart A--General

0
2. In Supplement I to part 226, under Section 226.3--Exempt 
Transactions, under 3(b) Credit over applicable threshold amount, 
paragraphs 1 through 6 are revised, and paragraphs 7 and 8 are added, 
to read as follows:

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *

Section 226.3--Exempt Transactions

* * * * *

3(b) Credit Over Applicable Threshold Amount

    1. Threshold amount. For purposes of section 226.3(b), the 
threshold amount in effect during a particular period is the amount 
stated in comment 3(b)-3 for that period. The threshold amount is 
adjusted effective January 1 of each year by any annual percentage 
increase in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W) that was in effect on the preceding June 1. 
Comment 3(b)-3 will be amended to provide the threshold amount for the 
upcoming year after the annual percentage change in the CPI-W that was 
in effect on June 1 becomes available. Any increase in the threshold 
amount will be rounded to the nearest $100 increment. For example, if 
the annual percentage increase in the CPI-W would result in a $950 
increase in the threshold amount, the threshold amount will be 
increased by $1,000. However, if the annual percentage increase in the 
CPI-W would result in a $949 increase in the threshold amount, the 
threshold amount will be increased by $900.

[[Page 51408]]

    2. No increase in the CPI-W. If the CPI-W in effect on June 1 does 
not increase from the CPI-W in effect on June 1 of the previous year, 
the threshold amount effective the following January 1 through December 
31 will not change from the previous year. When this occurs, for the 
years that follow, the threshold is calculated based on the annual 
percentage change in the CPI-W applied to the dollar amount that would 
have resulted if decreases and any subsequent increases in the CPI-W 
had been taken into account.
    i. Net increases. If the resulting amount is greater than the 
current threshold, then the threshold effective January 1 the following 
year will increase accordingly.
    ii. Net decreases. If the resulting amount calculated is equal to 
or less than the current threshold, then the threshold effective 
January 1 the following year will not change, but future increases will 
be calculated based on the amount that would have resulted.
    3. Threshold. For purposes of Sec.  226.3(b), the threshold amount 
in effect during a particular period is the amount stated below for 
that period.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is $50,000.
    iii. From January 1, 2012 through December 31, 2012, the threshold 
amount is $51,800.
    iv. From January 1, 2013 through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014 through December 31, 2014, the threshold 
amount is $53,500.
    vi. From January 1, 2015 through December 31, 2015, the threshold 
amount is $54,600.
    vii. From January 1, 2016 through December 31, 2016, the threshold 
amount is $54,600.
    4. Open-end credit.
    i. Qualifying for exemption. An open-end account is exempt under 
Sec.  226.3(b) (unless secured by any real property, or by personal 
property used or expected to be used as the consumer's principal 
dwelling) if either of the following conditions is met:
    A. The creditor makes an initial extension of credit at or after 
account opening that exceeds the threshold amount in effect at the time 
the initial extension is made. If a creditor makes an initial extension 
of credit after account opening that does not exceed the threshold 
amount in effect at the time the extension is made, the creditor must 
have satisfied all of the applicable requirements of this Part from the 
date the account was opened (or earlier, if applicable), including but 
not limited to the requirements of Sec.  226.6 (account-opening 
disclosures), Sec.  226.7 (periodic statements), Sec.  226.52 
(limitations on fees), and Sec.  226.55 (limitations on increasing 
annual percentage rates, fees, and charges). For example:
    (1) Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $60,000. In this 
circumstance, no requirements of this Part apply to the account.
    (2) Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $50,000 or less. In 
this circumstance, the account is not exempt and the creditor must have 
satisfied all of the applicable requirements of this Part from the date 
the account was opened (or earlier, if applicable).
    B. The creditor makes a firm written commitment at account opening 
to extend a total amount of credit in excess of the threshold amount in 
effect at the time the account is opened with no requirement of 
additional credit information for any advances on the account (except 
as permitted from time to time with respect to open-end accounts 
pursuant to Sec.  226.2(a)(20)).
    ii. Subsequent changes generally. Subsequent changes to an open-end 
account or the threshold amount may result in the account no longer 
qualifying for the exemption in Sec.  226.3(b). In these circumstances, 
the creditor must begin to comply with all of the applicable 
requirements of this Part within a reasonable period of time after the 
account ceases to be exempt. Once an account ceases to be exempt, the 
requirements of this Part apply to any balances on the account. The 
creditor, however, is not required to comply with the requirements of 
this Part with respect to the period of time during which the account 
was exempt. For example, if an open-end credit account ceases to be 
exempt, the creditor must within a reasonable period of time provide 
the disclosures required by Sec.  226.6 reflecting the current terms of 
the account and begin to provide periodic statements consistent with 
Sec.  226.7. However, the creditor is not required to disclose fees or 
charges imposed while the account was exempt. Furthermore, if the 
creditor provided disclosures consistent with the requirements of this 
Part while the account was exempt, it is not required to provide 
disclosures required by Sec.  226.6 reflecting the current terms of the 
account. See also comment 3(b)-6.
    iii. Subsequent changes when exemption is based on initial 
extension of credit. If a creditor makes an initial extension of credit 
that exceeds the threshold amount in effect at that time, the open-end 
account remains exempt under Sec.  226.3(b) regardless of a subsequent 
increase in the threshold amount, including an increase pursuant to 
Sec.  226.3(b)(1)(ii) as a result of an increase in the CPI-W. 
Furthermore, in these circumstances, the account remains exempt even if 
there are no further extensions of credit, subsequent extensions of 
credit do not exceed the threshold amount, the account balance is 
subsequently reduced below the threshold amount (such as through 
repayment of the extension), or the credit limit for the account is 
subsequently reduced below the threshold amount. However, if the 
initial extension of credit on an account does not exceed the threshold 
amount in effect at the time of the extension, the account is not 
exempt under Sec.  226.3(b) even if a subsequent extension exceeds the 
threshold amount or if the account balance later exceeds the threshold 
amount (for example, due to the subsequent accrual of interest).
    iv. Subsequent changes when exemption is based on firm commitment.
    A. General. If a creditor makes a firm written commitment at 
account opening to extend a total amount of credit that exceeds the 
threshold amount in effect at that time, the open-end account remains 
exempt under Sec.  226.3(b) regardless of a subsequent increase in the 
threshold amount pursuant to Sec.  226.3(b)(1)(ii) as a result of an 
increase in the CPI-W. However, see comment 3(b)-8 with respect to the 
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec.  226.3(b) based on a firm commitment 
to extend credit, the account remains exempt even if the amount of 
credit actually extended does not exceed the threshold amount. In 
contrast, if the firm commitment does not exceed the threshold amount 
at account opening, the account is not exempt under Sec.  226.3(b) even 
if the account balance later exceeds the threshold amount. In addition, 
if a creditor reduces a firm commitment, the account ceases to be 
exempt unless the reduced firm commitment exceeds the threshold amount 
in effect at the time of the reduction. For example:

[[Page 51409]]

    (1) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If during year one the creditor reduces its firm commitment to 
$53,000, the account remains exempt under Sec.  226.3(b). However, if 
during year one the creditor reduces its firm commitment to $40,000, 
the account is no longer exempt under Sec.  226.3(b).
    (2) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If the threshold amount is $56,000 on January 1 of year six as 
a result of increases in the CPI-W, the account remains exempt. 
However, if the creditor reduces its firm commitment to $54,000 on July 
1 of year six, the account ceases to be exempt under Sec.  226.3(b).
    B. Initial extension of credit. If an open-end account qualifies 
for a Sec.  226.3(b) exemption at account opening based on a firm 
commitment, that account may also subsequently qualify for a Sec.  
226.3(b) exemption based on an initial extension of credit. However, 
that initial extension must be a single advance in excess of the 
threshold amount in effect at the time the extension is made. In 
addition, the account must continue to qualify for an exemption based 
on the firm commitment until the initial extension of credit is made. 
For example:
    (1) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. The account is not used for an extension of credit during year 
one. On January 1 of year two, the threshold amount is increased to 
$51,000 pursuant to Sec.  226.3(b)(1)(ii) as a result of an increase in 
the CPI-W. On July 1 of year two, the consumer uses the account for an 
initial extension of $52,000. As a result of this extension of credit, 
the account remains exempt under Sec.  226.3(b) even if, after July 1 
of year two, the creditor reduces the firm commitment to $51,000 or 
less.
    (2) Same facts as in paragraph iv.B(1) above except that the 
consumer uses the account for an initial extension of $30,000 on July 1 
of year two and for an extension of $22,000 on July 15 of year two. In 
these circumstances, the account is not exempt under Sec.  226.3(b) 
based on the $30,000 initial extension of credit because that extension 
did not exceed the applicable threshold amount ($51,000), although the 
account remains exempt based on the firm commitment to extend $55,000 
in credit.
    (3) Same facts as in paragraph iv.B(1) above except that, on April 
1 of year two, the creditor reduces the firm commitment to $50,000, 
which is below the $51,000 threshold then in effect. Because the 
account ceases to qualify for a Sec.  226.3(b) exemption on April 1 of 
year two, the account does not qualify for a Sec.  226.3(b) exemption 
based on a $52,000 initial extension of credit on July 1 of year two.
    5. Closed-end credit.
    i. Qualifying for exemption. A closed-end loan is exempt under 
Sec.  226.3(b) (unless the extension of credit is secured by any real 
property, or by personal property used or expected to be used as the 
consumer's principal dwelling; or is a private education loan as 
defined in Sec.  226.46(b)(5)), if either of the following conditions 
is met
    A. The creditor makes an extension of credit at consummation that 
exceeds the threshold amount in effect at the time of consummation. In 
these circumstances, the loan remains exempt under Sec.  226.3(b) even 
if the amount owed is subsequently reduced below the threshold amount 
(such as through repayment of the loan).
    B. The creditor makes a commitment at consummation to extend a 
total amount of credit in excess of the threshold amount in effect at 
the time of consummation. In these circumstances, the loan remains 
exempt under Sec.  226.3(b) even if the total amount of credit extended 
does not exceed the threshold amount.
    ii. Subsequent changes. If a creditor makes a closed-end extension 
of credit or commitment to extend closed-end credit that exceeds the 
threshold amount in effect at the time of consummation, the closed-end 
loan remains exempt under Sec.  226.3(b) regardless of a subsequent 
increase in the threshold amount. However, a closed-end loan is not 
exempt under Sec.  226.3(b) merely because it is used to satisfy and 
replace an existing exempt loan, unless the new extension of credit is 
itself exempt under the applicable threshold amount. For example, 
assume a closed-end loan that qualified for a Sec.  226.3(b) exemption 
at consummation in year one is refinanced in year ten and that the new 
loan amount is less than the threshold amount in effect in year ten. In 
these circumstances, the creditor must comply with all of the 
applicable requirements of this Part with respect to the year ten 
transaction if the original loan is satisfied and replaced by the new 
loan, which is not exempt under Sec.  226.3(b). See also comment 3(b)-
6.
    6. Addition of a security interest in real property or a dwelling 
after account opening or consummation.
    i. Open-end credit. For open-end accounts, if, after account 
opening, a security interest is taken in real property, or in personal 
property used or expected to be used as the consumer's principal 
dwelling, a previously exempt account ceases to be exempt under Sec.  
226.3(b) and the creditor must begin to comply with all of the 
applicable requirements of this Part within a reasonable period of 
time. See comment 3(b)-4.ii. If a security interest is taken in the 
consumer's principal dwelling, the creditor must also give the consumer 
the right to rescind the security interest consistent with Sec.  
226.15.
    ii. Closed-end credit. For closed-end loans, if, after 
consummation, a security interest is taken in any real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling, an exempt loan remains exempt under Sec.  226.3(b). 
However, the addition of a security interest in the consumer's 
principal dwelling is a transaction for purposes of Sec.  226.23, and 
the creditor must give the consumer the right to rescind the security 
interest consistent with that section. See Sec.  226.23(a)(1) and the 
accompanying commentary. In contrast, if a closed-end loan that is 
exempt under Sec.  226.3(b) is satisfied and replaced by a loan that is 
secured by any real property, or by personal property used or expected 
to be used as the consumer's principal dwelling, the new loan is not 
exempt under Sec.  226.3(b) and the creditor must comply with all of 
the applicable requirements of this Part. See comment 3(b)-5.
    7. Application to extensions secured by mobile homes. Because a 
mobile home can be a dwelling under Sec.  226.2(a)(19), the exemption 
in Sec.  226.3(b) does not apply to a credit extension secured by a 
mobile home that is used or expected to be used as the principal 
dwelling of the consumer. See comment 3(b)-6.
    8. Transition rule for open-end accounts exempt prior to July 21, 
2011. Section 226.3(b)(2) applies only to open-end accounts opened 
prior to July 21, 2011. Section 226.3(b)(2) does not apply if a 
security interest is taken by the creditor in any real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling. If, on July 20, 2011, an open-end account is exempt 
under Sec.  226.3(b) based on a firm commitment to extend credit in 
excess of $25,000, the account remains exempt under Sec.  226.3(b)(2) 
until December 31, 2011 (unless the

[[Page 51410]]

firm commitment is reduced to $25,000 or less). If the firm commitment 
is increased on or before December 31, 2011 to an amount in excess of 
$50,000, the account remains exempt under Sec.  226.3(b)(1) regardless 
of subsequent increases in the threshold amount as a result of 
increases in the CPI-W. If the firm commitment is not increased on or 
before December 31, 2011 to an amount in excess of $50,000, the account 
ceases to be exempt under Sec.  226.3(b) based on a firm commitment to 
extend credit. For example:
    i. Assume that, on July 20, 2011, the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $30,000 in 
credit. On November 1, 2011, the creditor increases the firm commitment 
on the account to $55,000. In these circumstances, the account remains 
exempt under Sec.  226.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W.
    ii. Same facts as paragraph i. above except, on November 1, 2011, 
the creditor increases the firm commitment on the account to $40,000. 
In these circumstances, the account ceases to be exempt under Sec.  
226.3(b)(2) after December 31, 2011, and the creditor must begin to 
comply with the applicable requirements of this Part.

BUREAU OF CONSUMER FINANCIAL PROTECTION

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau proposes to 
amend Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
3. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

0
4. In Supplement I to part 1026, under Section 1026.3--Exempt 
Transactions, under 3(b)--Credit Over Applicable Threshold Amount, 
paragraphs 1 through 6 are revised, and paragraphs 7 and 8 are added, 
to read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Subpart A--General

* * * * *

Section 1026.3--Exempt Transactions

* * * * *

3(b) Credit Over Applicable Threshold Amount

    1. Threshold amount. For purposes of Sec.  1026.3(b), the threshold 
amount in effect during a particular period is the amount stated in 
comment 3(b)-4 below for that period. The threshold amount is adjusted 
effective January 1 of each year by any annual percentage increase in 
the Consumer Price Index for Urban Wage Earners and Clerical Workers 
(CPI-W) that was in effect on the preceding June 1. Comment 3(b)-4 will 
be amended to provide the threshold amount for the upcoming year after 
the annual percentage change in the CPI-W that was in effect on June 1 
becomes available. Any increase in the threshold amount will be rounded 
to the nearest $100. For example, if the annual percentage increase in 
the CPI-W would result in a $950 increase in the threshold amount, the 
threshold amount will be increased by $1,000. However, if the annual 
percentage increase in the CPI-W would result in a $949 increase in the 
threshold amount, the threshold amount will be increased by $900.
    2. No increase in the CPI-W. If the CPI-W in effect on June 1 does 
not increase from the CPI-W in effect on June 1 of the previous year, 
the threshold amount effective the following January 1 through December 
31 will not change from the previous year. When this occurs, for the 
years that follow, the threshold is calculated based on the annual 
percentage change in the CPI-W applied to the dollar amount that would 
have resulted if decreases and any subsequent increases in the CPI-W 
had been taken into account.
    i. Net increases. If the resulting amount is greater than the 
current threshold, then the threshold effective January 1 the following 
year will increase accordingly.
    ii. Net decreases. If the resulting threshold calculated is equal 
to or less than the current threshold, then the threshold effective 
January 1 the following year will not change, but future increases will 
be calculated based on the threshold that would have resulted.
    3. Threshold. For purposes of Sec.  1026.3(b), the threshold amount 
in effect during a particular period is the amount stated below for 
that period.
    i. Prior to July 21, 2011, the threshold amount is $25,000.
    ii. From July 21, 2011 through December 31, 2011, the threshold 
amount is $50,000.
    iii. From January 1, 2012 through December 31, 2012, the threshold 
amount is $51,800.
    iv. From January 1, 2013 through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014 through December 31, 2014, the threshold 
amount is $53,500.
    vi. From January 1, 2015 through December 31, 2015, the threshold 
amount is $54,600.
    vii. From January 1, 2016 through December 31, 2016, the threshold 
amount is $54,600.
    4. Open-end credit. i. Qualifying for exemption. An open-end 
account is exempt under Sec.  1026.3(b) (unless secured by real 
property, or by personal property used or expected to be used as the 
consumer's principal dwelling) if either of the following conditions is 
met:
    A. The creditor makes an initial extension of credit at or after 
account opening that exceeds the threshold amount in effect at the time 
the initial extension is made. If a creditor makes an initial extension 
of credit after account opening that does not exceed the threshold 
amount in effect at the time the extension is made, the creditor must 
have satisfied all of the applicable requirements of this part from the 
date the account was opened (or earlier, if applicable), including but 
not limited to the requirements of Sec.  1026.6 (account-opening 
disclosures), Sec.  1026.7 (periodic statements), Sec.  1026.52 
(limitations on fees), and Sec.  1026.55 (limitations on increasing 
annual percentages rates, fees, and charges). For example:
    1. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $60,000. In this 
circumstance, no requirements of this part apply to the account.
    2. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $50,000 or less. In 
this circumstance, the account is not exempt and the creditor must have 
satisfied all of the applicable requirements of this part from the date 
the account was opened (or earlier, if applicable).
    B. The creditor makes a firm written commitment at account opening 
to extend a total amount of credit in excess of the threshold amount in 
effect at the time the account is opened with no requirement of 
additional credit information for any advances on the account (except 
as permitted from time

[[Page 51411]]

to time with respect to open-end accounts pursuant to Sec.  
1026.2(a)(20)).
    ii. Subsequent changes generally. Subsequent changes to an open-end 
account or the threshold amount may result in the account no longer 
qualifying for the exemption in Sec.  1026.3(b). In these 
circumstances, the creditor must begin to comply with all of the 
applicable requirements of this part within a reasonable period of time 
after the account ceases to be exempt. Once an account ceases to be 
exempt, the requirements of this part apply to any balances on the 
account. The creditor, however, is not required to comply with the 
requirements of this part with respect to the period of time during 
which the account was exempt. For example, if an open-end credit 
account ceases to be exempt, the creditor must within a reasonable 
period of time provide the disclosures required by Sec.  1026.6 
reflecting the current terms of the account and begin to provide 
periodic statements consistent with Sec.  1026.7. However, the creditor 
is not required to disclose fees or charges imposed while the account 
was exempt. Furthermore, if the creditor provided disclosures 
consistent with the requirements of this part while the account was 
exempt, it is not required to provide disclosures required by Sec.  
1026.6 reflecting the current terms of the account. See also comment 
3(b)-6.
    iii. Subsequent changes when exemption is based on initial 
extension of credit. If a creditor makes an initial extension of credit 
that exceeds the threshold amount in effect at that time, the open-end 
account remains exempt under Sec.  1026.3(b) regardless of a subsequent 
increase in the threshold amount, including an increase pursuant to 
Sec.  1026.3(b)(1)(ii) as a result of an increase in the CPI-W. 
Furthermore, in these circumstances, the account remains exempt even if 
there are no further extensions of credit, subsequent extensions of 
credit do not exceed the threshold amount, the account balance is 
subsequently reduced below the threshold amount (such as through 
repayment of the extension), or the credit limit for the account is 
subsequently reduced below the threshold amount. However, if the 
initial extension of credit on an account does not exceed the threshold 
amount in effect at the time of the extension, the account is not 
exempt under Sec.  1026.3(b) even if a subsequent extension exceeds the 
threshold amount or if the account balance later exceeds the threshold 
amount (for example, due to the subsequent accrual of interest).
    iv. Subsequent changes when exemption is based on firm commitment. 
A. General. If a creditor makes a firm written commitment at account 
opening to extend a total amount of credit that exceeds the threshold 
amount in effect at that time, the open-end account remains exempt 
under Sec.  1026.3(b) regardless of a subsequent increase in the 
threshold amount pursuant to Sec.  1026.3(b)(1)(ii) as a result of an 
increase in the CPI-W. However, see comment 3(b)-9 with respect to the 
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec.  1026.3(b) based on a firm commitment 
to extend credit, the account remains exempt even if the amount of 
credit actually extended does not exceed the threshold amount. In 
contrast, if the firm commitment does not exceed the threshold amount 
at account opening, the account is not exempt under Sec.  1026.3(b) 
even if the account balance later exceeds the threshold amount. In 
addition, if a creditor reduces a firm commitment, the account ceases 
to be exempt unless the reduced firm commitment exceeds the threshold 
amount in effect at the time of the reduction. For example:
    1. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If during year one the creditor reduces its firm commitment to 
$53,000, the account remains exempt under Sec.  1026.3(b). However, if 
during year one the creditor reduces its firm commitment to $40,000, 
the account is no longer exempt under Sec.  1026.3(b).
    2. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If the threshold amount is $56,000 on January 1 of year six as 
a result of increases in the CPI-W, the account remains exempt. 
However, if the creditor reduces its firm commitment to $54,000 on July 
1 of year six, the account ceases to be exempt under Sec.  1026.3(b).
    B. Initial extension of credit. If an open-end account qualifies 
for a Sec.  1026.3(b) exemption at account opening based on a firm 
commitment, that account may also subsequently qualify for a Sec.  
1026.3(b) exemption based on an initial extension of credit. However, 
that initial extension must be a single advance in excess of the 
threshold amount in effect at the time the extension is made. In 
addition, the account must continue to qualify for an exemption based 
on the firm commitment until the initial extension of credit is made. 
For example:
    1. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. The account is not used for an extension of credit during year 
one. On January 1 of year two, the threshold amount is increased to 
$51,000 pursuant to Sec.  1026.3(b)(1)(ii) as a result of an increase 
in the CPI-W. On July 1 of year two, the consumer uses the account for 
an initial extension of $52,000. As a result of this extension of 
credit, the account remains exempt under Sec.  1026.3(b) even if, after 
July 1 of year two, the creditor reduces the firm commitment to $51,000 
or less.
    2. Same facts as in paragraph iv.B.1 above except that the consumer 
uses the account for an initial extension of $30,000 on July 1 of year 
two and for an extension of $22,000 on July 15 of year two. In these 
circumstances, the account is not exempt under Sec.  1026.3(b) based on 
the $30,000 initial extension of credit because that extension did not 
exceed the applicable threshold amount ($51,000), although the account 
remains exempt based on the firm commitment to extend $55,000 in 
credit.
    3. Same facts as in paragraph iv.B.1 above except that, on April 1 
of year two, the creditor reduces the firm commitment to $50,000, which 
is below the $51,000 threshold then in effect. Because the account 
ceases to qualify for a Sec.  1026.3(b) exemption on April 1 of year 
two, the account does not qualify for a Sec.  1026.3(b) exemption based 
on a $52,000 initial extension of credit on July 1 of year two.
    5. Closed-end credit. i. Qualifying for exemption. A closed-end 
loan is exempt under Sec.  1026.3(b) (unless the extension of credit is 
secured by real property, or by personal property used or expected to 
be used as the consumer's principal dwelling; or is a private education 
loan as defined in Sec.  1026.46(b)(5)), if either of the following 
conditions is met:
    A. The creditor makes an extension of credit at consummation that 
exceeds the threshold amount in effect at the time of consummation. In 
these circumstances, the loan remains exempt under Sec.  1026.3(b) even 
if the amount owed is subsequently reduced below the threshold amount 
(such as through repayment of the loan).
    B. The creditor makes a commitment at consummation to extend a 
total amount of credit in excess of the threshold amount in effect at 
the time of consummation. In these circumstances, the loan remains 
exempt under Sec.  1026.3(b) even if the total amount of

[[Page 51412]]

credit extended does not exceed the threshold amount.
    ii. Subsequent changes. If a creditor makes a closed-end extension 
of credit or commitment to extend closed-end credit that exceeds the 
threshold amount in effect at the time of consummation, the closed-end 
loan remains exempt under Sec.  1026.3(b) regardless of a subsequent 
increase in the threshold amount. However, a closed-end loan is not 
exempt under Sec.  1026.3(b) merely because it is used to satisfy and 
replace an existing exempt loan, unless the new extension of credit is 
itself exempt under the applicable threshold amount. For example, 
assume a closed-end loan that qualified for a Sec.  1026.3(b) exemption 
at consummation in year one is refinanced in year ten and that the new 
loan amount is less than the threshold amount in effect in year ten. In 
these circumstances, the creditor must comply with all of the 
applicable requirements of this part with respect to the year ten 
transaction if the original loan is satisfied and replaced by the new 
loan, which is not exempt under Sec.  1026.3(b). See also comment 3(b)-
6.
    6. Addition of a security interest in real property or a dwelling 
after account opening or consummation. i. Open-end credit. For open-end 
accounts, if after account opening a security interest is taken in real 
property, or in personal property used or expected to be used as the 
consumer's principal dwelling, a previously exempt account ceases to be 
exempt under Sec.  1026.3(b) and the creditor must begin to comply with 
all of the applicable requirements of this part within a reasonable 
period of time. See comment 3(b)-4.ii. If a security interest is taken 
in the consumer's principal dwelling, the creditor must also give the 
consumer the right to rescind the security interest consistent with 
Sec.  1026.15.
    ii. Closed-end credit. For closed-end loans, if after consummation 
a security interest is taken in real property, or in personal property 
used or expected to be used as the consumer's principal dwelling, an 
exempt loan remains exempt under Sec.  1026.3(b). However, the addition 
of a security interest in the consumer's principal dwelling is a 
transaction for purposes of Sec.  1026.23, and the creditor must give 
the consumer the right to rescind the security interest consistent with 
that section. See Sec.  1026.23(a)(1) and its commentary. In contrast, 
if a closed-end loan that is exempt under Sec.  1026.3(b) is satisfied 
and replaced by a loan that is secured by real property, or by personal 
property used or expected to be used as the consumer's principal 
dwelling, the new loan is not exempt under Sec.  1026.3(b), and the 
creditor must comply with all of the applicable requirements of this 
part. See comment 3(b)-5.
    7. Application to extensions secured by mobile homes. Because a 
mobile home can be a dwelling under Sec.  1026.2(a)(19), the exemption 
in Sec.  1026.3(b) does not apply to a credit extension secured by a 
mobile home that is used or expected to be used as the principal 
dwelling of the consumer. See comment 3(b)-6.
    8. Transition rule for open-end accounts exempt prior to July 21, 
2011. Section 1026.3(b)(2) applies only to open-end accounts opened 
prior to July 21, 2011. Section 1026.3(b)(2) does not apply if a 
security interest is taken by the creditor in real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling. If, on July 20, 2011, an open-end account is exempt 
under Sec.  1026.3(b) based on a firm commitment to extend credit in 
excess of $25,000, the account remains exempt under Sec.  1026.3(b)(2) 
until December 31, 2011 (unless the firm commitment is reduced to 
$25,000 or less). If the firm commitment is increased on or before 
December 31, 2011 to an amount in excess of $50,000, the account 
remains exempt under Sec.  1026.3(b)(1) regardless of subsequent 
increases in the threshold amount as a result of increases in the CPI-
W. If the firm commitment is not increased on or before December 31, 
2011 to an amount in excess of $50,000, the account ceases to be exempt 
under Sec.  1026.3(b) based on a firm commitment to extend credit. For 
example:
    i. Assume that, on July 20, 2011, the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $30,000 in 
credit. On November 1, 2011, the creditor increases the firm commitment 
on the account to $55,000. In these circumstances, the account remains 
exempt under Sec.  1026.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W.
    ii. Same facts as paragraph i above except, on November 1, 2011, 
the creditor increases the firm commitment on the account to $40,000. 
In these circumstances, the account ceases to be exempt under Sec.  
1026.3(b)(2) after December 31, 2011, and the creditor must begin to 
comply with the applicable requirements of this part.

    By order of the Board of Governors of the Federal Reserve 
System, July 19, 2016.
Robert deV. Frierson,
Secretary of the Board.
    Dated: July 13, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-18062 Filed 8-3-16; 8:45 am]
 BILLING CODE 6210-01-P; 4810-AM-P