Rule2023-25048
Truth in Lending (Regulation Z)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 29, 2023
Effective
January 1, 2024
Issuing agencies
Federal Reserve SystemConsumer Financial Protection Bureau
Abstract
The Board and the Bureau (collectively, the Agencies) are publishing final rules amending the official interpretations and commentary for the Agencies' regulations that implement the Truth in Lending Act (TILA). The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by requiring that the dollar threshold for exempt consumer credit transactions be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Under regulations adopted by the Agencies, if there is no annual percentage increase in the CPI-W, the Agencies will not adjust this exemption threshold from the prior year. Additionally, in years following a year in which the exemption threshold was not adjusted because the CPI-W decreased, the threshold is calculated by applying the annual percentage change in the CPI-W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI-W had been taken into account. Based on the annual percentage increase in the CPI-W as of June 1, 2023, the exemption threshold will increase from $66,400 to $69,500 effective January 1, 2024. Because the Dodd-Frank Act also requires similar adjustments in the Consumer Leasing Act's threshold for exempt consumer leases, the Agencies are making similar amendments to each of their respective regulations implementing the Consumer Leasing Act elsewhere in the Rules section of this issue of the Federal Register.
Full Text
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<title>Federal Register, Volume 88 Issue 228 (Wednesday, November 29, 2023)</title>
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[Federal Register Volume 88, Number 228 (Wednesday, November 29, 2023)]
[Rules and Regulations]
[Pages 83322-83329]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-25048]
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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Docket No. R-1820]
RIN 7100-AG69
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
Truth in Lending (Regulation Z)
AGENCY: Board of Governors of the Federal Reserve System (Board) and
Consumer Financial Protection Bureau (Bureau).
ACTION: Final rules, official interpretations, and commentary.
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SUMMARY: The Board and the Bureau (collectively, the Agencies) are
publishing final rules amending the official interpretations and
commentary for the Agencies' regulations that implement the Truth in
Lending Act (TILA). The Dodd-Frank Wall Street
[[Page 83323]]
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). Under regulations adopted by the Agencies, if there is no
annual percentage increase in the CPI-W, the Agencies will not adjust
this exemption threshold from the prior year. Additionally, in years
following a year in which the exemption threshold was not adjusted
because the CPI-W decreased, the threshold is calculated by applying
the annual percentage change in the CPI-W to the dollar amount that
would have resulted, after rounding, if the decreases and any
subsequent increases in the CPI-W had been taken into account. Based on
the annual percentage increase in the CPI-W as of June 1, 2023, the
exemption threshold will increase from $66,400 to $69,500 effective
January 1, 2024. Because the Dodd-Frank Act also requires similar
adjustments in the Consumer Leasing Act's threshold for exempt consumer
leases, the Agencies are making similar amendments to each of their
respective regulations implementing the Consumer Leasing Act elsewhere
in the Rules section of this issue of the Federal Register.
DATES: This final rule is effective January 1, 2024.
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 TTY-TRS, please
call 711 from any telephone, anywhere in the United States.
Bureau: Anna Boadwee and Adrien Fernandez, Attorney-Advisors,
Office of Regulations, Consumer Financial Protection Bureau, at (202)
435-7700. If you require this document in an alternative electronic
format, please contact <a href="/cdn-cgi/l/email-protection#2c6f6a7c6e736d4f4f495f5f454e45404558556c4f4a5c4e024b435a"><span class="__cf_email__" data-cfemail="93d0d5c3d1ccd2f0f0f6e0e0faf1fafffae7ead3f0f5e3f1bdf4fce5">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Background
The Dodd-Frank Act increased the threshold in TILA for exempt
consumer credit transactions,\1\ and the threshold in the Consumer
Leasing Act (CLA) for exempt consumer leases, from $25,000 to $50,000,
effective July 21, 2011.\2\ In addition, the Dodd-Frank Act requires
that, on and after December 31, 2011, these thresholds be adjusted
annually for inflation by the annual percentage increase in the CPI-W,
as published by the Bureau of Labor Statistics.\3\ In April 2011, the
Board issued a final rule amending Regulation Z (which implements TILA)
consistent with these provisions of the Dodd-Frank Act, along with a
similar final rule amending Regulation M (which implements the CLA)
(collectively, the Board Final Threshold Rules).\4\
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\1\ Although consumer credit transactions above the threshold
are generally exempt, loans secured by real property or by personal
property used or expected to be used as the principal dwelling of a
consumer and private education loans are covered by TILA regardless
of the loan amount. See 12 CFR 226.3(b)(1)(i) (Board) and 12 CFR
1026.3(b)(1)(i) (Bureau).
\2\ Public Law 111-203, section 1100E, 124 Stat. 1376, 2111
(2010).
\3\ Id.
\4\ 76 FR 18354 (Apr. 4, 2011); 76 FR 18349 (Apr. 4, 2011).
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Title X of the Dodd-Frank Act transferred rulemaking authority for
a number of consumer financial protection laws from the Board to the
Bureau, effective July 21, 2011. In connection with this transfer of
rulemaking authority, the Bureau issued its own Regulation Z
implementing TILA, 12 CFR part 1026, substantially duplicating the
Board's Regulation Z.\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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\5\ See 76 FR 79768 (Dec. 22, 2011); 81 FR 25323 (Apr. 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 provides that ``[s]ubsection (a) shall not apply to
any person, to the extent that such person--(1) provides consumers
with any services related to residential or commercial mortgages or
self-financing transactions involving real property; (2) operates a
line of business--(A) that involves the extension of retail credit
or retail leases involving motor vehicles; and (B) in which--(i) the
extension of retail credit or retail leases are provided directly to
consumers; and (ii) the contract governing such extension of retail
credit or retail leases is not routinely assigned to an unaffiliated
third party finance or leasing source; or (3) offers or provides a
consumer financial product or service not involving or related to
the sale, financing, leasing, rental, repair, refurbishment,
maintenance, or other servicing of motor vehicles, motor vehicle
parts, or any related or ancillary product or service.'' 12 U.S.C.
5519(b).
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The Agencies' regulations,\7\ and their accompanying commentaries,
provide that the exemption threshold will be adjusted annually
effective January 1 of each year based on any annual percentage
increase in the CPI-W that was in effect on the preceding June 1. They
further provide that any increase in the threshold amount will be
rounded to the nearest $100 increment. For example, if the annual
percentage increase in the CPI-W would result in a $950 increase in the
threshold amount, the threshold amount will be increased by $1,000.
However, if the annual percentage increase in the CPI-W would result in
a $949 increase in the threshold amount, the threshold amount will be
increased by $900.\8\ Since 2011, the Agencies have adjusted the
Regulation Z exemption threshold annually, in accordance with these
rules.
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\7\ 12 CFR 226.3(b)(1)(ii) (Board) and 12 CFR 1026.3(b)(1)(ii)
(Bureau).
\8\ See comments 3(b)-1 in supplements I of 12 CFR parts 226 and
1026.
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On November 30, 2016, the Agencies published a final rule in the
Federal Register to memorialize the calculation method used by the
Agencies each year to adjust the exemption threshold to ensure that, as
contemplated by section 1100E(b) of the Dodd-Frank Act, the values for
the exemption threshold keep pace with the CPI-W (Regulation Z
Adjustment Calculation Rule).\9\ The Regulation Z Adjustment
Calculation Rule memorialized the policy that, if there is no annual
percentage increase in the CPI-W, the Agencies will not adjust the
exemption threshold from the prior year. The Regulation Z Adjustment
Calculation Rule also provided that, in years following a year in which
the exemption threshold was not adjusted because there was a decrease
in the CPI-W from the previous year, the threshold is calculated by
applying the annual percentage change in the CPI-W to the dollar amount
that would have resulted, after rounding, if the decreases and any
subsequent increases in the CPI-W had been taken into account. If the
resulting amount calculated, after rounding, is greater than the
current threshold, then the threshold effective January 1 the following
year will increase accordingly; if the resulting amount calculated,
after rounding, is equal to or less than the current threshold, then
the threshold effective January 1 the following year will not change,
but future increases will be calculated based on the amount that would
have resulted, after rounding.
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\9\ See 81 FR 86260 (Nov. 30, 2016).
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II. 2024 Adjustment and Commentary Revision
Effective January 1, 2024, the exemption threshold amount is
increased from $66,400 to $69,500. This amount is based on the CPI-W in
effect on June 1, 2023, which was reported on
[[Page 83324]]
May 10, 2023 (based on April 2023 data).\10\ The CPI-W is a subset of
the CPI-U index (based on all urban consumers) and represents
approximately 30 percent of the U.S. population. The CPI-W reported on
May 10, 2023, reflects a 4.6 percent increase in the CPI-W from April
2022 to April 2023. Accordingly, the 4.6 percent increase in the CPI-W
from April 2022 to April 2023 results in an exemption threshold amount
of $69,500, after rounding. The Agencies are revising the commentaries
to their respective regulations to add new comment 3(b)-3.xv to state
that, from January 1, 2024, through December 31, 2024, the threshold
amount is $69,500. These revisions are effective January 1, 2024.
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\10\ The Bureau of Labor Statistics calculates consumer-based
indices for each month but does not report those indices until the
middle of the following month. As such, the most recently reported
indices as of June 1, 2023, were reported on May 10, 2023, and
reflect economic conditions in April 2023.
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III. Regulatory Analysis
Administrative Procedure Act
Under the Administrative Procedure Act, notice and opportunity for
public comment are not required if the Agencies find that notice and
public comment are impracticable, unnecessary, or contrary to the
public interest.\11\ The amendments in this rule are technical and
apply the method previously set forth in the Board Final Threshold
Rules and the Regulation Z Adjustment Calculation Rule. For these
reasons, the Agencies have determined that publishing a notice of
proposed rulemaking and providing opportunity for public comment are
unnecessary. Therefore, the amendments are adopted in final form.
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\11\ 5 U.S.C. 553(b)(B).
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Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) does not apply to a rulemaking
where a general notice of proposed rulemaking is not required.\12\ As
noted previously, the Agencies have determined that it is unnecessary
to publish a general notice of proposed rulemaking for this joint final
rule. Accordingly, the RFA's requirements relating to an initial and
final regulatory flexibility analysis do not apply.
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\12\ 5 U.S.C. 603(a), 604(a).
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Paperwork Reduction Act
The information collections contained in Regulation Z which
implements TILA are approved by OMB under Control number 3170-0015. The
current approval for this control number expires on May 31st, 2026. In
accordance with the Paperwork Reduction Act of 1995,\13\ the Agencies
reviewed this final rule. The Agencies have determined that this rule
does not create any new information collections or substantially revise
any existing collections.
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\13\ 44 U.S.C. 3506; 5 CFR part 1320.
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Bureau Congressional Review Act Statement
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Bureau will submit a report containing this rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the United States prior to the rule taking
effect. The Office of Information and Regulatory Affairs has designated
this rule as not a ``major rule'' as defined by 5 U.S.C. 804(2).
List of Subjects
12 CFR Part 226
Advertising, Consumer protection, Federal Reserve System, Reporting
and recordkeeping requirements, Truth in lending.
12 CFR Part 1026
Advertising, Banks, banking, Consumer protection, Credit, Credit
unions, Mortgages, National banks, Reporting and recordkeeping
requirements, Savings associations, Truth-in-lending.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Authority and Issuance
For the reasons set forth in the preamble, the Board amends
Regulation Z, 12 CFR part 226, as set forth below:
PART 226--TRUTH IN LENDING (REGULATION Z)
0
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l)
and 1639h; Pub. L. 111-24, section 2, 123 Stat. 1734; Pub. L. 111-
203, 124 Stat. 1376.
0
2. In Supplement I to part 226, under Section 226.3--Exempt
Transactions, revise 3(b) Credit over applicable threshold amount, to
read as follows:
Supplement I to Part 226--Official Staff Interpretations
* * * * *
Subpart A--General
* * * * *
Section 226.3--Exempt Transactions
* * * * *
3(b) Credit over applicable threshold amount.
1. Threshold amount. For purposes of Sec. 226.3(b), the threshold
amount in effect during a particular period is the amount stated in
comment 3(b)-3 for that period. The threshold amount is adjusted
effective January 1 of each year by any annual percentage increase in
the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) that was in effect on the preceding June 1. Comment 3(b)-3 will
be amended to provide the threshold amount for the upcoming year after
the annual percentage change in the CPI-W that was in effect on June 1
becomes available. Any increase in the threshold amount will be rounded
to the nearest $100 increment. For example, if the annual percentage
increase in the CPI-W would result in a $950 increase in the threshold
amount, the threshold amount will be increased by $1,000. However, if
the annual percentage increase in the CPI-W would result in a $949
increase in the threshold amount, the threshold amount will be
increased by $900.
2. No increase in the CPI-W. If the CPI-W in effect on June 1 does
not increase from the CPI-W in effect on June 1 of the previous year,
the threshold amount effective the following January 1 through December
31 will not change from the previous year. When this occurs, for the
years that follow, the threshold is calculated based on the annual
percentage change in the CPI-W applied to the dollar amount that would
have resulted, after rounding, if decreases and any subsequent
increases in the CPI-W had been taken into account.
i. Net increases. If the resulting amount calculated, after
rounding, is greater than the current threshold, then the threshold
effective January 1 the following year will increase accordingly.
ii. Net decreases. If the resulting amount calculated, after
rounding, is equal to or less than the current threshold, then the
threshold effective January 1 the following year will not change, but
future increases will be calculated based on the amount that would have
resulted.
3. Threshold. For purposes of Sec. 226.3(b), the threshold amount
in effect during a particular period is the amount stated below for
that period.
i. Prior to July 21, 2011, the threshold amount is $25,000.
ii. From July 21, 2011, through December 31, 2011, the threshold
amount is $50,000.
iii. From January 1, 2012, through December 31, 2012, the threshold
amount is $51,800.
[[Page 83325]]
iv. From January 1, 2013, through December 31, 2013, the threshold
amount is $53,000.
v. From January 1, 2014, through December 31, 2014, the threshold
amount is $53,500.
vi. From January 1, 2015, through December 31, 2015, the threshold
amount is $54,600.
vii. From January 1, 2016, through December 31, 2016, the threshold
amount is $54,600.
viii. From January 1, 2017, through December 31, 2017, the
threshold amount is $54,600.
ix. From January 1, 2018, through December 31, 2018, the threshold
amount is $55,800.
x. From January 1, 2019, through December 31, 2019, the threshold
amount is $57,200.
xi. From January 1, 2020, through December 31, 2020, the threshold
amount is $58,300.
xii. From January 1, 2021, through December 31, 2021, the threshold
amount is $58,300.
xiii. From January 1, 2022, through December 31, 2022, the
threshold amount is $61,000.
xiv. From January 1, 2023, through December 31, 2023, the threshold
amount is $66,400.
xv. From January 1, 2024, through December 31, 2024, the threshold
amount is $69,500.
4. Open-end credit.
i. Qualifying for exemption. An open-end account is exempt under
Sec. 226.3(b) (unless secured by any real property, or by personal
property used or expected to be used as the consumer's principal
dwelling) if either of the following conditions is met:
A. The creditor makes an initial extension of credit at or after
account opening that exceeds the threshold amount in effect at the time
the initial extension is made. If a creditor makes an initial extension
of credit after account opening that does not exceed the threshold
amount in effect at the time the extension is made, the creditor must
have satisfied all of the applicable requirements of this part from the
date the account was opened (or earlier, if applicable), including but
not limited to the requirements of Sec. 226.6 (account-opening
disclosures), Sec. 226.7 (periodic statements), Sec. 226.52
(limitations on fees), and Sec. 226.55 (limitations on increasing
annual percentages rates, fees, and charges). For example:
(1) Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does not
make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $60,000. In this
circumstance, no requirements of this part apply to the account.
(2) Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does not
make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $50,000 or less. In
this circumstance, the account is not exempt, and the creditor must
have satisfied all of the applicable requirements of this part from the
date the account was opened (or earlier, if applicable).
B. The creditor makes a firm written commitment at account opening
to extend a total amount of credit in excess of the threshold amount in
effect at the time the account is opened with no requirement of
additional credit information for any advances on the account (except
as permitted from time to time with respect to open-end accounts
pursuant to Sec. 226.2(a)(20)).
ii. Subsequent changes generally. Subsequent changes to an open-end
account or the threshold amount may result in the account no longer
qualifying for the exemption in Sec. 226.3(b). In these circumstances,
the creditor must begin to comply with all of the applicable
requirements of this part within a reasonable period of time after the
account ceases to be exempt. Once an account ceases to be exempt, the
requirements of this part apply to any balances on the account. The
creditor, however, is not required to comply with the requirements of
this part with respect to the period of time during which the account
was exempt. For example, if an open-end credit account ceases to be
exempt, the creditor must within a reasonable period of time provide
the disclosures required by Sec. 226.6 reflecting the current terms of
the account and begin to provide periodic statements consistent with
Sec. 226.7. However, the creditor is not required to disclose fees or
charges imposed while the account was exempt. Furthermore, if the
creditor provided disclosures consistent with the requirements of this
part while the account was exempt, it is not required to provide
disclosures required by Sec. 226.6 reflecting the current terms of the
account. See also comment 3(b)-6.
iii. Subsequent changes when exemption is based on initial
extension of credit. If a creditor makes an initial extension of credit
that exceeds the threshold amount in effect at that time, the open-end
account remains exempt under Sec. 226.3(b) regardless of a subsequent
increase in the threshold amount, including an increase pursuant to
Sec. 226.3(b)(1)(ii) as a result of an increase in the CPI-W.
Furthermore, in these circumstances, the account remains exempt even if
there are no further extensions of credit, subsequent extensions of
credit do not exceed the threshold amount, the account balance is
subsequently reduced below the threshold amount (such as through
repayment of the extension), or the credit limit for the account is
subsequently reduced below the threshold amount. However, if the
initial extension of credit on an account does not exceed the threshold
amount in effect at the time of the extension, the account is not
exempt under Sec. 226.3(b) even if a subsequent extension exceeds the
threshold amount or if the account balance later exceeds the threshold
amount (for example, due to the subsequent accrual of interest).
iv. Subsequent changes when exemption is based on firm commitment.
A. General. If a creditor makes a firm written commitment at
account opening to extend a total amount of credit that exceeds the
threshold amount in effect at that time, the open-end account remains
exempt under Sec. 226.3(b) regardless of a subsequent increase in the
threshold amount pursuant to Sec. 226.3(b)(1)(ii) as a result of an
increase in the CPI-W. However, see comment 3(b)-8 with respect to the
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec. 226.3(b) based on a firm commitment
to extend credit, the account remains exempt even if the amount of
credit actually extended does not exceed the threshold amount. In
contrast, if the firm commitment does not exceed the threshold amount
at account opening, the account is not exempt under Sec. 226.3(b) even
if the account balance later exceeds the threshold amount. In addition,
if a creditor reduces a firm commitment, the account ceases to be
exempt unless the reduced firm commitment exceeds the threshold amount
in effect at the time of the reduction. For example:
(1) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $55,000 in
credit. If during year one the creditor reduces its firm commitment to
$53,000, the account remains exempt under Sec. 226.3(b). However, if
during year one the creditor reduces its firm commitment to $40,000,
the account is no longer exempt under Sec. 226.3(b).
(2) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is
[[Page 83326]]
exempt under Sec. 226.3(b) based on the creditor's firm commitment to
extend $55,000 in credit. If the threshold amount is $56,000 on January
1 of year six as a result of increases in the CPI-W, the account
remains exempt. However, if the creditor reduces its firm commitment to
$54,000 on July 1 of year six, the account ceases to be exempt under
Sec. 226.3(b).
B. Initial extension of credit. If an open-end account qualifies
for a Sec. 226.3(b) exemption at account opening based on a firm
commitment, that account may also subsequently qualify for a Sec.
226.3(b) exemption based on an initial extension of credit. However,
that initial extension must be a single advance in excess of the
threshold amount in effect at the time the extension is made. In
addition, the account must continue to qualify for an exemption based
on the firm commitment until the initial extension of credit is made.
For example:
(1) Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $55,000 in
credit. The account is not used for an extension of credit during year
one. On January 1 of year two, the threshold amount is increased to
$51,000 pursuant to Sec. 226.3(b)(1)(ii) as a result of an increase in
the CPI-W. On July 1 of year two, the consumer uses the account for an
initial extension of $52,000. As a result of this extension of credit,
the account remains exempt under Sec. 226.3(b) even if, after July 1
of year two, the creditor reduces the firm commitment to $51,000 or
less.
(2) Same facts as in paragraph 4.iv.B(1) of this section except
that the consumer uses the account for an initial extension of $30,000
on July 1 of year two and for an extension of $22,000 on July 15 of
year two. In these circumstances, the account is not exempt under Sec.
226.3(b) based on the $30,000 initial extension of credit because that
extension did not exceed the applicable threshold amount ($51,000),
although the account remains exempt based on the firm commitment to
extend $55,000 in credit.
(3) Same facts as in paragraph 4.iv.B(1) of this section except
that, on April 1 of year two, the creditor reduces the firm commitment
to $50,000, which is below the $51,000 threshold then in effect.
Because the account ceases to qualify for a Sec. 226.3(b) exemption on
April 1 of year two, the account does not qualify for a Sec. 226.3(b)
exemption based on a $52,000 initial extension of credit on July 1 of
year two.
5. Closed-end credit.
i. Qualifying for exemption. A closed-end loan is exempt under
Sec. 226.3(b) (unless the extension of credit is secured by any real
property, or by personal property used or expected to be used as the
consumer's principal dwelling; or is a private education loan as
defined in Sec. 226.46(b)(5)), if either of the following conditions
is met.
A. The creditor makes an extension of credit at consummation that
exceeds the threshold amount in effect at the time of consummation. In
these circumstances, the loan remains exempt under Sec. 226.3(b) even
if the amount owed is subsequently reduced below the threshold amount
(such as through repayment of the loan).
B. The creditor makes a commitment at consummation to extend a
total amount of credit in excess of the threshold amount in effect at
the time of consummation. In these circumstances, the loan remains
exempt under Sec. 226.3(b) even if the total amount of credit extended
does not exceed the threshold amount.
ii. Subsequent changes. If a creditor makes a closed-end extension
of credit or commitment to extend closed-end credit that exceeds the
threshold amount in effect at the time of consummation, the closed-end
loan remains exempt under Sec. 226.3(b) regardless of a subsequent
increase in the threshold amount. However, a closed-end loan is not
exempt under Sec. 226.3(b) merely because it is used to satisfy and
replace an existing exempt loan, unless the new extension of credit is
itself exempt under the applicable threshold amount. For example,
assume a closed-end loan that qualified for a Sec. 226.3(b) exemption
at consummation in year one is refinanced in year ten and that the new
loan amount is less than the threshold amount in effect in year ten. In
these circumstances, the creditor must comply with all of the
applicable requirements of this part with respect to the year ten
transaction if the original loan is satisfied and replaced by the new
loan, which is not exempt under Sec. 226.3(b). See also comment 3(b)-
6.
6. Addition of a security interest in real property or a dwelling
after account opening or consummation.
i. Open-end credit. For open-end accounts, if, after account
opening, a security interest is taken in real property, or in personal
property used or expected to be used as the consumer's principal
dwelling, a previously exempt account ceases to be exempt under Sec.
226.3(b) and the creditor must begin to comply with all of the
applicable requirements of this part within a reasonable period of
time. See comment 3(b)-4.ii. If a security interest is taken in the
consumer's principal dwelling, the creditor must also give the consumer
the right to rescind the security interest consistent with Sec.
226.15.
ii. Closed-end credit. For closed-end loans, if, after
consummation, a security interest is taken in any real property, or in
personal property used or expected to be used as the consumer's
principal dwelling, an exempt loan remains exempt under Sec. 226.3(b).
However, the addition of a security interest in the consumer's
principal dwelling is a transaction for purposes of Sec. 226.23, and
the creditor must give the consumer the right to rescind the security
interest consistent with that section. See Sec. 226.23(a)(1) and the
accompanying commentary. In contrast, if a closed-end loan that is
exempt under Sec. 226.3(b) is satisfied and replaced by a loan that is
secured by any real property, or by personal property used or expected
to be used as the consumer's principal dwelling, the new loan is not
exempt under Sec. 226.3(b) and the creditor must comply with all of
the applicable requirements of this part. See comment 3(b)-5.
7. Application to extensions secured by mobile homes. Because a
mobile home can be a dwelling under Sec. 226.2(a)(19), the exemption
in Sec. 226.3(b) does not apply to a credit extension secured by a
mobile home that is used or expected to be used as the principal
dwelling of the consumer. See comment 3(b)-6.
8. Transition rule for open-end accounts exempt prior to July 21,
2011. Section 226.3(b)(2) applies only to open-end accounts opened
prior to July 21, 2011. Section 226.3(b)(2) does not apply if a
security interest is taken by the creditor in any real property, or in
personal property used or expected to be used as the consumer's
principal dwelling. If, on July 20, 2011, an open-end account is exempt
under Sec. 226.3(b) based on a firm commitment to extend credit in
excess of $25,000, the account remains exempt under Sec. 226.3(b)(2)
until December 31, 2011 (unless the firm commitment is reduced to
$25,000 or less). If the firm commitment is increased on or before
December 31, 2011, to an amount in excess of $50,000, the account
remains exempt under Sec. 226.3(b)(1) regardless of subsequent
increases in the threshold amount as a result of increases in the CPI-
W. If the firm commitment is not increased on or before December 31,
2011, to an amount in excess of $50,000, the account ceases to be
exempt under Sec. 226.3(b) based on a firm commitment to extend
credit. For example:
[[Page 83327]]
i. Assume that, on July 20, 2011, the account is exempt under Sec.
226.3(b) based on the creditor's firm commitment to extend $30,000 in
credit. On November 1, 2011, the creditor increases the firm commitment
on the account to $55,000. In these circumstances, the account remains
exempt under Sec. 226.3(b)(1) regardless of subsequent increases in
the threshold amount as a result of increases in the CPI-W.
ii. Same facts as paragraph 8.i. of this section except, on
November 1, 2011, the creditor increases the firm commitment on the
account to $40,000. In these circumstances, the account ceases to be
exempt under Sec. 226.3(b)(2) after December 31, 2011, and the
creditor must begin to comply with the applicable requirements of this
part.
* * * * *
CONSUMER FINANCIAL PROTECTION BUREAU
Authority and Issuance
For the reasons set forth in the preamble, the Bureau amends
Regulation Z, 12 CFR part 1026, as set forth below:
PART 1026--TRUTH IN LENDING (REGULATION Z)
0
3. The authority citation for part 1026 continues to read as follows:
Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353,
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.
0
4. In Supplement I to part 1026, under Section 1026.3--Exempt
Transactions, revise 3(b)--Credit Over Applicable Threshold Amount to
read as follows:
Supplement I to Part 1026--Official Interpretations
* * * * *
Section 1026.3--Exempt Transactions
* * * * *
3(b) Credit Over Applicable Threshold Amount
1. Threshold amount. For purposes of Sec. 1026.3(b), the threshold
amount in effect during a particular period is the amount stated in
comment 3(b)-3 below for that period. The threshold amount is adjusted
effective January 1 of each year by any annual percentage increase in
the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W) that was in effect on the preceding June 1. Comment 3(b)-3 will
be amended to provide the threshold amount for the upcoming year after
the annual percentage change in the CPI-W that was in effect on June 1
becomes available. Any increase in the threshold amount will be rounded
to the nearest $100 increment. For example, if the annual percentage
increase in the CPI-W would result in a $950 increase in the threshold
amount, the threshold amount will be increased by $1,000. However, if
the annual percentage increase in the CPI-W would result in a $949
increase in the threshold amount, the threshold amount will be
increased by $900.
2. No increase in the CPI-W. If the CPI-W in effect on June 1 does
not increase from the CPI-W in effect on June 1 of the previous year,
the threshold amount effective the following January 1 through December
31 will not change from the previous year. When this occurs, for the
years that follow, the threshold is calculated based on the annual
percentage change in the CPI-W applied to the dollar amount that would
have resulted, after rounding, if decreases and any subsequent
increases in the CPI-W had been taken into account.
i. Net increases. If the resulting amount calculated, after
rounding, is greater than the current threshold, then the threshold
effective January 1 the following year will increase accordingly.
ii. Net decreases. If the resulting amount calculated, after
rounding, is equal to or less than the current threshold, then the
threshold effective January 1 the following year will not change, but
future increases will be calculated based on the amount that would have
resulted.
3. Threshold. For purposes of Sec. 1026.3(b), the threshold amount
in effect during a particular period is the amount stated below for
that period.
i. Prior to July 21, 2011, the threshold amount is $25,000.
ii. From July 21, 2011, through December 31, 2011, the threshold
amount is $50,000.
iii. From January 1, 2012, through December 31, 2012, the threshold
amount is $51,800.
iv. From January 1, 2013, through December 31, 2013, the threshold
amount is $53,000.
v. From January 1, 2014, through December 31, 2014, the threshold
amount is $53,500.
vi. From January 1, 2015, through December 31, 2015, the threshold
amount is $54,600.
vii. From January 1, 2016, through December 31, 2016, the threshold
amount is $54,600.
viii. From January 1, 2017, through December 31, 2017, the
threshold amount is $54,600.
ix. From January 1, 2018, through December 31, 2018, the threshold
amount is $55,800.
x. From January 1, 2019, through December 31, 2019, the threshold
amount is $57,200.
xi. From January 1, 2020, through December 31, 2020, the threshold
amount is $58,300.
xii. From January 1, 2021, through December 31, 2021, the threshold
amount is $58,300.
xiii. From January 1, 2022, through December 31, 2022, the
threshold amount is $61,000.
xiv. From January 1, 2023, through December 31, 2023, the threshold
amount is $66,400.
xv. From January 1, 2024, through December 31, 2024, the threshold
amount is $69,500.
4. Open-end credit. i. Qualifying for exemption. An open-end
account is exempt under Sec. 1026.3(b) (unless secured by real
property, or by personal property used or expected to be used as the
consumer's principal dwelling) if either of the following conditions is
met:
A. The creditor makes an initial extension of credit at or after
account opening that exceeds the threshold amount in effect at the time
the initial extension is made. If a creditor makes an initial extension
of credit after account opening that does not exceed the threshold
amount in effect at the time the extension is made, the creditor must
have satisfied all of the applicable requirements of this part from the
date the account was opened (or earlier, if applicable), including but
not limited to the requirements of Sec. 1026.6 (account-opening
disclosures), Sec. 1026.7 (periodic statements), Sec. 1026.52
(limitations on fees), and Sec. 1026.55 (limitations on increasing
annual percentage rates, fees, and charges). For example:
1. Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does not
make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $60,000. In this
circumstance, no requirements of this part apply to the account.
2. Assume that the threshold amount in effect on January 1 is
$50,000. On February 1, an account is opened but the creditor does not
make an initial extension of credit at that time. On July 1, the
creditor makes an initial extension of credit of $50,000 or less. In
this circumstance, the account is not exempt, and the creditor must
have satisfied all of the applicable requirements of this part from the
date the account was opened (or earlier, if applicable).
B. The creditor makes a firm written commitment at account opening
to
[[Page 83328]]
extend a total amount of credit in excess of the threshold amount in
effect at the time the account is opened with no requirement of
additional credit information for any advances on the account (except
as permitted from time to time with respect to open-end accounts
pursuant to Sec. 1026.2(a)(20)).
ii. Subsequent changes generally. Subsequent changes to an open-end
account or the threshold amount may result in the account no longer
qualifying for the exemption in Sec. 1026.3(b). In these
circumstances, the creditor must begin to comply with all of the
applicable requirements of this part within a reasonable period of time
after the account ceases to be exempt. Once an account ceases to be
exempt, the requirements of this part apply to any balances on the
account. The creditor, however, is not required to comply with the
requirements of this part with respect to the period of time during
which the account was exempt. For example, if an open-end credit
account ceases to be exempt, the creditor must within a reasonable
period of time provide the disclosures required by Sec. 1026.6
reflecting the current terms of the account and begin to provide
periodic statements consistent with Sec. 1026.7. However, the creditor
is not required to disclose fees or charges imposed while the account
was exempt. Furthermore, if the creditor provided disclosures
consistent with the requirements of this part while the account was
exempt, it is not required to provide disclosures required by Sec.
1026.6 reflecting the current terms of the account. See also comment
3(b)-6.
iii. Subsequent changes when exemption is based on initial
extension of credit. If a creditor makes an initial extension of credit
that exceeds the threshold amount in effect at that time, the open-end
account remains exempt under Sec. 1026.3(b) regardless of a subsequent
increase in the threshold amount, including an increase pursuant to
Sec. 1026.3(b)(1)(ii) as a result of an increase in the CPI-W.
Furthermore, in these circumstances, the account remains exempt even if
there are no further extensions of credit, subsequent extensions of
credit do not exceed the threshold amount, the account balance is
subsequently reduced below the threshold amount (such as through
repayment of the extension), or the credit limit for the account is
subsequently reduced below the threshold amount. However, if the
initial extension of credit on an account does not exceed the threshold
amount in effect at the time of the extension, the account is not
exempt under Sec. 1026.3(b) even if a subsequent extension exceeds the
threshold amount or if the account balance later exceeds the threshold
amount (for example, due to the subsequent accrual of interest).
iv. Subsequent changes when exemption is based on firm commitment.
A. General. If a creditor makes a firm written commitment at
account opening to extend a total amount of credit that exceeds the
threshold amount in effect at that time, the open-end account remains
exempt under Sec. 1026.3(b) regardless of a subsequent increase in the
threshold amount pursuant to Sec. 1026.3(b)(1)(ii) as a result of an
increase in the CPI-W. However, see comment 3(b)-8 with respect to the
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec. 1026.3(b) based on a firm commitment
to extend credit, the account remains exempt even if the amount of
credit actually extended does not exceed the threshold amount. In
contrast, if the firm commitment does not exceed the threshold amount
at account opening, the account is not exempt under Sec. 1026.3(b)
even if the account balance later exceeds the threshold amount. In
addition, if a creditor reduces a firm commitment, the account ceases
to be exempt unless the reduced firm commitment exceeds the threshold
amount in effect at the time of the reduction. For example:
1. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000 in
credit. If during year one the creditor reduces its firm commitment to
$53,000, the account remains exempt under Sec. 1026.3(b). However, if
during year one the creditor reduces its firm commitment to $40,000,
the account is no longer exempt under Sec. 1026.3(b).
2. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000 in
credit. If the threshold amount is $56,000 on January 1 of year six as
a result of increases in the CPI-W, the account remains exempt.
However, if the creditor reduces its firm commitment to $54,000 on July
1 of year six, the account ceases to be exempt under Sec. 1026.3(b).
B. Initial extension of credit. If an open-end account qualifies
for a Sec. 1026.3(b) exemption at account opening based on a firm
commitment, that account may also subsequently qualify for a Sec.
1026.3(b) exemption based on an initial extension of credit. However,
that initial extension must be a single advance in excess of the
threshold amount in effect at the time the extension is made. In
addition, the account must continue to qualify for an exemption based
on the firm commitment until the initial extension of credit is made.
For example:
1. Assume that, at account opening in year one, the threshold
amount in effect is $50,000 and the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $55,000 in
credit. The account is not used for an extension of credit during year
one. On January 1 of year two, the threshold amount is increased to
$51,000 pursuant to Sec. 1026.3(b)(1)(ii) as a result of an increase
in the CPI-W. On July 1 of year two, the consumer uses the account for
an initial extension of $52,000. As a result of this extension of
credit, the account remains exempt under Sec. 1026.3(b) even if, after
July 1 of year two, the creditor reduces the firm commitment to $51,000
or less.
2. Same facts as in paragraph 4.iv.B.1 of this section except that
the consumer uses the account for an initial extension of $30,000 on
July 1 of year two and for an extension of $22,000 on July 15 of year
two. In these circumstances, the account is not exempt under Sec.
1026.3(b) based on the $30,000 initial extension of credit because that
extension did not exceed the applicable threshold amount ($51,000),
although the account remains exempt based on the firm commitment to
extend $55,000 in credit.
3. Same facts as in paragraph 4.iv.B.1 of this section except that,
on April 1 of year 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).
[[Page 83329]]
B. The creditor makes a commitment at consummation to extend a
total amount of credit in excess of the threshold amount in effect at
the time of consummation. In these circumstances, the loan remains
exempt under Sec. 1026.3(b) even if the total amount of credit
extended does not exceed the threshold amount.
ii. Subsequent changes. If a creditor makes a closed-end extension
of credit or commitment to extend closed-end credit that exceeds the
threshold amount in effect at the time of consummation, the closed-end
loan remains exempt under Sec. 1026.3(b) regardless of a subsequent
increase in the threshold amount. However, a closed-end loan is not
exempt under Sec. 1026.3(b) merely because it is used to satisfy and
replace an existing exempt loan, unless the new extension of credit is
itself exempt under the applicable threshold amount. For example,
assume a closed-end loan that qualified for a Sec. 1026.3(b) exemption
at consummation in year one is refinanced in year ten and that the new
loan amount is less than the threshold amount in effect in year ten. In
these circumstances, the creditor must comply with all of the
applicable requirements of this part with respect to the year ten
transaction if the original loan is satisfied and replaced by the new
loan, which is not exempt under Sec. 1026.3(b). See also comment 3(b)-
6.
6. Addition of a security interest in real property or a dwelling
after account opening or consummation. i. Open-end credit. For open-end
accounts, if after account opening a security interest is taken in real
property, or in personal property used or expected to be used as the
consumer's principal dwelling, a previously exempt account ceases to be
exempt under Sec. 1026.3(b) and the creditor must begin to comply with
all of the applicable requirements of this part within a reasonable
period of time. See comment 3(b)-4.ii. If a security interest is taken
in the consumer's principal dwelling, the creditor must also give the
consumer the right to rescind the security interest consistent with
Sec. 1026.15.
ii. Closed-end credit. For closed-end loans, if after consummation
a security interest is taken in real property, or in personal property
used or expected to be used as the consumer's principal dwelling, an
exempt loan remains exempt under Sec. 1026.3(b). However, the addition
of a security interest in the consumer's principal dwelling is a
transaction for purposes of Sec. 1026.23, and the creditor must give
the consumer the right to rescind the security interest consistent with
that section. See Sec. 1026.23(a)(1) and its commentary. In contrast,
if a closed-end loan that is exempt under Sec. 1026.3(b) is satisfied
and replaced by a loan that is secured by real property, or by personal
property used or expected to be used as the consumer's principal
dwelling, the new loan is not exempt under Sec. 1026.3(b), and the
creditor must comply with all of the applicable requirements of this
part. See comment 3(b)-5.
7. Application to extensions secured by mobile homes. Because a
mobile home can be a dwelling under Sec. 1026.2(a)(19), the exemption
in Sec. 1026.3(b) does not apply to a credit extension secured by a
mobile home that is used or expected to be used as the principal
dwelling of the consumer. See comment 3(b)-6.
8. Transition rule for open-end accounts exempt prior to July 21,
2011. Section 1026.3(b)(2) applies only to open-end accounts opened
prior to July 21, 2011. Section 1026.3(b)(2) does not apply if a
security interest is taken by the creditor in real property, or in
personal property used or expected to be used as the consumer's
principal dwelling. If, on July 20, 2011, an open-end account is exempt
under Sec. 1026.3(b) based on a firm commitment to extend credit in
excess of $25,000, the account remains exempt under Sec. 1026.3(b)(2)
until December 31, 2011 (unless the firm commitment is reduced to
$25,000 or less). If the firm commitment is increased on or before
December 31, 2011, to an amount in excess of $50,000, the account
remains exempt under Sec. 1026.3(b)(1) regardless of subsequent
increases in the threshold amount as a result of increases in the CPI-
W. If the firm commitment is not increased on or before December 31,
2011, to an amount in excess of $50,000, the account ceases to be
exempt under Sec. 1026.3(b) based on a firm commitment to extend
credit. For example:
i. Assume that, on July 20, 2011, the account is exempt under Sec.
1026.3(b) based on the creditor's firm commitment to extend $30,000 in
credit. On November 1, 2011, the creditor increases the firm commitment
on the account to $55,000. In these circumstances, the account remains
exempt under Sec. 1026.3(b)(1) regardless of subsequent increases in
the threshold amount as a result of increases in the CPI-W.
ii. Same facts as paragraph 8.i of this section except, on November
1, 2011, the creditor increases the firm commitment on the account to
$40,000. In these circumstances, the account ceases to be exempt under
Sec. 1026.3(b)(2) after December 31, 2011, and the creditor must begin
to comply with the applicable requirements of this part.
* * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Secretary of the Board under delegated
authority.
Michele Taylor Fennell,
Deputy Associate Secretary of the Board.
Brian Shearer,
Senior Advisor, Consumer Financial Protection Bureau.
[FR Doc. 2023-25048 Filed 11-28-23; 8:45 am]
BILLING CODE 4810-AM-P; 6210-01-P
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