The Consumer Financial Protection Bureau (CFPB) recently released a final rule amending the dollar thresholds in Regulation Z, which implements the Truth in Lending Act (TILA). The CFPB's final rule has two primary effects. First, the final rule adjusts select dollar amounts in accordance with the annual change reflected in the Consumer Price Index – a 1.1 percent increase, effective June 1, 2016. These changes simply apply the method formerly established in Regulation Z for determining adjustments to select threshold dollar amounts. Second, the final rule corrects a calculation error in the previous rule with respect to the safe harbor in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) for a subsequent violation penalty fee.
Adjustments to threshold amounts impact several provisions that amend TILA, including the CARD Act, the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
For open-end consumer credit plans under the CARD Act, no changes occur with respect to the threshold that triggers the requirements to disclose minimum interest charges for the first violation penalty fee. The safe harbor remains $27. The subsequent violation penalty fee, however, is increased by $1 and is now $38. This change is made to correct a miscalculation in the previous rule, and, unlike the other amendments, takes effect immediately.
The remainder of the dollar threshold adjustments take effect January 1, 2017. HOEPA initially set the threshold for determining whether a transaction is a high-cost mortgage at $20,000 or more, subject to recalculation annually based on the Consumer Price Index for All Urban Consumers. To reflect the 1.1 percent increase in the Consumer Price Index, in 2017 the threshold for a high-cost mortgage will increase to $20,579, and the adjusted points and fees dollar trigger will be increased to $1,029. Therefore, when the total loan for a transaction is greater than or equal to $20,579 and the points and fees amount is greater than 5 percent of the total loan, the transaction will be considered a high-cost mortgage. If the loan is less than $20,579, but the points and fees exceed either $1,029 or 8 percent of the total loan amount, the transaction will still be considered a high-cost mortgage.
The new rule also impacts the dollar threshold mortgage lenders must consider when determining consumers' ability to repay mortgage loans before extending credit. Relying on the Consumer Price Index for All Urban Consumers, the new rule establishes that a covered transaction is not a qualified mortgage if the transaction's total points and fees exceed:
- 3 percent of a loan amount that is $102,894 or more;
- $3,087 for a loan amount that is greater than or equal to $61,737 but less than $102,894;
- 5 percent of the total amount for loans that exceed or are equal to $20,579 but are less than $61,737;
- $1,029 for a loan amount greater than or equal to $12,862 but less than $20, 579; and
- 8 percent of the total loan amount for loans lower than $12,862.
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