Rule2022-27059
Intent To Make Preemption Determination Under the Truth in Lending Act (Regulation Z)
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Published
December 15, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) has received a written request to make a determination that the Truth in Lending Act (TILA) preempts a New York State commercial financing law with respect to certain provisions. The CFPB is publishing this notification of intent to make a preemption determination about that law and has made a preliminary conclusion that this law is not preempted by TILA. The CFPB is also providing notice that it is considering whether to make a preemption determination regarding State laws in California, Utah, and Virginia that are potentially similar to the New York law. The CFPB is soliciting public comment pursuant to Regulation Z.
Full Text
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<title>Federal Register, Volume 87 Issue 240 (Thursday, December 15, 2022)</title>
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[Federal Register Volume 87, Number 240 (Thursday, December 15, 2022)]
[Rules and Regulations]
[Pages 76551-76553]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-27059]
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Rules and Regulations
Federal Register
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This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 87, No. 240 / Thursday, December 15, 2022 /
Rules and Regulations
[[Page 76551]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1026
[Docket No. CFPB-2022-0070]
Intent To Make Preemption Determination Under the Truth in
Lending Act (Regulation Z)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Notification of intent to make preemption determination;
request for comment.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) has received a
written request to make a determination that the Truth in Lending Act
(TILA) preempts a New York State commercial financing law with respect
to certain provisions. The CFPB is publishing this notification of
intent to make a preemption determination about that law and has made a
preliminary conclusion that this law is not preempted by TILA. The CFPB
is also providing notice that it is considering whether to make a
preemption determination regarding State laws in California, Utah, and
Virginia that are potentially similar to the New York law. The CFPB is
soliciting public comment pursuant to Regulation Z.
DATES: Comments must be received on or before January 20, 2023.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2022-
0070, by any of the following methods:
1. Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow
the instructions for submitting comments.
2. Email: <a href="/cdn-cgi/l/email-protection#546664666679001d1815042631313924203d3b3a14373224367a333b22"><span class="__cf_email__" data-cfemail="99aba9ababb4cdd0d5d8c9ebfcfcf4e9edf0f6f7d9faffe9fbb7fef6ef">[email protected]</span></a>. Include Docket No. CFPB-
2022-0070 in the subject line of the message.
3. Mail/Hand Delivery/Courier: Comment Intake--TILA Preemption
Determination, c/o Legal Division Docket Manager, Consumer Financial
Protection Bureau, 1700 G Street NW, Washington, DC 20552.
Because paper mail in the Washington, DC area and at the CFPB is
subject to delay, commenters are encouraged to submit comments
electronically.
Instructions: The CFPB encourages the early submission of comments.
All submissions must include the document title and docket number.
Commenters are encouraged to submit comments electronically. In
general, all comments received will be posted without change to <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Comments will be available for public inspection
and copying at 1700 G Street NW, Washington, DC 20552, 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 submissions in response to this notification, including
attachments and other supporting materials, will become part of the
public record and subject to public disclosure. Proprietary information
or sensitive personal information, such as account numbers or Social
Security numbers, or names of other individuals, should not be
included. Submissions will not be edited to remove any identifying or
contact information.
FOR FURTHER INFORMATION CONTACT: Joel Singerman, Senior Counsel, Office
of Regulations, or Christopher Shelton or Anand Das, Senior Counsels,
Legal Division, at 202-435-7700. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#25666375677a6446464056564c474c494c515c65464355470b424a53"><span class="__cf_email__" data-cfemail="1a595c4a58455b79797f696973787376736e635a797c6a78347d756c">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Background on TILA and Reg Z Preemption Provisions
The CFPB has received a request to make a preemption determination
involving certain disclosure provisions in TILA. Congress enacted TILA
in 1968 because it found that ``competition among the various financial
institutions and other firms engaged in the extension of consumer
credit would be strengthened by the informed use of credit.'' \1\ TILA
is designed to ``assure a meaningful disclosure of credit terms so that
the consumer will be able to compare more readily the various credit
terms available to him and avoid the uninformed use of credit.'' \2\
TILA requires creditors to use specified formulas to determine credit
costs and to provide cost disclosures to consumers before consummation
of ``consumer credit'' transactions,\3\ which is credit that is
``offered or extended . . . primarily for personal, family, or
household purposes.'' \4\ Regulation Z implements TILA.\5\
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\1\ 15 U.S.C. 1601(a).
\2\ Id.
\3\ See 15 U.S.C. 1637(a), 1637a, 1638(a) (requiring disclosures
for ``consumer credit'' transactions); but see 12 CFR 1026.12(a)
(prohibiting the issuance of credit cards in certain circumstances,
even if the credit card is to be used primarily for a business
purpose).
\4\ See 15 U.S.C. 1602(i) (defining ``consumer'' credit to mean,
in part, credit ``primarily for personal, family, or household
purposes''); see also 12 CFR 1026.2(a)(12).
\5\ See generally, 12 CFR 1026.1, et seq.
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TILA does not ``annul, alter, or affect the laws of any State
relating to the disclosure of information in connection with credit
transactions, except to the extent that those laws are inconsistent
with the provisions of [TILA], and then only to the extent of the
inconsistency.'' \6\ TILA authorizes the CFPB to determine whether any
inconsistency exists between chapters 1, 2, and 3 of TILA and State
laws.\7\ Regulation Z provides that ``[a] State law is inconsistent if
it requires a creditor to make disclosures or take actions that
contradict the requirements of the Federal law.'' \8\
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\6\ 15 U.S.C. 1610(a)(1).
\7\ Id.
\8\ 12 CFR 1026.28(a)(1).
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Accordingly, TILA does not preempt the field, and State disclosures
are entirely compatible with Federal disclosures under TILA and
Regulation Z, with the narrow exception of when they are
``contradictory.'' The Board of Governors of the Federal Reserve System
(Board), which formerly administered Regulation Z, framed the standard
as follows: ``A state law is contradictory, and therefore preempted, if
it significantly impedes the operation of the federal law or interferes
with the purposes of the federal statute.'' \9\ The Board noted that
Regulation Z articulated two categories of ``contradictory'' State
laws: ``A state law is contradictory if it requires the use of the same
term to represent a different
[[Page 76552]]
amount or a different meaning than the Federal law, or if it requires
the use of a term different from that required in the Federal law to
describe the same item.'' \10\ At the same time, the Board noted that
these two categories were not entirely exhaustive, because they would
not be apt in a context where the preemption issue at hand does not
``deal with disclosures of terms and amounts.'' \11\ The CFPB is
considering whether it should clarify the Board's articulation of the
applicable preemption standard, and it requests comment on how the CFPB
should articulate the standard for preemption in this and future
determinations.
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\9\ 48 FR 4454, 4455 (Feb. 1, 1983); 50 FR 25068 (June 17,
1985); 53 FR 3332 (Feb. 5, 1988); 55 FR 13282 (Apr. 10, 1990); 55 FR
42025, 42026 (Oct. 17, 1990).
\10\ 12 CFR 1026.28(a)(1).
\11\ 48 FR 4454, 4455 (Feb. 1, 1983). Additionally, the Board
articulated the following principles: (1) for purposes of making
preemption determinations, State law is deemed to require the use of
specific terminology in the State disclosures if the State statute
uses certain terminology in the disclosure provision; (2) a State
disclosure does not ``describe the same item'' under Regulation Z,
Sec. 1026.28(a)(1) if the State disclosure ``is not the functional
equivalent of a Federal disclosure;'' and (3) preemption occurs only
where an actual inconsistency exists between the State and Federal
laws. See 48 FR 4454, 4455 (Feb. 1, 1983). The Board did not
explicitly mention these principles in every preemption
determination, but it did reference them from time to time. See,
e.g., 50 FR 8737 (Mar. 5, 1985); 55 FR 13282 (Apr. 10, 1990).
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TILA authorizes the CFPB to make a determination of whether a State
law requirement is preempted, upon its own motion or upon the request
of a creditor, State, or other interested party.\12\ Regulation Z
implements this provision in TILA.\13\ Requests for preemption
determinations must be submitted in accordance with appendix A to
Regulation Z.\14\ Appendix A also sets forth processes the CFPB must
follow in issuing preemption determinations, either on request or on
its own motion.\15\
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\12\ 15 U.S.C. 1610(a)(2).
\13\ See 12 CFR 1026.28(a)(1).
\14\ 12 CFR part 1026, app. A.
\15\ See id.
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In addition, section 554(e) of the Administrative Procedure Act
authorizes any agency, in its sound discretion, to issue a declaratory
order to terminate a controversy or remove uncertainty.\16\ Section
554(e) of the Administrative Procedure Act provides an additional,
independent source of authority for this proceeding.
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\16\ 5 U.S.C. 554(e).
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The Preemption Request
The CFPB received a request from a business trade association
asking it to determine that TILA preempts certain provisions in New
York State's Commercial Financing Law, sec. 801 et seq. (the New York
law).\17\ The request is available as supporting and related material
for this proceeding on <a href="http://Regulations.gov">Regulations.gov</a>. Similar to TILA, the New York
law requires financial disclosures before consummation of covered
transactions, although it applies to ``commercial financing'' instead
of consumer credit. It requires providers \18\ to issue disclosures
when ``extending a specific offer'' for various types of commercial
financing.\19\
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\17\ Letter from Stephen Denis, CEO of the Small Business
Finance Association, to Jocelyn Sutton, Executive Secretary of the
Consumer Financial Protection Bureau (Jan. 15, 2021). The New York
law is available at <a href="https://www.nysenate.gov/legislation/laws/FIS/A8">https://www.nysenate.gov/legislation/laws/FIS/A8</a>.
\18\ The New York law defines ``provider'' to mean, in part, ``a
person who extends a specific offer of commercial financing to a
recipient'' and, unless otherwise exempt, ``a person who solicits
and presents specific offers . . . on behalf of a third party.'' See
N.Y. Comm. Fin. Law, sec. 801(h).
\19\ See generally, N.Y. Comm. Fin. Law, secs. 803 (sales-based
financing disclosures), 804 (closed-end commercial financing
disclosures), 805 (open-end commercial financing disclosures), 806
(factoring transaction disclosures), and 807 (disclosures for other
forms of commercial financing).
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The request asserted that TILA preempts the New York law with
respect to its use of the terms ``finance charge'' and ``annual
percentage rate'' (APR), notwithstanding that the statutes govern
different categories of transactions. Both statutes require these
disclosures: TILA requires creditors to disclose information about
``finance charges'' and ``APRs'' before consummation of open- and
closed-end consumer credit transactions,\20\ while the New York law
requires providers to disclose information about ``finance charges''
and ``APRs'' or ``estimated APRs'' for various types of commercial
financing.\21\
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\20\ See, e.g., 15 U.S.C. 1637(a), 1637a, 1638(a) (setting forth
requirements for open-end transactions, open-end transactions
secured by a principal dwelling, and closed-end transactions,
respectively); see also 12 CFR 1026.6, 1026.40 (open-end
transactions), and 1026.18, 1026.37(l), 1026.38(o) (closed-end
transactions).
\21\ See generally, N.Y. Comm. Fin. Law, secs. 803 (sales-based
financing disclosures), 804 (closed-end commercial financing
disclosures), 805 (open-end commercial financing disclosures), 806
(factoring transaction disclosures), and 807 (disclosures for other
forms of commercial financing).
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In addition to acknowledging that, unlike TILA, the New York law
governs commercial transactions, the request focused on what it alleged
are material differences between how the State and Federal law use the
terms ``finance charge'' and ``APR,'' and alleged that these
differences make the New York law inconsistent with Federal law for
purposes of preemption.\22\ For example, the request noted that the New
York law defines ``finance charge'' to include any charge imposed by a
``provider,'' which includes ``a person who solicits and presents
specific offers of commercial financing on behalf of a third party.''
\23\ The request stated that the definition is broader than the Federal
definition, under which the requester asserted a ``finance charge'' for
non-mortgage transactions includes certain broker fees only if the
creditor requires the use of the broker.
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\22\ The request also acknowledged similarities between the
State and Federal law. Both Regulation Z and the New York law state
that ``finance charge'' means ``the cost of [financing] as a dollar
amount. It includes any charge payable directly or indirectly by the
[recipient] and imposed directly or indirectly by the [issuer] as an
incident to or a condition of the extension of [financing].'' See
Regulation Z, 12 CFR 1026.4(a); N.Y. Comm. Fin. Law, sec. 801(e).
Further, the New York law specifically refers to Regulation Z in
defining ``finance charge'' and ``APR.'' It states that the term
finance charge ``includes all charges that would be included under
12 CFR 1026.4 as if the transaction were subject to'' that
provision. N.Y. Comm. Fin. Law, sec. 801(e). And it states that the
terms ``APR'' and ``estimated APR'' must, among other things, be
calculated in accordance with the Federal Truth in Lending Act and
Regulation Z, ``regardless of whether such act or such regulation
would require such a calculation.'' See N.Y. Comm. Fin. Law, secs.
803(c), 806(c) (governing ``estimated APR'' disclosure for sales-
based commercial financing and factoring transactions,
respectively); secs. 804(c), 805(c), and 807(c) (governing ``APR''
disclosure for closed-end commercial financing, open-end commercial
financing, and other commercial financing not covered by categories,
respectively).
\23\ See N.Y. Comm. Fin. Law, sec. 801(e), (h) (sec. 801(e)
defines ``finance charge,'' and sec. 801(h) defines ``provider'').
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Additionally, the request asserted that the ``estimated APR''
disclosure that the New York law requires for certain transactions is
less precise than the APR calculation under TILA and Regulation Z, and
that the New York law requires certain assumptions about payment
amounts and payment frequencies in order to calculate APR and estimated
APR, whereas TILA does not require similar assumptions. The request
also asserted that the New York law requires providers to calculate
APRs for open-end transactions using TILA's closed-end APR requirements
instead of TILA's open-end APR requirements.
The request stated that these types of differences could lead to
variances in the disclosures required under State and Federal law. The
request asserted that the Federal law and regulation therefore preempt
the New York law. The request pointed to administrative precedent \24\
[[Page 76553]]
and Regulation Z commentary \25\ to support this conclusion.
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\24\ The request pointed to a TILA preemption determination that
the Board issued in 1982, in which the Board stated that State laws
requiring finance charge or APR disclosures will face greater
scrutiny because the terms are so significant under TILA. As the
request noted, the Board stated in that publication, ``since these
disclosures are particularly significant, any contradiction in of
the corresponding federal disclosure would interfere with the intent
of the federal scheme.'' See 47 FR 16202 (Apr. 15, 1982).
\25\ The request referred to comment 28(a)-2, which clarifies
that ``a State law'' is inconsistent for purposes of preemption if
it uses ``finance charge'' to include fees beyond Federal law or
requires a different label for ``APR.'' The request asserted that
the reference to ``a State law'' was intentionally broad--that,
because ``finance charge'' and ``APR'' are central to TILA and
Regulation Z's disclosure regime, the commentary was intended to
clarify the limitations of finance charges and APRs without
limitation to any particular type of State law. The request asserted
that this was intended to protect the value of the terms under
Federal law.
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The request also asserted that the New York law impedes the
operation of Federal law or interferes with the intent of the Federal
scheme, even if it does not contradict TILA in the specific manner
described in Regulation Z. The request asserted that failing to enforce
TILA's definitions of ``finance charge'' and ``APR,'' even across
different financing types, would impede and degrade the benefits of
ensuring uniform disclosures, which aid consumer understanding and
enable consumers to effectively compare financing options. The request
asserted that the inconsistencies between TILA and the New York law
could lead to confusion or misunderstanding among borrowers, including
small business owners who may use both consumer credit and commercial
financing to fund business expenses.
Preliminary Preemption Analysis
The CFPB has decided to initiate a proceeding to make a preemption
determination regarding the New York law in response to the request. In
evaluating the request concerning the New York law, the CFPB also
became aware of similar laws in other States. The CFPB is, on its own
motion, providing notice that it may make preemption determinations
regarding potentially similar State laws in California,\26\ Utah,\27\
and Virginia \28\ as part of this proceeding.
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\26\ Cal. Fin. Code secs. 22800 to 22805; Cal. Code Regs. tit.
10, ch. 3, subch. 3.
\27\ Utah Code Ann. secs. 7-27-101 to 7-27-301.
\28\ Va. Code Ann. secs. 6.2-2228 to 6.2-2238; 10 Va. Admin.
Code secs. 5-240-10 to 5-240-40.
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Beginning with the New York law, the CFPB's preliminary view is
that TILA does not preempt the New York law on the grounds the request
asserts. That is, the State and Federal laws do not appear
``contradictory'' for preemption purposes.
The Bureau notes that the statutes govern different transactions,
so the New York law appears to be far afield of a law that contradicts
TILA and Regulation Z. TILA requires creditors to disclose the finance
charge and APR only for ``consumer credit'' transactions, which the
statute defines as credit that is ``primarily for personal, family, or
household purposes.'' \29\ The New York law, on the other hand,
requires the disclosures only for ``commercial financing,''
specifically defined as financing ``the proceeds of which the recipient
does not intend to use primarily for personal, family, or household
purposes.'' \30\
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\29\ See 15 U.S.C. 1602(i) (defining ``consumer'' credit to
mean, in part, credit ``primarily for personal, family, or household
purposes''); see also 15 U.S.C. 1637(a), 1637a, 1638(a) (requiring
disclosures for ``consumer credit'' transactions); but see 12 CFR
1026.12(a) (prohibiting the issuance of credit cards in certain
circumstances, even if the credit card is to be used primarily for a
business purpose).
\30\ N.Y. Comm. Fin. Law, sec. 801(b) (emphasis added). The
request does not argue that any single transaction can be subject to
both New York and TILA disclosure requirements, and the New York
Department of Financial Services has proposed a regulatory provision
that would explicitly provide that commercial financing ``does not
include any transaction that is subject to the [Federal TILA], for
which a disclosure is provided that is compliant with such Act.''
Revised Proposal by the New York Department of Financial Services to
add 23 NYCRR 600 (Aug. 26, 2022).
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The Bureau preliminarily disagrees with the request that the New
York law significantly impedes the operation of TILA or interferes with
the purposes of the Federal scheme. As relevant here, a primary purpose
of TILA is to assure a meaningful disclosure of credit terms so that
the consumer will be able to compare more readily the various credit
terms available to the consumer and avoid the uninformed use of
credit.\31\ The differences between the New York and Federal disclosure
requirements do not frustrate these purposes because lenders are not
required to provide the New York disclosures to consumers seeking
consumer credit. Consumers applying for consumer credit should continue
receiving only TILA disclosures, which, as normal, will assure
meaningful disclosure of credit terms and allow the consumers to
compare like products when shopping for financing options.
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\31\ See 15 U.S.C. 1601(a).
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Based on the foregoing, the CFPB's preliminary interpretation is
that TILA does not preempt the New York law's use of the terms
``finance charge,'' ``APR,'' or ``estimated APR.''
As noted above, the CFPB is also considering making determinations
regarding whether TILA preempts State laws in California,\32\ Utah,\33\
and Virginia \34\ that prescribe disclosures in certain commercial
transactions. The CFPB has conducted a preliminary review of these
laws, which are similar in relevant respects to the New York law
because they do not apply to consumer credit transactions that are
within the scope of TILA. Accordingly, the CFPB's preliminary
conclusion is that TILA does not preempt these State laws. As an
additional potential basis--but not necessary to the Bureau's
preliminary conclusion--the Bureau notes that several of these laws do
not appear to require use the terms ``finance charge'' or ``APR'' in a
manner that would be different than TILA and Regulation Z if they were
applicable. The CFPB encourages commenters to provide information about
any relevant differences in these State laws that would affect the
CFPB's preemption analysis and final determination with respect to
them. The Bureau's focus on and preliminary conclusion about these
State laws is not intended to indicate or imply anything about the laws
of any other States.
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\32\ Cal. Fin. Code secs. 22800 to 22805; Cal. Code Regs. tit.
10, ch. 3, subch. 3.
\33\ Utah Code Ann. secs. 7-27-101 to 7-27-301.
\34\ Va. Code Ann. secs. 6.2-2228 to 6.2-2238; 10 Va. Admin.
Code secs. 5-240-10 to 5-240-40.
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Conclusion
In light of the foregoing, the CFPB is publishing this notification
of its intent to make a preemption determination and solicit comment
from the public. After the comment period closes, the CFPB will
consider any comments and publish a notification of final determination
in the Federal Register.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-27059 Filed 12-14-22; 8:45 am]
BILLING CODE 4810-AM-P
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