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 Workers (CPI-W).
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.
