Truth in Lending Threshold Adjustments for 2020
Greetings compliance friends!
Just last month, the Bureau of Consumer Financial Protection (CFPB) issued its annual inflation-based adjustments of certain threshold dollar amounts for transactions covered under Regulation Z. The changes apply to provisions under the Truth in Lending Act, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD ACT), the Home Ownership and Equity Protection Act of 1994 (HOEPA), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). These laws, as implemented by Regulation Z, require the CFPB to make annual adjustments to certain thresholds based on the annual percentage change reflected in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect on June 1st of the prior year. The updated thresholds become effective on January 1, 2020. Below are a few notable adjustments:
Regulation Z prohibits a card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee “represents a reasonable proportion of the total costs” incurred for the violation, or is within the safe harbor provision of section 1026.52(b). If a credit card issuer charges anything up to the safe harbor amount for certain violations, it is considered to be in compliance with Regulation Z. For 2020, the safe harbor will increase by $1 from the 2019 amount to:
- $29 for a first late payment; and
- $40 for each subsequent late payment over six months.
The threshold that triggers requirements to disclose minimum interest charges for open-end consumer credit plans will remain unchanged at $1.00.
Regulation Z requires credit unions to make a reasonable, good-faith determination of a consumer’s ability to repay a dwelling-secured credit transaction. Section 1026.43(e) of Regulation Z establishes a “qualified mortgage” safe harbor and presumption of compliance for loans that meet a variety of underwriting factors including certain limits on “points and fees.” See, 12 CFR §1026.43(e)(3). For dollar amounts related to determining a borrower’s ability to repay a transaction secured by a dwelling, the QM threshold in 2020 will require that total points and fees not exceed:
- 3 percent of the total loan amount for a loan greater than or equal to $109,898;
- $3,297 for a loan amount greater or equal to $65,939 but less than $109,898;
- 5 percent of the total loan amount for a loan greater than or equal to $21,980 but less than $65,939;
- $1,099 for a loan amount greater or equal to $13,737 but less than $21,980; and
- 8 percent of the total loan amount for a loan amount less than $13,737.
Home Ownership and Equity Protection Act (HOEPA) Loans
Regulation Z sets additional disclosure and counseling requirements for credit unions making what is considered a “high-cost mortgage loan.” To be considered a high-cost loan, the transaction must be secured by the consumer’s principal dwelling and meet one of three tests. In the second such test, a transaction is considered high-cost where the “points and fees” exceed a certain threshold that varies based upon the loan amount. These thresholds are also adjusted annually for inflation based upon changes to the CPI-W. See, 12 CFR § 1026.32(a)(ii).
For 2020, the total loan amount threshold will be increased to $21,980 and the adjusted points and fees must exceed 5% of the total loan amount. Loans below $21,980 will also be considered a high-cost transaction if the points and fees exceed the lesser of 8% of the total loan amount or $1,099. For additional HOEPA guidance, the CFPB’s Small Entity Compliance Guide for the HOEPA Rule provides a helpful summary of each test and the requirements.
For more information on Regulation Z's 2020 adjusted thresholds, check out the Final Rule.