CFPB Issues Final Rules, Interpretations and Commentary to Adjust the Exemption Threshold to Regulations M and Z

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On Monday, November 25, 2013, the Consumer Financial Protection Bureau (the “Bureau”) issued final rules amending its Regulation Z (Truth In Lending) and Regulation M (Consumer Leasing) in accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”).  Changes to both regulations take effect on January 1, 2014.

Generally, the Truth In Lending Act governs extensions of credit from covered lenders, such as banks, to consumers, where the credit is made for consumer purposes.  The Consumer Leasing Act similarly governs the lease of personal property to consumers for personal, family or household purposes.

Effective July 21, 2011, the Truth In Lending Act (as implemented by Regulation Z) exempted from its coverage extensions of credit to a consumer where the amount financed exceeds $50,000.00, unless the extension of credit is secured by real property (or personal property used or expected to be used as the principal dwelling of the consumer, such as a mobile home), or the extension of credit is a private education loan.  Similarly, the corresponding provision of the Consumer Leasing Act (as implemented by Regulation M) exempted from its coverage any consumer lease having a total contractual obligation of over $50,000.00.  If either Regulation Z or Regulation M applies to a transaction, there are numerous disclosure and advertising requirements, as well as possible substantive limitations, imposed on the creditor or lessor.

Commencing January 1, 2012, and on each January 1 thereafter, the dollar threshold is to be automatically modified to an annual adjustment based upon any increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect on the previous June 1, as published by the Bureau of Labor Statistics.  Once the June 1 CPI-W is published, the Board will modify the Official Staff Commentary to Regulation Z and Regulation M to provide any actual dollar increase in the exemption threshold.

The CPI-W for June 1, 2013, has been published, and the above exemption thresholds will adjust to $53,500.00, effective January 1, 2014.  The official Staff Commentary to Regulation Z and Regulation M were modified accordingly.