The CFPB Issues Ability-to-Repay Rule

On Thursday, January 10, 2013, the Consumer Financial Protection Bureau ("CFPB") issued a final rule amending Regulation Z pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").  Regulation Z, which implements the Truth in Lending Act, prohibits a creditor from making a higher-priced mortgage loan without regard to the consumer’s ability to repay the loan.  The final rule implements Sections 1411 and 1412 of the Dodd-Frank Act, which generally require creditors to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for “qualified mortgages.”  The final rule also implements Section 1414 of the Dodd-Frank Act, which limits prepayment penalties.  Finally, the final rule requires creditors to retain evidence of compliance with the rule for three years after a covered loan is consummated.

In connection with the issuance of the new final rule, the CFPB also proposed certain amendments to the newly issued final rule including exemptions for certain nonprofit creditors and certain homeownership stabilization programs and an additional definition of a qualified mortgage for certain loans made and held in portfolio by small creditors.

Read the CFPB press release.