In a joint press release issued on July 22, the Consumer Financial Protection
Bureau (CFPB), the Federal Reserve Board (FRB), and the Office of the
Comptroller of the Currency (OCC) proposed a detailed pair of revised
procedures for implementing annual inflation modifications to the threshold
for exempting small loans from premium priced mortgage loan appraisal mandates.
The two proposals seek to amend the official interpretations and commentary
for the agencies’ regulations on the Truth in Lending Act (TILA
or Regulation Z). TILA was modified by the Dodd-Frank Wall Street Reform
and Consumer Protection Act (Pub.L. 111-203, H.R. 4173) in July 2010.
This came on the heels of the recession as part of a series of legislative
measures that saw the most sweeping changes to financial regulation since
the regulatory overhaul following the Great Depression. Together, both
the TILA and Dodd-Frank Act function to provide significant protective
measures for borrowers, including increased transparency on the part of
lenders regarding disclosure guidelines for mortgage terms.
Specifically, the Dodd-Frank Act added certain appraisal mandates that
included a requirement that creditors obtain a written appraisal, formulated
after a physical inspection of the home’s interior before receiving
a higher-priced mortgage loan. As part of these additional regulations,
there is also an added exemption for loans up to $25,000 and a requirement
that the dollar threshold available to exempt consumer credit transactions
be adjusted on an annual basis proportionate to the yearly percentage
increase in the Consumer Price Index for Urban Wage Earners and Clerical
The first proposal seeks to alter the under-$25,000 exemption for on-site
inspections performed by creditors that were added to the TILA by the
Frank-Dodd Act; an amendment that, if passed, would provide additional
security for borrowers. The second proposal concerns further consumer
credit and leasing agreements including auto and real property loans that
currently contain exemptions for leases involving property appraised at
more than $50,000.
As part of both proposals, the CFPB, FRB and OCC seek to alter the calculation
methodology in such a way that would enable these threshold exemption
caps to keep pace with the CPI-W. The proposals specify that if there
is no marked CPI-W annual percentage increase, then the CFPB, OCC, and
FRB will not adjust the exemption threshold from the preceding year. The
proposed rule would finalize this procedure as well as the agencies’
calculation method for formulating the adjustment in subsequent years
following a year in which there is no annual percentage increase in the CPI-W.
The federal agencies stated the proposed rule would not have a unique impact
on depository institutions or credit unions with $10 billion or less in
assets as described in section 1026(a) of the Dodd-Frank Act. They also
claim it would exempt rural consumers and not affect consumers’
access to credit. The proposal will be opened to public commentary shortly,
with all comments being due 30 days after the rule is published in the
forthcoming issue of the Federal Register.
Contact Geraci Law Firm at (949) 298-8050 today, for more information.