CFPB Consumer Laws And Regulations TILA
CFPB ConsumerLaws and RegulationsTILATruth in Lending 1The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., was enacted on May 29, 1968, as titleI of the Consumer Credit Protection Act (Pub. L. 90-321). The TILA, implemented byRegulation Z (12 CFR 1026), became effective July 1, 1969.The TILA was first amended in 1970 to prohibit unsolicited credit cards. Additional majoramendments to the TILA and Regulation Z were made by the Fair Credit Billing Act of 1974, theConsumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980,the Fair Credit and Charge Card Disclosure Act of 1988, the Home Equity Loan ConsumerProtection Act of 1988.Regulation Z also was amended to implement section 1204 of the Competitive Equality BankingAct of 1987, and in 1988, to include adjustable rate mortgage loan disclosure requirements. Allconsumer leasing provisions were deleted from Regulation Z in 1981 and transferred toRegulation M (12 CFR 1013).The Home Ownership and Equity Protection Act of 1994 (HOEPA) amended the TILA. The lawimposed new disclosure requirements and substantive limitations on certain closed-end mortgageloans bearing rates or fees above a certain percentage or amount. The law also included newdisclosure requirements to assist consumers in comparing the costs and other materialconsiderations involved in a reverse mortgage transaction and authorized the Federal ReserveBoard to prohibit specific acts and practices in connection with mortgage transactions.The TILA amendments of 1995 dealt primarily with tolerances for real estate secured credit.Regulation Z was amended on September 14, 1996 to incorporate changes to the TILA.Specifically, the revisions limit lenders’ liability for disclosure errors in real estate secured loansconsummated after September 30, 1995. The Economic Growth and Regulatory PaperworkReduction Act of 1996 further amended the TILA. The amendments were made to simplify andimprove disclosures related to credit transactions.The Electronic Signatures in Global and National Commerce Act (the E-Sign Act), 15 U.S.C. 7001et seq., was enacted in 2000 and did not require implementing regulations. On November 9, 2007,amendments to Regulation Z and the official commentary were issued to simplify the regulationand provide guidance on the electronic delivery of disclosures consistent with the E-Sign Act.In July 2008, Regulation Z was amended to protect consumers in the mortgage market fromunfair, abusive, or deceptive lending and servicing practices. Specifically, the change appliedprotections to a newly defined category of “higher-priced mortgages” that includes virtually allclosed-end subprime loans secured by a consumer’s principal dwelling. The revisions alsoapplied new protections to mortgage loans secured by a dwelling, regardless of loan price, andrequired the delivery of early disclosures for more types of transactions. The revisions alsobanned several advertising practices deemed deceptive or misleading. The Mortgage Disclosure1These reflect FFIEC-approved Procedures.CFPBJune 2013TILA 1
CFPB ConsumerLaws and RegulationsTILAImprovement Act of 2008 (MDIA) broadened and added to the requirements of the Board’s July2008 final rule by requiring early truth-in-lending disclosures for more types of transactions andby adding a waiting period between the time when disclosures are given and consummation ofthe transaction. In 2009, Regulation Z was amended to address those provisions. The MDIA alsorequires disclosure of payment examples if the loan’s interest rate or payments can change, aswell as disclosure of a statement that there is no guarantee the consumer will be able to refinancein the future. In 2010, Regulation Z was amended to address these provisions, which becameeffective on January 30, 2011.In December 2008, the Board adopted two final rules pertaining to open-end (not home-secured)credit. The first rule involved Regulation Z revisions and made comprehensive changes applicableto several disclosures required for: applications and solicitations, new accounts, periodicstatements, change in terms notifications, and advertisements. The second was a rule publishedunder the Federal Trade Commission (FTC) Act and was issued jointly with the Office of ThriftSupervision and the National Credit Union Administration. It sought to protect consumers fromunfair acts or practices with respect to consumer credit card accounts. Before these rules becameeffective, however, the Credit Card Accountability Responsibility and Disclosure Act of 2009(Credit CARD Act) amended the TILA and established a number of new requirements for openend consumer credit plans. Several provisions of the Credit CARD Act are similar to provisions inthe Board’s December 2008 TILA revisions and the joint FTC Act rule, but other portions of theCredit CARD Act address practices or mandate disclosures that were not addressed in these rules.In light of the Credit CARD Act, the Board, NCUA, and OTS withdrew the substantiverequirements of the joint FTC Act rule. On July 1, 2010, compliance with the provisions of theBoard’s rule that were not impacted by the Credit CARD Act became effective.The Credit CARD Act provisions became effective in three stages. The provisions effective first(August 20, 2009) required creditors to increase the amount of notice consumers receive before therate on a credit card account is increased or a significant change is made to the account’s terms.These amendments also allowed consumers to reject such increases and changes by informing thecreditor before the increase or change goes into effect. The provisions effective next (February 22,2010) involved rules regarding interest rate increases, over-the-limit transactions, and studentcards. Finally, the provisions effective last (August 22, 2010) addressed the reasonableness andproportionality of penalty fees and charges and re-evaluation of rate increases.In 2009, Regulation Z was amended following the passage of the Higher Education OpportunityAct (HEOA) by adding disclosure and timing requirements that apply to lenders making privateeducation loans.In 2009, the Helping Families Save Their Homes Act amended the TILA to establish a newrequirement for notifying consumers of the sale or transfer of their mortgage loans. Thepurchaser or assignee that acquires the loan must provide the required disclosures no later than30 days after the date on which it acquired the loan.In 2010, the Board further amended Regulation Z to prohibit payment to a loan originator that isbased on the terms or conditions of the loan, other than the amount of credit extended. Theamendment applies to mortgage brokers and the companies that employ them, as well as toCFPBJune 2013TILA 2
CFPB ConsumerLaws and RegulationsTILAmortgage loan officers employed by depository institutions and other lenders. In addition, theamendment prohibits a loan originator from directing or “steering” a consumer to a loan that isnot in the consumer’s interest to increase the loan originator’s compensation.The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)amended the TILA to include several provisions that protect the integrity of the appraisal processwhen a consumer’s home is securing the loan. The rule also requires that appraisers receivecustomary and reasonable payments for their services. The appraiser and loan originatorcompensation requirements had a mandatory compliance date of April 6, 2011.The Dodd-Frank Act granted rulemaking authority under the TILA to the Consumer FinancialProtection Bureau (CFPB). Title XIV of the Dodd-Frank Act included a number of amendmentsto TILA, and in 2013, the CFPB issued rules to implement them. Prohibitions on mandatoryarbitration, waivers of consumer rights, as well as requirements that lengthen the time creditorsmust maintain an escrow account for higher-priced mortgage loans, are effective June 1, 2013.CFPB issued rules prohibiting certain single premium credit insurance financing, but has delayedthe effective date until January 2014. The remaining amendments to Regulation Z, whichinclude establishing ability to pay requirements for mortgage loans, establishing appraisalrequirements for higher-priced mortgage loans, revising and expanding the test for high-costmortgage loans as well as imposing additional restrictions on those loans, establishingrequirements for servicers of mortgage loans, and refining loan originator compensation rulesand loan origination qualification standards are effective in January 2014. The amendments alsoestablished new record retention requirements for certain provisions of TILA.Format of Regulation ZThe rules creditors must follow differ depending on whether the creditor is offering open-end credit,such as credit cards or home-equity lines, or closed-end credit, such as car loans or mortgages.Subpart A (sections 1026.1 through 1026.4) of the regulation provides general information thatapplies to open-end and closed-end credit transactions. It sets forth definitions and stipulateswhich transactions are covered and which are exempt from the regulation. It also contains therules for determining which fees are finance charges.Subpart B (sections 1026.5 through 1026.16) relates to open-end credit. It contains rules onaccount-opening disclosures and periodic statements. It also describes special rules that apply tocredit card transactions, treatment of payments and credit balances, procedures for resolving creditbilling errors, annual percentage rate calculations, rescission requirements, and advertising.Subpart C (sections 1026.17 through 1026.24) relates to closed-end credit. It contains rules ondisclosures, treatment of credit balances, annual percentage rate calculations, rescissionrequirements, and advertising.Subpart D (sections 1026.25 through 1026.30) contain rules on oral disclosures, disclosuresin languages other than English, record retention, effect on state laws, state exemptions, andrate limitations.CFPBJune 2013TILA 3
CFPB ConsumerLaws and RegulationsTILASubpart E (sections 1026.31 through 1026.45) contains special rules for certain mortgagetransactions. It contains rules on certain disclosures and provides limitations for loans that have ratesor fees above specified amounts, and restricts certain terms for home equity plans. It containsrequirements for reverse mortgage transactions. It provides for additional prohibitions for specificacts and practices in connection with an extension of credit secured by a dwelling. It contains ruleson valuation independence, loan originator compensation in transactions secured by a dwelling, andloan originator qualification standards requirements for certain types of loans secured by a dwelling.Subpart F (sections 1026.46 through 1026.48) relates to private education loans. It contains ruleson disclosures, limitations on changes in terms after approval, the right to cancel the loan, andlimitations on co-branding in the marketing of private education loans.Subpart G (sections 1026.51 through 1026.60) relates to credit card accounts under an open-end(not home-secured) consumer credit plan (except for § 1026.57(c), which applies to all open-endcredit plans). This subpart contains rules regarding credit and charge card application andsolicitation disclosures. It also contains rules on evaluation of a consumer’s ability to make therequired payments under the terms of an account, limits the fees that a consumer can be required topay, and contains rules on allocation of payments in excess of the minimum payment. It also setsforth certain limitations on the imposition of finance charges as the result of a loss of a graceperiod, and on increases in annual percentage rates, fees, and charges for credit card accounts,including the reevaluation of rate increases. This subpart prohibits the assessment of fees orcharges for over-the-limit transactions unless the consumer affirmatively consents to the creditor’spayment of over-the-limit transactions. This subpart also sets forth rules for reporting andmarketing of college student open-end credit. Finally, it sets forth requirements for the Internetposting of credit card accounts under an open-end (not home-secured) consumer credit plan.Several appendices contain information such as the procedures for determinations about statelaws, state exemptions and issuance of official interpretations, special rules for certain kinds ofcredit plans, and the rules for computing annual percentage rates in closed-end credit transactionsand total-annual-loan-cost rates for reverse mortgage transactions.Official interpretations of the regulation are published in a commentary. Good faith compliance withthe commentary protects creditors from civil liability under the TILA. In addition, the commentaryincludes more detailed information on disclosures or other actions required of creditors. It is virtuallyimpossible to comply with Regulation Z without reference to and reliance on the commentary.NOTE: The following narrative does not discuss all the sections of Regulation Z, but ratherhighlights only certain sections of the regulation and the TILA.CFPBJune 2013TILA 4
CFPB ConsumerLaws and RegulationsTILASubpart A – GeneralPurpose of the TILA and Regulation ZThe TILA is intended to ensure that credit terms are disclosed in a meaningful way so consumerscan compare credit terms more readily and knowledgeably. Before its enactment, consumerswere faced with a bewildering array of credit terms and rates. It was difficult to compare loansbecause they were seldom presented in the same format. Now, all creditors must use the samecredit terminology and expressions of rates. In addition to providing a uniform system fordisclosures, the act: Protects consumers against inaccurate and unfair credit billing and credit card practices; Provides consumers with rescission rights; Provides for rate caps on certain dwelling-secured loans; Imposes limitations on home equity lines of credit and certain closed-end home mortgages;and Delineates and prohibits unfair or deceptive mortgage lending practices.The TILA and Regulation Z do not, however, tell financial institutions how much interest theymay charge or whether they must grant a consumer a loan.Summary of Coverage Considerations –Sections 1026.1 & 1026.2Lenders must carefully consider several factors when deciding whether a loan requires Truth inLending disclosures or is subject to other Regulation Z requirements. The coverageconsiderations under Regulation Z are addressed in more detail in the commentary to RegulationZ. For example, broad coverage considerations are included under section 1026.1(c) of theregulation and relevant definitions appear in section 1026.2.Exempt Transactions – Section 1026.3The following transactions are exempt from Regulation Z: Credit extended primarily for a business, commercial, or agricultural purpose; Credit extended to other than a natural person (including credit to government agencies orinstrumentalities);CFPBJune 2013TILA 5
CFPB ConsumerLaws and RegulationsTILA Credit in excess of an annually adjusted threshold not secured by real property or by personalproperty used or expected to be used as the principal dwelling of the consumer; 2 Public utility credit; Credit extended by a broker-dealer registered with the Securities and Exchange Commission(SEC) or the Commodity Futures Trading Commission (CFTC), involving securities orcommodities accounts; Home fuel budget plans not subject to a finance charge; and Certain student loan programs.However, when a credit card is involved, generally exempt credit (e.g., business purpose credit)is subject to the requirements that govern the issuance of credit cards and liability for theirunauthorized use. Credit cards must not be issued on an unsolicited basis and, if a credit card islost or stolen, the cardholder must not be held liable for more than 50 for the unauthorized useof the card. (Comment 3-1)When determining whether credit is for consumer purposes, the creditor must evaluate all of thefollowing: Any statement obtained from the consumer describing the purpose of the proceeds.o For example, a statement that the proceeds will be used for a vacation trip would indicatea consumer purpose.o If the loan has a mixed-purpose (e.g., proceeds will be used to buy a car that will be usedfor personal and business purposes), the lender must look to the primary purpose of theloan to decide whether disclosures are necessary. A statement of purpose from theconsumer will help the lender make that decision.o A checked box indicating that the loan is for a business purpose, absent anydocumentation showing the intended use of the proceeds could be insufficient evidencethat the loan did not have a consumer purpose. The consumer’s primary occupation and how it relates to the use of the proceeds. The higherthe correlation between the consumer’s occupation and the property purchased from the loanproceeds, the greater the likelihood that the loan has a business purpose. For example,proceeds used to purchase dental supplies for a dentist would indicate a business purpose.2The Dodd-Frank Act requires that this threshold be adjusted annually by any annual percentage increase in theConsumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Accordingly, based on the annualpercentage increase in the CPI-W as of June 1, 2012, the exemption threshold increased from 51,800 to 53,000,effective January 1, 2013.CFPBJune 2013TILA 6
CFPB ConsumerLaws and RegulationsTILA Personal management of the assets purchased from proceeds. The lower the degree of theborrower’s personal involvement in the management of the investment or enterprisepurchased by the loan proceeds, the less likely the loan will have a business purpose. Forexample, money borrowed to purchase stock in an automobile company by an individual whodoes not work for that company would indicate a personal investment and a consumerpurpose. The size of the transaction. The larger the size of the transaction, the more likely the loan willhave a business purpose. For example, if the loan is for a 5,000,000 real estate transaction,that might indicate a business purpose. The amount of income derived from the property acquired by the loan proceeds relative tothe borrower’s total income. The lesser the income derived from the acquired property, themore likely the loan will have a consumer purpose. For example, if the borrower has anannual salary of 100,000 and receives about 500 in annual dividends from the acquiredproperty, that would indicate a consumer purpose.All five factors must be evaluated before the lender can conclude that disclosures are notnecessary. Normally, no one factor, by itself, is sufficient reason to determine the applicability ofRegulation Z. In any event, the financial institution may routinely furnish disclosures to theconsumer. Disclosure under such circumstances does not control whether the transaction iscovered, but can assure protection to the financial institution and compliance with the law.CFPBJune 2013TILA 7
CFPB ConsumerLaws and RegulationsTILACoverage Considerations under Regulation ZIs thepurpose ofthe creditforpersonal,family orhouseholduse?NoRegulation Z does not apply, except for the rules of issuance of andunauthorized use liability for credit cards. (Exempt credit includes loanswith a business or agricultural purpose, and certain student loans. Creditextended to acquire or improve rental property that is not owner-occupiedis considered business purpose credit.)YesIs theconsumercreditextended to aconsumer?NoYesRegulation Z does not apply. (Credit that is extended to a land trust is deemedto be credit extended to a consumer.)The institution is not a “creditor” and Regulation Z does not apply unless atleast one of the following tests is met:1) The institution extends consumer credit regularly anda) The obligation is initially
based on the terms or conditions of the loan, other than the amount of credit extended. The amendment applies to mortgage brokers and the companies that employ them, as well as to . CFPB Consumer Laws and Regulations TILA CFPB June 2013 TILA 3 mortgage loan officers employed by depository institutions and other lenders. .
make it easier for analysts to link the Consumer Complaint Database to other government databases. The CFPB should expand public awareness of how to file complaints and access the Consumer Complaint Database by working with regulators to disseminate information about the complaints process to consumers. The CFPB should develop free
Rulemaking on Debt Collection Practices (Regulation F) Docket No. CFPB-2020-0010/RIN 3170-AA41 . research, practice, and advocate for policy reforms in the area of consumer law and consumer debt collection. Some of us teach consumer law clinics or work with legal services providers, . Buchanan v. Northlan
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The CFPB needs to clarify the type of small business owner and information required to avoid problems that may be raised in the Bureau's attempts to collect certain data from small business lenders. The CFPB should provide clarity to ensure proper data collection and that the data collected is accurate.
Examination Procedures Baseline Review CFPB April 2019 ECOA 1 Equal Credit Opportunity Act Baseline Review Modules These ECOA Baseline Review Modules consist of five modules that CFPB examination teams use to conduct ECOA Baseline Reviews to evaluate how institutions’ compliance management systems identify and manage fair lending risks under .
On July 10, 2013, September 13, 2013, and October 22, 2014, the CFPB issued final rules to . transactions that are table funded (the loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds) are not secondary
CFPB Manual V.2 (October 2012) TISA 3 Annual Percentage Yield – 12 CFR 1030.2(c) An annual percentage yield is a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period, or
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