Truth in Lending Act (Regulation Z) Adjustment to Asset-Size Exemption Threshold

<RULE> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Part 1026</CFR> <SUBJECT>Truth in Lending Act (Regulation Z) Adjustment to Asset-Size Exemption Threshold</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Consumer Financial Protection Bureau. <HD SOURCE="HED">ACTION:</HD> Final rule; official interpretation. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Consumer Financial Protection Bureau (CFPB) is amending the official commentary to its Regulation Z in order to make annual adjustments to the asset-size thresholds exempting certain creditors from the requirement to establish an escrow account for a higher-priced mortgage loan (HPML). The exemption threshold for creditors and their affiliates that regularly extended covered transactions secured by first liens is adjusted to $2.717 billion and the exemption threshold for certain insured depository institutions and insured credit unions with assets of $10 billion or less is adjusted to $12.179 billion. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective on January 1, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> 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> Section 129D of the Truth in Lending Act (TILA) generally requires creditors to establish escrow accounts for certain first-lien higher-priced mortgage loan transactions. However, TILA section 129D also permits the CFPB to exempt creditors from this higher-priced mortgage loan escrow requirement if they meet certain requirements, including any asset-size threshold that the CFPB may establish. In the 2013 Escrows Final Rule, <SU>1</SU> <FTREF/> the CFPB established an asset-size threshold of $2 billion, which would adjust automatically each year, based on the year-to-year change in the average of the CPI-W for each 12-month period ending in November, with rounding to the nearest million dollars. <SU>2</SU> <FTREF/> In 2015, the CFPB revised the asset-size threshold for small creditors and how it applies. The CFPB included in the calculation of the asset-size threshold the assets of the creditor's affiliates that regularly extended covered transactions secured by first liens during the applicable period and added a grace period to allow an otherwise eligible creditor that exceeded the asset limit in the preceding calendar year (but not in the calendar year before the preceding year) to continue to operate as a small creditor with respect to transactions with applications received before April 1 of the current calendar year. <SU>3</SU> <FTREF/> For 2024, the threshold was $2.640 billion. <FTNT> <SU>1</SU>  78 FR 4726 (Jan. 22, 2013). </FTNT> <FTNT> <SU>2</SU>   <E T="03">See</E> 12 CFR 1026.35(b)(2)(iii)(C). </FTNT> <FTNT> <SU>3</SU>   <E T="03">See</E> 80 FR 59943, 59951 (Oct. 2, 2015). The CFPB also issued an interim final rule in March 2016 to revise certain provisions in Regulation Z to effectuate the Helping Expand Lending Practices in Rural Communities Act's amendments to TILA (Pub. L. 114-94, sec. 89003, 129 Stat. 1312, 1800-01 (2015)). The rule broadened the cohort of creditors that may be eligible under TILA for the special provisions allowing origination of balloon-payment qualified mortgages and balloon-payment high-cost mortgages, as well as for the escrow exemption. <E T="03">See</E> 81 FR 16074 (Mar. 25, 2016). </FTNT> During the 12-month period ending in November 2024, the average of the CPI-W increased by 2.9 percent. As a result, the exemption threshold is increased to $2.717 billion for 2025. <SU>4</SU> <FTREF/> Thus, if the creditor's assets together with the assets of its affiliates that regularly extended first-lien covered transactions during calendar year 2024 are less than $2.717 billion on December 31, 2024, and it meets the other requirements of § 1026.35(b)(2)(iii), the creditor will be exempt from the escrow-accounts requirement for higher-priced mortgage loans in 2025 and will also be exempt from the escrow-accounts requirement for higher-priced mortgage loans for purposes of any loan consummated in 2026 with applications received before April 1, 2026. The adjustment to the escrows asset-size exemption threshold also will increase the threshold for small-creditor portfolio and balloon-payment qualified mortgages under Regulation Z. The requirements for small-creditor portfolio qualified mortgages at § 1026.43(e)(5)(i)(D) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Likewise, the requirements for balloon-payment qualified mortgages at § 1026.43(f)(1)(vi) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Under § 1026.32(d)(1)(ii)(C), balloon-payment qualified mortgages that satisfy all applicable criteria in § 1026.43(f)(1)(i) through (vi) and (f)(2), including being made by creditors that have (together with certain affiliates) total assets below the threshold in § 1026.35(b)(2)(iii)(C), are also excepted from the prohibition on balloon payments for high-cost mortgages. <FTNT> <SU>4</SU>  Adjusted dollar amounts throughout this final rule are calculated by applying the relevant consumer price index to the previous year's unrounded dollar amount before rounding to the nearest million dollars. Accordingly, applying the rounded consumer price index figures to the previous year's rounded dollar amounts may not add up to the total dollar amount shown. </FTNT> In the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), <SU>5</SU> <FTREF/> Congress directed the CFPB to issue regulations to add a new exemption from TILA's escrow requirement that exempts transactions by certain insured depository institutions and insured credit unions. <SU>6</SU> <FTREF/> In 2021, the CFPB issued a final rule implementing this exemption in § 1026.35(b)(2)(vi) (2021 Escrows Rule). <SU>7</SU> <FTREF/> The final rule exempted from the Regulation Z HPML escrow requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on the principal dwelling of a consumer if: (1) the institution has assets of $10 billion or less; (2) the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) certain of the existing HPML escrow exemption criteria are met. In the 2021 Escrows Rule, the CFPB established an asset-size threshold of $10 billion or less in § 1026.35(b)(2)(vi)(A), which will adjust automatically each year, based on the year-to-year change in the average of the CPI-W, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. Unlike the asset threshold in § 1026.35(b)(2)(iii) and the other thresholds in § 1026.35(b)(2)(vi), affiliates are not considered in calculating compliance with this asset threshold. For calendar year 2024, the asset threshold was $11.835 billion. <FTNT> <SU>5</SU>  Public Law 115-174, 132 Stat. 1296 (2018). </FTNT> <FTNT> <SU>6</SU>  EGRRCPA sec. 108, 132 Stat. 1304-05; 15 U.S.C. 1639d(c)(2). </FTNT> <FTNT> <SU>7</SU>  86 FR 9840 (Feb. 17, 2021). </FTNT> During the 12-month period ending in November 2024, the average of the CPI-W increased by 2.9 percent. As a result, the exemption threshold is increased to $12.179 billion for 2025. Thus, a creditor that is an insured depository institution or insured credit union that during calendar year 2024 had assets of $12.179 billion or less on December 31, 2024, satisfies this criterion for purposes of any loan consummated in 2025 and for purposes of any loan secured by a first lien on a principal dwelling of a consumer consummated in 2026 for which the application was received before April 1, 2026. <HD SOURCE="HD1">II. Procedural Requirements</HD> <HD SOURCE="HD2">A. Administrative Procedure Act</HD> Under the Administrative Procedure Act (APA), notice and opportunity for public comment are not required if the CFPB finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this final rule, comment 35(b)(2)(iii)-1 in Regulation Z is amended to update the exemption threshold in § 1026.35(b)(2)(iii), and comment 35(b)(2)(vi)(A)-1 in Regulation Z is amended to update the exemption threshold in § 1026.35(b)(2)(vi). The amendments in this final rule are technical and merely apply the formulae previously established in Regulation Z for determining any adjustments to the exemption thresholds. For these reasons, the CFPB has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendments are adopted in final form. Section 553(d) of the APA generally requires publication of a final rule not less than 30 days before its effective date, except (1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretive rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and published with the rule. 5 U.S.C. 553(d). At a minimum, the CFPB has determined the amendments fall under the third exception to section 553(d). The CFPB finds that there is good cause to make the amendments effective on January 1, 2025. The amendments in this final rule are technical and non-discretionary, and they merely apply the method previously established in the agency's regulations for automatic adjustments to the threshold. <HD SOURCE="HD2">B ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 35k characters. 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