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Regulators Propose Formula for TILA and Consumer Leasing Act Exemptions

July 25 – Federal regulators have issued proposals for the method that will be used to adjust the threshold for exempting small loans from special appraisal requirements, and the method that will be used to adjust the thresholds for exempting certain consumer credit and lease transactions from the Truth in Lending Act and Consumer Leasing Act.

The Consumer Financial Protection Bureau, the Federal Reserve Board and the Office of the Comptroller of the Currency issued the first proposal. The Dodd-Frank Act amended the Truth in Lending Act to add special appraisal requirements for higher-priced mortgage loans, including a requirement that creditors obtain a written appraisal based on a physical visit to the home’s interior before making a higher-priced mortgage loan. The rules implementing these requirements contain an exemption for loans of $25,000 or less and also provide that the exemption threshold will be adjusted annually to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers.

The calculation method proposed would allow the thresholds to keep pace with the CPI-W. Among other clarifications, the proposal details 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 second proposal was issued by the Federal Reserve Board and the CFPB. The Dodd-Frank Act requires that the exemption thresholds in the Truth in Lending Act and the Consumer Leasing Act be adjusted annually based on the percentage increase in the CPI-W. The calculation method proposed would allow the thresholds to keep pace with the CPI-W. Among other clarifications, the proposal details that if there is no annual percentage increase in the CPI-W, the agencies will not adjust the exemption thresholds from the prior year.

The protections of the Truth in Lending Act and the Consumer Leasing Act generally apply to consumer credit transactions and consumer leases at or below the thresholds. However, private education loans and loans secured by real property (such as mortgages) are subject to the Truth in Lending Act regardless of the amount of the loan.

The Dodd-Frank Act generally transferred rulemaking authority under the Truth in Lending Act and the Consumer Leasing Act to the CFPB. However, the board retains authority to issue rules for certain motor vehicle dealers. Therefore, the agencies are issuing these notices jointly.

Comments on the two proposals will be due 30 days after the rule is published in the Federal Register, which is expected shortly.

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