Preparing for Reg Z threshold changes
2018 brings new calculations from the CFPB and Federal Reserve Board.
It’s the time of year when the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve Board are required to calculate the dollar amounts for certain thresholds in Regulation Z and to issue a final rule amending those dollar amounts if applicable.
Changes are effective Jan. 1, 2018.
Exempt consumer credit transactions
The Dodd-Frank Act amended the Truth-in-Lending Act to require 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 isn’t an increase in the CPI-W, the Fed and CFPB won’t adjust this exemption threshold from the prior year. Based on the annual percentage increase in the CPI-W as of June 1, 2017, the Reg Z exemption threshold will increase from the 2017 amount of $54,600 to $55,800 effective Jan. 1, 2018.
Any extension of credit—except that secured by real property or by personal property used as the principal dwelling of the consumer—that exceeds the above threshold amount won’t be subject to the requirements of Reg Z.
Dodd-Frank requires similar adjustments to the Consumer Leasing Act and Regulation M. Therefore, the exemption amount for Reg M also will increase to $55,800.
Under three acts—the DoddFrank Act of 2010, the Home Ownership Equity Protection Act of 1994 (HOEPA), and the CARD Act of 2009—the CFPB is also required to determine annually if it should revise other Reg Z thresholds and, if so, to issue a final rule to amend the various thresholds.
Minimum interest charges
Reg Z sections 1026.6 and 1026.60 require the disclosure of any minimum interest charge exceeding $1 that could be imposed on an openend loan during a billing cycle and provide that the minimum interest charge threshold will be recalculated annually using the CPI-W.
When the cumulative change in the adjusted minimum value has risen by a whole dollar, the minimum interest charge amounts set forth in Reg Z will be increased by $1.
CFPB is not amending the minimum interest charge amount, so the $1 amount will remain the same for 2018.
Credit-card safe harbor penalty fees
Section 1026.52 establishes a safe harbor for the imposition of penalty fees, such as a late payment fee in association with credit card accounts.
The 2017 thresholds of $27 for first violation and $38 for a subsequent violation remain the same because the CPI-W didn’t increase a sufficient amount to warrant a change.
Under Section 1026.32, when the total loan amount is $21,032 or more, and the points and fees amount exceeds 5% of the total loan amount, the transaction is a highcost mortgage.
Also, when the total loan amount is less than $21,032, and the points and fees amount exceeds the lesser of the adjusted points and fees trigger of $1,052 or 8% of the total loan amount, the transaction is a high-cost mortgage.
Under Section 1026.43, a loan is not a qualified mortgage if the loan’s total points and fees exceed:
- 3% of the total loan amount for a loan greater than or equal to $105,158.
- $3,155 for a loan amount greater than or equal to $63,095 but less than $105,158.
- 5% of the total loan amount for loans greater than or equal to $21,032 but less than $63,095.
- $1,052 for a loan amount greater than or equal to $13,145 but less than $21,032.
- 8% of the total loan amount for loans less than $13,145.
Appraisals for higher- priced mortgages Under Section 1026.35, the exemption threshold will increase from $25,500 to $26,000.
Lesser loan amounts are exempt from the higher-priced mortgage loan appraisal requirements.
MICHAEL McLAIN is CUNA’s senior federal compliance counsel.