Proposed Increase in Dollar Threshold for Coverage by Regulation Z

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On December 13, 2010, the Federal Reserve Board (“Board”) proposed an amendment to Regulation Z to increase the threshold for exempt consumer credit transactions from $25,000 to $50,000. Under the proposal, future increases in the threshold will be tied to changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers. At present, credit secured by real property or by personal property used or expected to be used as the consumer’s principal dwelling and private education loans are not subject to the threshold amount exemption. A separate proposal issued by the Board on the same date will increase the threshold amount for exempt consumer leases under Regulation M from $25,000 to $50,000. The proposals reflect changes mandated by Section 1100E of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). This Client Alert summarizes the Regulation Z proposal and discusses its ramifications.

Currently, a consumer credit transaction with an amount financed in excess of $25,000, or an express written commitment to extend credit in excess of $25,000, is exempt from the federal Truth-in-Lending Act (“TILA”) and Regulation Z so long as the credit (i) is not secured by real property or by personal property used or expected to be used as the consumer’s principal dwelling, and (ii) is not a private education loan. See Section 104(3) of TILA (15 U.S.C. § 1603(3)) and Section 226.3(b) of Regulation Z (12 C.F.R. § 226.3(b)).

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