Truth in Lending (Regulation Z)

<RULE> FEDERAL RESERVE SYSTEM <CFR>12 CFR Part 226</CFR> <DEPDOC>[Docket No. R-1843]</DEPDOC> <RIN>RIN 7100-AG 84</RIN> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1026</CFR> <SUBJECT>Truth in Lending (Regulation Z)</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Board of Governors of the Federal Reserve System (Board) and Consumer Financial Protection Bureau (CFPB). <HD SOURCE="HED">ACTION:</HD> Final rules, official interpretations. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Board and the CFPB (collectively, Agencies) are publishing final rules amending the official interpretations 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). Based on the annual percentage increase in the CPI-W as of June 1, 2024, the exemption threshold will increase from $69,500 to $71,900 effective January 1, 2025. 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 <E T="04">Federal Register</E> . </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This final rule is effective January 1, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">Board:</E> 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. <E T="03">CFPB:</E> George Karithanom, Regulatory Implementation & Guidance Program Analyst, Office of Regulations, at 202-435-7700 or at: <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED"> SUPPLEMENTARY INFORMATION: </HD> <HD SOURCE="HD1">I. Background</HD> The Dodd-Frank Act increased the threshold in TILA for exempt consumer credit transactions, <SU>1</SU> <FTREF/> and the threshold in the Consumer Leasing Act (CLA) for exempt consumer leases, from $25,000 to $50,000, effective July 21, 2011. <SU>2</SU> <FTREF/> 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. <SU>3</SU> <FTREF/> 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, Board Final Threshold Rules). <SU>4</SU> <FTREF/> <FTNT> <SU>1</SU>  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. <E T="03">See</E> 12 CFR 226.3(b)(1)(i) (Board) and 12 CFR 1026.3(b)(1)(i) (CFPB). </FTNT> <FTNT> <SU>2</SU>  Public Law 111-203, sec. 1100E, 124 Stat. 1376, 2111 (2010). </FTNT> <FTNT> <SU>3</SU>   <E T="03">Id.</E> </FTNT> <FTNT> <SU>4</SU>  76 FR 18354 (Apr. 4, 2011); 76 FR 18349 (Apr. 4, 2011). </FTNT> Title X of the Dodd-Frank Act transferred rulemaking authority for a number of consumer financial protection laws from the Board to the CFPB, effective July 21, 2011. In connection with this transfer of rulemaking authority, the CFPB issued its own Regulation Z implementing TILA, 12 CFR part 1026, substantially duplicating the Board's Regulation Z. <SU>5</SU> <FTREF/> Although the CFPB 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. <SU>6</SU> <FTREF/> <FTNT> <SU>5</SU>   <E T="03">See</E> 76 FR 79768 (Dec. 22, 2011); 81 FR 25323 (Apr. 28, 2016). </FTNT> <FTNT> <SU>6</SU>  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). </FTNT> The Agencies' regulations, <SU>7</SU> <FTREF/> and their accompanying official interpretations, 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. <SU>8</SU> <FTREF/> Since 2011, the Agencies have adjusted the Regulation Z exemption threshold annually, in accordance with these rules. <FTNT> <SU>7</SU>  12 CFR 226.3(b)(1)(ii) (Board) and 12 CFR 1026.3(b)(1)(ii) (CFPB). </FTNT> <FTNT> <SU>8</SU>   <E T="03">See</E> comments 3(b)-1 in supplement I of 12 CFR parts 226 and 1026. </FTNT> On November 30, 2016, the Agencies published a final rule in the <E T="04">Federal Register</E> 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). <SU>9</SU> <FTREF/> 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. <FTNT> <SU>9</SU>   <E T="03">See</E> 81 FR 86260 (Nov. 30, 2016). </FTNT> <HD SOURCE="HD1">II. 2025 Adjustment and Official Interpretations Revision</HD> Effective January 1, 2025, the exemption threshold amount is increased from $69,500 to $71,900. This amount is based on the CPI-W in effect on June 1, 2024, which was reported on May 15, 2024 (based on April 2024 data). <SU>10</SU> <FTREF/> 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 15, 2024, reflects a 3.4 percent increase in the CPI-W from April 2023 to April 2024. Accordingly, the 3.4 percent increase in the CPI-W from April 2023 to April 2024 results in an exemption threshold amount of $71,900, after rounding. The Agencies are revising the official interpretations to their respective regulations to add new comment 3(b)-3.xvi to state that, from January 1, 2025, through December 31, 2025, the threshold amount is $71,900. These revisions are effective January 1, 2025. <FTNT> <SU>10</SU>  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, 2024, were reported on May 15, 2024, and reflect econo ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 52k characters. 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