Updated March 03, 2022 Reviewed by Julius Mansa What Is Regulation Z? An agricultural purpose includes the planting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages (including alcoholic beverages), flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in farming, fishing, or growing crops, flowers, trees, livestock, poultry, bees, or wildlife. SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is publishing a final rule that amends Regulation Z (Truth in Lending) to implement certain amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Applicability . Pre-existing insurance policy. Net decreases. Subsequent changes when exemption is based on initial extension of credit. (ii) Alternatively, disclosures described in 1026.19(e) and (f) that comply with this part. Under 1026.9(d), a card issuer is not obligated to disclose finance charges imposed by a party honoring a credit card, such as a merchant, although the merchant is required to disclose such a finance charge if the merchant is subject to the Truth in Lending Act and Regulation Z. E. The foreign transaction fee is determined by first calculating the dollar amount of the transaction by using a currency conversion rate outside the card issuer's and third party's control. Establishing compliance. In providing these disclosures, creditors must comply with all provisions of this part relating to those disclosures. This paragraph does not apply to a fee to participate in a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in 1026.61, regardless of whether this fee is imposed on the credit feature or on the asset feature of the prepaid account. 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. On February 1, an account is opened but the creditor does not make an initial extension of credit at that time. ii. The authority citation for part 123 continues to read as follows: End Amendment Part Start Authority . A home purchase loan is for the purpose, in whole or in part, of purchasing a dwelling. If a consumer-purpose credit card is issued to a person, the provisions of the regulation apply, even to occasional extensions of credit for business purposes made using that consumer-purpose credit card. v. From January 1, 2014 through December 31, 2014, the threshold amount is $53,500. Net increases. Under section 1003.2, a home improvement loan is a loan for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located. Privately Owned Vehicle Mileage Rates Privately Owned Vehicle (POV) Mileage Reimbursement Rates GSA has adjusted all POV mileage reimbursement rates effective January 1, 2023. 1(c) Coverage. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount: 1. Truth in Lending Act (Reg Z) - ABA.com 1026.5 General disclosure requirements. Assume that the threshold amount in effect on January 1 is $50,000. See comment 4(b)(11)1 for guidance on when fees imposed with regard to credit accessed in connection with a prepaid account as defined in 1026.61 are finance charges. Treatment of transaction fees on credit card plans. The comment for 1026.41 is part of 12 CFR Part 1026 (Regulation Z). ii. 1. In particular, because the exemption in 1026.3(h) means the creditor is not required to provide the disclosures of closing costs under 1026.37 or 1026.38 (unless the creditor chooses to provide disclosures described in 1026.19(e) and (f) that comply with this part), the creditor must retain evidence reflecting that the costs payable by the consumer in connection with the transaction at consummation are limited to recording fees, transfer taxes, a bona fide and reasonable application fee, and a bona fide and reasonable housing counseling fee, and that the total of application and housing counseling fees is less than 1 percent of the amount of credit extended, in accordance with 1026.3(h)(5). Debt cancellation coverage provides for payment or satisfaction of all or part of a debt when a specified event occurs. General. (ii) If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. section 1026.4(c)(2) applies to late payment charges imposed for failure to make payments as agreed, as well as failure to pay an account in full when due. Transactions in securities or commodities accounts in which credit is extended by a broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission. This includes, of course, giving the consumer the option of obtaining the insurance from a person of the consumer's choice. In this case, the $1.25 fee imposed on the asset feature of the prepaid account with a covered separate credit feature is a finance charge because no fee is charged for a direct deposit of salary from an employer or a direct deposit of government benefits on prepaid accounts without a covered separate credit feature. For example: 1. 1026.2 Definitions and rules of construction. | Consumer Financial In part, 1026.41(e)(5)(i) exempts the servicer from providing a periodic statement with regard to that mortgage . The initial term of an insurance policy is the full term of the credit transaction if the consumer pays or finances a single premium in advance. Trusts. See interpretation of 4(e) Certain Security Interest Charges in Supplement I. Assume also that the prepaid account issuer charges both a $0.50 per transaction fee and a $1.25 transfer fee on the asset feature of prepaid accounts in the same prepaid program where the hybrid prepaid-credit card accesses credit from a covered separate credit feature in the course of a transaction. 1026.46 Special disclosure requirements for private education loans. On the other hand, if a loan is obtained to build additional rental units to an apartment complex, this would be a home purchase loan and would therefore be covered by HMDA, even though its primary purpose is related to business. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone under 1026.17(g), and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage. Residual value insurance. (If the difference is not related to account activity, however, it may be excludable as a participation fee. 2. Credit accessed in connection with a prepaid account. However, such allocation is not required if the total premium in fact attributable to all of the non-VSI coverages included in the policy is $1.00 or less (or $5.00 or less in the case of a multiyear policy). Service station operators may designate separate pumps or separate islands as being for either cash or credit purchases and display only the appropriate prices at the various pumps. 1. See 1026.61(a)(2)(i) and comment 61(a)(2)4. 2. It is also exempt if the loan is extended to an applicant other than a natural person, for example a corporation, LLC, or other legal entity. Lost interest. B. General. If an escrow agent is used in both cash and credit sales of real estate and the agent's charge is $100 in a cash transaction and $150 in a credit transaction, only $50 is a finance charge. The premium or charge must be disclosed only if the consumer elects to purchase the insurance from the creditor; in such a case, the creditor must also disclose the term of the property insurance coverage if it is less than the term of the obligation. Comment 4(b)(11)(ii)1.iii provides guidance for credit extensions where a consumer draws or transfers credit from the covered separate credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. See interpretation of Paragraphs 4(b)(7) and (b)(8) in Supplement I. ii. It does not include artificial entities, such as partnerships, corporations, trusts, estates, cooperatives, associations or entities created by statute, such as governmental agencies.. Required credit life insurance; debt cancellation or suspension coverage. A couple weeks ago, we blogged about the regulations that applied to business accounts. 1026.35 Requirements for higher-priced mortgage loans. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. (1) An extension of credit primarily for a business, commercial or agricultural purpose. . If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt. For example, a consumer may use the prepaid card at the prepaid account issuers website to load funds from the covered separate credit feature outside the course of a transaction conducted with the card to obtain goods or services, obtain cash, or conduct person-to-person transfers. (1) Application fees charged to all applicants for credit, whether or not credit is actually extended. See the commentary to 1026.4(b)(7) and (b)(8).). (11) With regard to a covered separate credit feature and an asset feature on a prepaid account that are both accessible by a hybrid prepaid-credit card as defined in 1026.61: 1. Credit in connection with a prepaid card. Section 1002.12 contains shorter retention timeframes for records related to business credit. Consumers sometimes place their assets in trust, with themselves or themselves and their families or other prospective heirs as beneficiaries, to obtain certain tax benefits and to facilitate the future administration of their estates. iii. ii. Open-end plans. Compensation by lender. Loss-of-income insurance. B. Section 1026.61 governs credit offered in connection with a prepaid card. 1026.9 Subsequent disclosure requirements. To illustrate: A. The exclusion in 1026.4(e)(2) is available only if nonfiling insurance is purchased. The more closely related, the more likely it is to be business purpose. (iii) The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph, except as provided in paragraph (d)(4) of this section. 1026.2 Definitions and rules of construction. (2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account (except a prepaid account as defined in 1026.61) to the extent that the charge exceeds the charge for a similar account without a credit feature. Where a creditor requires a consumer to maintain residual value insurance or where the creditor is a beneficiary of a residual value insurance policy written in connection with an extension of credit (as is the case in some forms of automobile balloon-payment financing, for example), the premiums for the insurance must be included in the finance charge for the period that the insurance is to be maintained. For purposes of 1026.4(d), the initial term is the period for which the insurer or creditor is obligated to provide coverage, even though the consumer may be allowed to cancel the coverage or coverage may end due to nonpayment before that term expires. 552). The security interest would be disclosed under 1026.6(a)(4), 1026.6(b)(5)(ii), or 1026.18(m). Multiple events. If a lump sum charged for several services includes a charge that is not excludable, a portion of the total should be allocated to that service and included in the finance charge. iii. (ii) The creditor reduces the express written commitment to extend credit to $25,000 or less. (10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law. 1026.20 Disclosure requirements regarding post-consummation events. Coverage. For transactions that would otherwise be subject to 1026.19(e), (f), and (g), creditors must comply with all other applicable requirements of this part, including the consumer's right to rescind the transaction under 1026.23, to the extent that provision is applicable. (For example, in a transaction processed through a credit card network, the network may impose a 1 percent charge and the card-issuing bank may impose an additional 2 percent charge, for a total of a 3 percentage point foreign transaction fee being imposed on the consumer.). A loan is exempt from Regulation Z if it is "[a]n extension of credit primarily for a business, commercial or agricultural purpose." There are Reg Z and RESPA governing when and how to give applicants information about a loan. Examples. Credit extensions by a company to its employees or agents if the loans are used for personal purposes. 1026.34 Prohibited acts or practices in connection with high-cost mortgages. 8. Earnings on deposits or investments. (ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents. (4) Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis. The hypothetical disclosure required in variable-rate transactions by 1026.18 (f) (1) (iv) is not required for multiple-advance loans disclosed pursuant to appendix D, part I. (1) Charges by third parties. If the consumer's debt can be cancelled under certain circumstances, the disclosure may be modified to reflect that fact. 1026.22 Determination of annual percentage rate. A creditor has the option of providing cost disclosures on the basis of one year of insurance or debt cancellation or debt suspension coverage instead of a longer initial term (provided the premium or fee is clearly labeled as being for one year) if: A. Discounts for payment by other than credit. It does not generally limit its scope to individual consumers, but the definitions in section 1002.2 do distinguish between business credit and consumer credit. Business credit is primarily for business or commercial purposes. 1. (h) Partial exemption for certain mortgage loans. iii. Application fees. 1026.41 Periodic statements for residential mortgage loans. 2. Common examples of the insurance against credit loss mentioned in 1026.4(b)(5) are mortgage guaranty insurance, holder in due course insurance, and repossession insurance. 1026.8 Identifying transactions on periodic statements. In some instances, a creditor may extend credit for consumer purposes to a trust that a consumer has created for tax or estate planning purposes (or both). 1026.4 Finance charge. | Consumer Financial Protection Bureau (f) Prohibited offsets. (ii) The consumer's right to rescind the transaction. The document to be notarized is one used to perfect, release, or continue a security interest. Agricultural purpose. (For purposes of this section, if applicable law is silent as to passing on the tax, the law is deemed not to authorize passing it on.). Elizabeth M. Young LaBerge, NCCO, NCRM, CIPP/US, joined NAFCU as regulatory compliance counsel in July 2015 and was named Senior Regulatory Compliance Counsel in July 2016. Credit insurance sold before or after an open-end (not home-secured) plan is opened is considered written in connection with a credit transaction. Insurance sold after consummation in closed-end credit transactions or after the opening of a home-equity plan subject to the requirements of 1026.40 is not considered written in connection with the credit transaction if the insurance is written because of the consumer's default (for example, by failing to obtain or maintain required property insurance) or because the consumer requests insurance after consummation or the opening of a home-equity plan subject to the requirements of 1026.40 (although credit-sale disclosures may be required for the insurance sold after consummation if it is financed). (iv) Deferred until the property securing the transaction is no longer the principal dwelling of the consumer; (i) The costs payable by the consumer in connection with the transaction at consummation are limited to: (C) A bona fide and reasonable application fee; and, (D) A bona fide and reasonable fee for housing counseling services; and, (ii) The total of costs payable by the consumer under paragraph (h)(5)(i)(C) and (D) of this section is less than 1 percent of the amount of credit extended; and. Regulations: Defining Application Compliance is scattered across a lot of regulations. An open-end account is exempt under 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. Costs of doing business. Buyer's points (that is, points charged to the buyer by the creditor), however, are finance charges. See interpretation of 4(c)(7) Real-Estate Related Fees in Supplement I. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section: 1. (d) Securities or commodities accounts. B. 403(b); 26 U.S.C. Appendix A to Part 1026 Effect on State Laws, Appendix B to Part 1026 State Exemptions, Appendix C to Part 1026 Issuance of Official Interpretations, Appendix D to Part 1026 Multiple Advance Construction Loans, Appendix E to Part 1026 Rules for Card Issuers That Bill on a Transaction-by-Transaction Basis, Appendix F to Part 1026 Optional Annual Percentage Rate Computations for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling, Appendix G to Part 1026 Open-End Model Forms and Clauses, Appendix H to Part 1026 Closed-End Model Forms and Clauses, Appendix J to Part 1026 Annual Percentage Rate Computations for Closed-End Credit Transactions, Appendix K to Part 1026 Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions, Appendix L to Part 1026 Assumed Loan Periods for Computations of Total Annual Loan Cost Rates, Appendix M1 to Part 1026 Repayment Disclosures, Appendix M2 to Part 1026 Sample Calculations of Repayment Disclosures, Appendix N to Part 1026 Higher-Priced Mortgage Loan Appraisal Safe Harbor Review, Appendix O to Part 1026 Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules, Comment for 1026.1 - Authority, Purpose, Coverage, Organization, Enforcement and Liability, Comment for 1026.2 - Definitions and Rules of Construction, Comment for 1026.5 - General Disclosure Requirements, Comment for 1026.6 - Account-Opening Disclosures, Comment for 1026.8 - Identifying Transactions on Periodic Statements, Comment for 1026.9 - Subsequent Disclosure Requirements, Comment for 1026.11 - Treatment of Credit Balances; Account Termination, Comment for 1026.12 - Special Credit Card Provisions, Comment for 1026.13 - Billing Error Resolution, Comment for 1026.14 - Determination of Annual Percentage Rate, Comment for 1026.15 - Right of Rescission, Comment for 1026.17 - General Disclosure Requirements, Comment for 1026.18 - Content of Disclosures, Comment for 1026.19 - Certain Mortgage and Variable-Rate Transactions, Comment for 1026.20 Disclosure Requirements Regarding Post-Consummation Events, Comment for 1026.21 - Treatment of Credit Balances, Comment for 1026.22 - Determination of Annual Percentage Rate, Comment for 1026.23 - Right of Rescission, Comment for 1026.26 - Use of Annual Percentage Rate in Oral Disclosures, Comment for 1026.27 - Language of Disclosures, Comment for 1026.28 - Effect on State Laws, Comment for 1026.30 - Limitation on Rates, Comment for 1026.32 - Requirements for High-Cost Mortgages, Comment for 1026.33 - Requirements for Reverse Mortgages, Comment for 1026.34 - Prohibited Acts or Practices in Connection With High-Cost Mortgages, Comment for 1026.35 - Requirements for Higher-Priced Mortgage Loans, Comment for 1026.36 - Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling, Comment for 1026.37 - Content of Disclosures for Certain Mortgage Transactions (Loan Estimate), Comment for 1026.38 - Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure), Comment for 1026.39 - Mortgage Transfer Disclosures, Comment for 1026.40 - Requirements for Home-Equity Plans, Comment for 1026.41 - Periodic Statements for Residential Mortgage Loans, Comment for 1026.42 - Valuation Independence, Comment for 1026.43 - Minimum Standards for Transactions Secured by a Dwelling, Comment for 1026.46 - Special Disclosure Requirements for Private Education Loans, Comment for 1026.47 - Content of Disclosures, Comment for 1026.48 - Limitations on Private Education Loans, Comment for 1026.52 - Limitations on Fees, Comment for 1026.53 - Allocation of Payments, Comment for 1026.54 - Limitations on the Imposition of Finance Charges, Comment for 1026.55 - Limitations on Increasing Annual Percentage Rates, Fees, and Charges, Comment for 1026.56 - Requirements for Over-the-Limit Transactions, Comment for 1026.57 - Reporting and Marketing Rules for College Student Open-End Credit, Comment for 1026.58 - Internet Posting of Credit Card Agreements, Comment for 1026.59 - Reevaluation of Rate Increases, Comment for 1026.60 - Credit and Charge Card Applications and Solicitations, Comment for 1026.61 - Hybrid Prepaid-Credit Cards, Comment for Appendix A - Effect on State Laws, Comment for Appendix B - State Exemptions, Comment for Appendix C - Issuance of Official Interpretations, Comment for Appendix D - Multiple-Advance Construction Loans, Comment for Appendix F - Optional Annual Percentage Rate Computations for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling, Comment for Appendix G - Open-End Model Forms and Clauses, Appendices G and H - Open-End and Closed-End Model Forms and Clauses, Comment for Appendix H - Closed-End Forms and Clauses, Comment for Appendix J - Annual Percentage Rate Computations for Closed-End Credit Transactions, Comment for Appendix K - Total Annual Loan Cost Rate Computations for Reverse Mortgage Transactions, Comment for Appendix L - Assumed Loan Periods for Computations of Total Annual Loan Cost Rates, Comment for Appendix O - Illustrative Written Source Documents for Higher-Priced Mortgage Loan Appraisal Rules. In addition, a tax is not a finance charge if it is excluded from the finance charge by another provision of the regulation or commentary (for example, if the tax is imposed uniformly in cash and credit transactions). 1026.17 General disclosure requirements. 3. states that a consumer-purpose loan to a trust can fall within the scope of Regulation Z under certain circumstances. The following transactions are not subject to this part or, if the exemption is limited to specified provisions of this part, are not subject to those provisions: (a) Business, commercial, agricultural, or organizational credit. states "[t]here is no precise test for what constitutes credit offered or extended for personal, family, or household purposes, nor for what constitutes the primary purpose." i. 1026.11 Treatment of credit balances; account termination. An extension of credit in which the amount of credit extended exceeds the applicable threshold amount or in which there is an express written commitment to extend credit in excess of the applicable threshold amount, unless the extension of credit is: (A) Secured by any real property, or by personal property used or expected to be used as the principal dwelling of the consumer; or. Disclosures. 1026.9 Subsequent disclosure requirements. (4) Telephone purchases. Creditors may draw on amounts paid by the consumer, such as points or closing costs, to fund their payment to the broker. 9. Prior to July 21, 2011, the threshold amount is $25,000. PDF Regulation X Real Estate Settlement Procedures Act - Federal Reserve Board An increase in insurance rates after consummation of a closed-end credit transaction or during the life of an open-end credit plan does not require redisclosure in order to exclude the additional premium from treatment as a finance charge. ii. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor: 1. 1026.57 Reporting and marketing rules for college student open-end credit. A charge imposed in connection with a credit feature on a checking or transaction account (other than a prepaid account as defined in 1026.61) is a finance charge under 1026.4(b)(2) to the extent the charge exceeds the charge for a similar account without a credit feature. Partial exemption. 1003.2(i), (j) and (p). Seller's points. Qualifying for exemption. Coverage under this subpart is optional for certain extensions of credit that do not meet the definition of "private education loan" because the credit is not extended, in whole or in part, for "postsecondary educational expenses" defined in 1026.46(b)(3). Private loans and carryback paper disclosures 2. 1026.14 Determination of annual percentage rate. (e) Certain security interest charges. However, this does not mean that the FCRA would never be implicated in opening a business loan. Any tax levied on security instruments or on documents evidencing indebtedness if the payment of such taxes is a requirement for recording the instrument securing the evidence of indebtedness. Disclosures in programs combining debt cancellation and debt suspension features. For example: A. A credit union seeking to provide disclosures electronically may be able to do so by simple agreement, rather that following E-SIGNs provisions, unless specifically required to by other federal or state regulation. For example: 1. 1. But see comment 3(a)-10 concerning credit extended to trusts. xii. However, see comment 3(b)-8 with respect to the increase in the threshold amount from $25,000 to $50,000. B. A consumer enters into a combined time deposit/credit agreement with a financial institution that establishes a time deposit account and an open-end line of credit.
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