Federal Register: August 4, 2010 (Volume 75, Number 149)
DOCID: fr04au10-1 FR Doc 2010-19101
FEDERAL RESERVE SYSTEM
Federal Reserve System
CFR Citation: 12 CFR Part 226
DOCUMENT ACTION: Final rule; staff commentary.
Truth in Lending
DATES: Effective Date: January 1, 2011.
The Board is publishing a final rule amending the staff commentary that interprets the requirements of Regulation Z (Truth in Lending). The Board is required to adjust annually the dollar amount that triggers requirements for certain home mortgage loans bearing fees above a certain amount. The Home Ownership and Equity Protection Act of 1994 (HOEPA) sets forth rules for homesecured loans in which the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. In keeping with the statute, the Board has annually adjusted the $400 amount based on the annual percentage change reflected in the Consumer Price Index as reported on June 1. The adjusted dollar amount for 2011 is $592.
Truth in Lending
The Truth in Lending Act (TILA; 15 U.S.C. 16011666j) requires creditors to disclose credit terms and the cost of consumer credit as an annual percentage rate. The act requires additional disclosures for loans secured by a consumer's home, and permits consumers to cancel certain transactions that involve their principal dwelling. TILA is implemented by the Board's Regulation Z (12 CFR part 226). The Board's official staff commentary (12 CFR part 226 (Supp. I)) interprets the regulation, and provides guidance to creditors in applying the regulation to specific transactions.
In 1995, the Board published amendments to Regulation Z implementing HOEPA, contained in the Riegle Community Development and Regulatory Improvement Act of 1994, Public Law 103325, 108 Stat. 2160 (60 FR 15463). These amendments, contained in Sec. Sec. 226.32 and 226.34 of the regulation, impose substantive limitations and additional disclosure requirements on certain closedend home mortgage loans bearing rates or fees above a certain percentage or amount. As enacted, the statute requires creditors to comply with the HOEPA requirements if the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. TILA and Regulation Z provide that the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index (CPI) that was reported on the preceding June 1. 15 U.S.C. 1602(aa)(3) and 12 CFR 226.32(a)(1)(ii). The Board adjusted the $400 amount to $579 for the year 2010.
The Bureau of Labor Statistics publishes consumerbased indices monthly, but does not report a CPI change on June 1; adjustments are reported in the middle of each month. The Board uses the CPIU index, which is based on all urban consumers and represents approximately 87 percent of the U.S. population, as the index for adjusting the $400 dollar figure. The adjustment to the CPIU index reported by the Bureau of Labor Statistics on May 19, 2010, was the CPIU index in effect on June 1, and reflects the percentage change from April 2009 to April 2010. The adjustment to the $400 figure below reflects a 2.2 percent increase in the CPIU index for this period and is rounded to whole dollars for ease of compliance.
The fee trigger being adjusted in this Federal Register notice pursuant to TILA section 103(aa) is used in determining whether a loan is covered by section 226.32 of Regulation Z. Such loans have generally been known as ``HOEPA loans.'' In July 2008, the Board revised Regulation Z to adopt additional protections for ``higherpriced'' loans, using its authority under TILA section 129(l)(2). Those revisions define a class of dwellingsecured transactions, described in section 226.35 of Regulation Z, using a threshold based on average market rates that the Board publishes on a regular basis. The adjustment published today does not affect the triggers adopted in July 2008 for higherpriced loans.
On July 21, 2010, the DoddFrank Wall Street Reform and Consumer
Protection Act (the ``Reform Act'') was enacted into law.\1\ Section
1431 of the Reform Act revises the statutory fee trigger for HOEPA
loans. The amendments made by Section 1431 of the Reform Act will be
implemented in a future rulemaking. Accordingly, the adjustment to the
fee trigger that is being published today will become effective on
January 1, 2011 and will apply for one year, or until final rules under the Reform Act become effective, whichever is earlier.
\1\ Public Law 111203, 124 Stat. 1376 (2010).
II. Adjustment and Commentary Revision
Effective January 1, 2011, for purposes of determining whether a home mortgage transaction is covered by 12 CFR 226.32 (based on the total points and fees payable by the consumer at or before loan consummation), a loan is covered if the points and fees exceed the greater of $592 or 8 percent of the total loan amount. Comment 32(a)(1)(ii)2, which lists the adjustments for each year, is amended to reflect the dollar adjustment for 2011. Because the timing and method of the adjustment are set by statute, the Board finds that notice and public comment on the change are unnecessary.
III. Regulatory Flexibility Analysis
The Board certifies that this amendment to Regulation Z will not have a significant economic impact on a substantial number of small entities. The only change is to increase the threshold for transactions requiring HOEPA disclosures. This change is mandated by statute. [[Page 46838]]
List of Subjects in 12 CFR Part 226
Advertising, Federal Reserve System, Mortgages, Reporting and recordkeeping requirements, Truth in lending.
For the reasons set forth in the preamble, the Board amends Regulation Z, 12 CFR part 226, as set forth below:
PART 226TRUTH IN LENDING (REGULATION Z)
1. The authority citation for part 226 continues to read as follows:
Authority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5).
2. In Supplement I to Part 226, under Section 226.32Requirements for
Certain ClosedEnd Home Mortgages, under Paragraph 32(a)(1)(ii), paragraph 2.xvi. is added.
Supplement I to Part 226Official Staff Interpretations
* * * * *
Subpart ESpecial Rules for Certain Home Mortgage Transactions * * * * *
Section 226.32Requirements for Certain ClosedEnd Home Mortgages 32(a) Coverage
* * * * *
* * * * *
2. Annual adjustment of $400 amount.
* * * * *
xvi. For 2011, $592, reflecting a 2.2 percent increase in the CPIU from June 2009 to June 2010, rounded to the nearest whole dollar. * * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Director of the Division of Consumer and
Community Affairs under delegated authority, July 29, 2010. Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 201019101 Filed 8310; 8:45 am]
BILLING CODE 621001P
FOR FURTHER INFORMATION CONTACT
Dana Miller, Senior Attorney, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 4523667. For the users of Telecommunications Device for the Deaf (``TDD'') only, contact (202) 2634869.