18354 Federal Register / Vol. 76, No. 64 / Monday, April 4, 2011 / Rules and Regulations 

3. Total contractual obligation of 

advertised lease. Section 213.7 applies to 

advertisements for consumer leases, as 

defined in § 213.2(e). Under § 213.2(e), a 

consumer lease is exempt from the 

requirements of this Part if the total 

contractual obligation exceeds the threshold 

amount in effect at the time of 

consummation. See comment 2(e)–9. 

Accordingly, § 213.7 does not apply to an 

advertisement for a specific consumer lease 

if the total contractual obligation for that 

lease exceeds the threshold amount in effect 

when the advertisement is made. If a lessor 

promotes multiple consumer leases in a 

single advertisement, the entire 

advertisement must comply with § 213.7 

unless all of the advertised leases are exempt 

under § 213.2(e). For example: 

A. Assume that, in an advertisement, a 

lessor states that certain terms apply to a 

consumer lease for a specific automobile. The 

total contractual obligation of the advertised 

lease exceeds the threshold amount in effect 

when the advertisement is made. Although 

the advertisement does not refer to any other 

lease, some or all of the advertised terms for 

the exempt lease also apply to other leases 

offered by the lessor with total contractual 

obligations that do not exceed the applicable 

threshold amount. The advertisement is not 

required to comply with § 213.7 because it 

refers only to an exempt lease. 

B. Assume that, in an advertisement, a 

lessor states certain terms (such as the 

amount due at lease signing) that will apply 

to consumer leases for automobiles of a 

particular brand. However, the advertisement 

does not refer to a specific lease. The total 

contractual obligations of the leases for some 

of the automobiles will exceed the threshold 

amount in effect when the advertisement is 

made, but the total contractual obligations of 

the leases for other automobiles will not 

exceed the threshold. The entire 

advertisement must comply with § 213.7 

because it refers to terms for consumer leases 

that are not exempt. 

C. Assume that, in a single advertisement, 

a lessor states that certain terms apply to 

consumer leases for two different 

automobiles. The total contractual obligation 

of the lease for the first automobile exceeds 

the threshold amount in effect when the 

advertisement is made, but the total 

contractual obligation of the lease for the 

second automobile does not exceed the 

threshold. The entire advertisement must 

comply with § 213.7 because it refers to a 

consumer lease that is not exempt. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, March 24, 2011. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2011–7377 Filed 4–1–11; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1399] 

RIN No. 7100–AD59 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: Effective July 21, 2011, the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank 

Act) amends the Truth in Lending Act 

(TILA) by increasing the threshold for 

exempt consumer credit transactions 

from $25,000 to $50,000. In addition, 

the Dodd-Frank Act provides that, on or 

after December 31, 2011, this threshold 

must be adjusted annually by any 

annual percentage increase in the 

Consumer Price Index for Urban Wage 

Earners and Clerical Workers. 

Accordingly, the Board is making 

corresponding amendments to 

Regulation Z, which implements TILA, 

and to the accompanying staff 

commentary. Because the Dodd-Frank 

Act also increases the Consumer Leasing 

Act’s threshold for exempt consumer 

leases from $25,000 to $50,000, the 

Board is making similar amendments to 

Regulation M elsewhere in today’s 

Federal Register. 

DATES: Consistent with Sections 1062 

and 1100H of the Dodd-Frank Act, this 

final rule is effective on the transfer date 

designated by the Secretary of the 

Treasury, which is July 21, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Stephen Shin, Attorney, or Benjamin K. 

Olson, Counsel, Division of Consumer 

and Community Affairs, Board of 

Governors of the Federal Reserve 

System, at (202) 452–3667 or 452–2412; 

for users of Telecommunications Device 

for the Deaf (TDD) only, contact (202) 

263–4869. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Dodd-Frank Wall Street Reform and 

Consumer Protection Act 

This final rule implements Section 

1100E of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 

2010 (Dodd-Frank Act), which was 

signed into law on July 21, 2010. Public 

Law 111–203 § 1100E, 124 Stat. 1376 

(2010). Section 1100E amends Section 

104(3) of the Truth in Lending Act 

(TILA) by establishing a new threshold 

for exempt consumer credit 

transactions. Currently, TILA Section 

104(3) exempts ‘‘[c]redit transactions, 

other than those in which a security 

interest is or will be acquired in real 

property, or in personal property used 

or expected to be used as the principal 

dwelling of the consumer, and other 

than private education loans (as that 

term is defined in section 140(a)), in 

which the total amount financed 

exceeds $25,000.’’ 15 U.S.C. 1603(3). 

Regulation Z implements this 

exemption in § 226.3(b). 

Effective July 21, 2011, the DoddFrank Act raises TILA’s $25,000 

exemption threshold to $50,000. In 

addition, the Dodd-Frank Act provides 

that, on or after December 31, 2011, this 

threshold shall be adjusted annually for 

inflation by the annual percentage 

increase in the Consumer Price Index 

for Urban Wage Earners and Clerical 

Workers (CPI–W), as published by the 

Bureau of Labor Statistics. Therefore, 

from July 21, 2011 to December 31, 

2011, the threshold dollar amount will 

be $50,000. Effective January 1, 2012, 

the $50,000 threshold will be adjusted 

annually based on any annual 

percentage increase in the CPI–W. 

In December 2010, the Board 

proposed to amend § 226.3(b) and the 

accompanying commentary for 

consistency with the amendments made 

by the Dodd-Frank Act. See 75 FR 78636 

(Dec. 16, 2010) (December 2010 

Proposed Regulation Z Rule). In 

addition, because the Dodd-Frank Act 

makes similar amendments to the 

exemption threshold in the Consumer 

Leasing Act (which is part of TILA), the 

Board simultaneously proposed to 

amend Regulation M, which 

implements the Consumer Leasing Act 

(CLA). See 75 FR 78632 (Dec. 16, 2010) 

(December 2010 Proposed Regulation M 

Rule). 

The Board received 10 comments on 

the December 2010 Regulation Z 

Proposed Rule. As discussed below, the 

Board is adopting the rule largely as 

proposed with some modifications to 

facilitate compliance. Elsewhere in 

today’s Federal Register, the Board is 

also adopting a final rule amending 

Regulation M in order to implement the 

amendments to CLA’s exemption 

threshold for consumer leases. 

II. Summary of Final Rule 

Revisions to § 226.3(b) 

Consistent with the Dodd-Frank Act, 

the Board’s final rule revises § 226.3(b) 

and the accompanying staff commentary 

to provide that, effective July 21, 2011, 

a consumer credit account is exempt 

from the requirements of Regulation Z 

if: (1) The initial extension of credit on 

the account exceeds $50,000; or (2) the 

creditor makes a firm commitment at 


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1The Board notes that, consistent with the DoddFrank Act, § 226.3(b)(1)(ii) requires that the annual 

adjustment for inflation reflect the ‘‘annual 

percentage increase’’ in the CPI–W, as applicable. 

Therefore, an annual period of deflation or no 

inflation would not require a change in the 

threshold amount. 

2For consistency, the Board proposed to remove 

the references to the $25,000 threshold from 

comments 2(a)(19)–3 and 23(a)(1)–5. The Board did 

not receive any comments on these revisions, which 

are adopted as proposed. 

account opening to extend credit in 

excess of $50,000. This final rule further 

provides that, effective January 1, 2012, 

the $50,000 threshold will be adjusted 

annually by any annual percentage 

increase in the CPI–W. 

The Board has also adopted a 

transition rule in § 226.3(b)(2) to reduce 

the compliance burden with respect to 

certain accounts that are currently 

exempt under the $25,000 threshold. 

Specifically, this transition rule 

provides that, if an open-end credit 

account is exempt on July 20, 2011 

based on a firm commitment to extend 

more than $25,000 in credit, the creditor 

has until December 31, 2011 to either 

retain the exemption by increasing the 

firm commitment to more than $50,000 

or begin complying with Regulation Z. 

Effective Date 

Section 1100H of the Dodd-Frank Act 

provides that Section 1100E will 

become effective on the designated 

transfer date, as defined by Section 1062 

of that Act. Section 1062 of the DoddFrank Act requires, in relevant part, the 

Secretary of the Treasury to designate a 

single calendar date for the transfer of 

certain functions from other agencies to 

the Bureau of Consumer Financial 

Protection. Pursuant to Section 1062(a), 

the Secretary of the Treasury has 

determined that the designated transfer 

date shall be July 21, 2011. See 75 FR 

57252 (Sept. 20, 2010). Accordingly, 

because Section 1100E will become 

effective on July 21, 2011, this final rule 

will be effective on that date. However, 

if the Secretary of Treasury designates a 

later transfer date pursuant to Section 

1062, this final rule will instead be 

effective on that date. 

Consumer group commenters argued 

that, because Section 1100E placed 

creditors on notice of the increased 

threshold amount, creditors should be 

required to begin complying with all 

aspects of the Board’s rule on July 21, 

2011. In contrast, one industry 

commenter requested that the Board 

delay compliance by one year (i.e., until 

July 21, 2012). This commenter asserted 

that—in light of the extensive regulatory 

changes required by the Dodd-Frank Act 

and other statutes—it would be 

burdensome for small institutions to 

comply with Regulation Z for credit 

extensions and firm commitments of 

$50,000 or less by July 21, 2011. 

However, the Board understands that 

institutions that extend consumer credit 

generally already have the systems in 

place to comply with Regulation Z. 

Thus, as a general matter, it should not 

be unduly burdensome for these 

institutions to comply with Regulation 

Z with respect to accounts opened after 

July 21, 2011. Nevertheless, as 

discussed in detail below with respect 

to the transition rule in § 226.3(b)(2), the 

Board believes it is appropriate to 

provide additional time for compliance 

with respect to certain exempt accounts 

opened prior to July 21, 2011. 

III. Statutory Authority 

TILA mandates that the Board 

prescribe regulations to carry out TILA’s 

purposes and specifically authorizes the 

Board, among other things, to do the 

following: 

• Issue regulations that contain such 

classifications, differentiations, or other 

provisions, or that provide for such 

adjustments and exceptions for any 

class of transactions, that in the Board’s 

judgment are necessary or proper to 

effectuate the purposes of TILA, 

facilitate compliance with that Act, or 

prevent circumvention or evasion. 15 

U.S.C. 1604(a). 

• Exempt from all or part of TILA any 

class of transactions if the Board 

determines that TILA coverage does not 

provide a meaningful benefit to 

consumers in the form of useful 

information or protection. The Board 

must consider factors identified in TILA 

and publish its rationale at the time it 

proposes an exemption for comment. 15 

U.S.C. 1604(f). 

For the reasons discussed below, the 

Board believes that it is necessary and 

appropriate to make amendments to 

Regulation Z in order to effectuate the 

purposes of TILA, to prevent 

circumvention, and to facilitate 

compliance. 

IV. Section-by-Section Analysis 

Section 226.3 Exempt Transactions 

3(b) Credit Over Applicable Threshold 

Amount 

Section 226.3(b) of Regulation Z 

implements the exemption for certain 

consumer credit transactions in TILA 

Section 104(3). Specifically, § 226.3(b) 

currently provides that Regulation Z 

does not apply to an extension of credit 

in which the amount financed exceeds 

$25,000 or in which there is an express 

written commitment to extend credit in 

excess of $25,000, unless: (1) The 

extension of credit is secured by real 

property, or by personal property used 

or expected to be used as the principal 

dwelling of the consumer; or (2) the 

extension of credit is a private 

education loan (as defined in 

§ 226.46(b)(5)). Section 1100E(a)(1) of 

the Dodd-Frank Act increases the dollar 

amount of the exemption threshold in 

TILA Section 104(3) from $25,000 to 

$50,000. Furthermore, Section 1100E(b) 

requires that this amount be adjusted 

annually for inflation. Accordingly, the 

Board is amending § 226.3(b) and the 

accompanying commentary to 

implement Section 1100E. 

3(b)(1) Exemption 

The Board proposed to redesignate 

current § 226.3(b) as § 226.3(b)(1)(i) and 

add a new § 226.3(b)(1)(ii) to provide 

that the threshold amount will be 

adjusted annually to reflect any annual 

percentage increase in the CPI–W.1

Because the threshold amount could 

change from year to year, § 226.3(b)(1)(i) 

refers to the ‘‘applicable threshold 

amount,’’ rather than stating a specific 

amount.2 Instead, new § 226.3(b)(1)(ii) 

provides that the threshold amount 

applicable to a specific extension of 

credit or express written commitment to 

extend credit is listed in the official staff 

commentary. The Board also proposed 

to amend § 226.3(b) to require that, in 

order for an account to be exempt based 

on an initial extension of credit, the 

amount of credit extended (rather than 

the amount financed) must exceed the 

applicable threshold amount. 

One industry commenter requested 

that the Board only increase the 

exemption threshold amount to $50,000 

without making subsequent annual 

adjustments for inflation. The Board 

believes that such an approach would 

be inconsistent with Section 1100E(b), 

which requires that the exemption 

threshold amount be adjusted annually 

based on increases in the CPI–W. 

Consumer groups and a member of 

Congress requested that the Board 

amend § 226.3(b) to eliminate the 

exemption for accounts with an express 

written commitment (or firm 

commitment) to extend credit in excess 

of the threshold amount. These 

commenters noted that TILA Section 

104(3) does not provide a firm 

commitment exemption. Furthermore, 

they expressed concern that a credit 

card account with a credit limit that 

exceeds the threshold amount would be 

exempt from TILA and therefore from 

the consumer protections in the Credit 

Card Accountability Responsibility and 

Disclosure Act of 2009 (Credit Card 

Act), which amended TILA. 

For purposes of obtaining an 

exemption, Regulation Z has treated a 


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3As an alternative to eliminating the firm 

commitment exemption, consumer group 

commenters requested that, in order to prevent 

evasion, the Board prohibit creditors from reducing 

a firm commitment for at least six months after 

account opening. However, this requirement would 

involve a substantial limitation to the firm 

commitment exemption that was not set forth in the 

proposed rule and therefore was not the subject of 

public comment. 

4Because a creditor that makes a firm 

commitment must honor transactions up to the 

committed amount without requiring additional 

credit information, the Board understands that 

some creditors do not utilize the firm commitment 

exemption because of the cost associated with 

maintaining capital to honor advances for available 

credit on a committed line. 

5For a discussion of the results of the Board’s 

consumer testing regarding the ‘‘amount financed,’’ 

see 74 FR 43232, 43308 (Aug. 26, 2009). 

6For organizational purposes, the guidance in 

current comment 3(b)–1 has been moved to other 

comments, as discussed below. 

7The Dodd-Frank Act specifically requires that 

the threshold amount be adjusted annually by any 

annual percentage increase in the CPI–W, as 

published by the Bureau of Labor Statistics; 

however, it does not specify which Bureau of Labor 

Statistics report should be used to determine that 

increase. Consistent with its approach for annual 

adjustments in § 226.32(a)(1)(ii), the Board will use 

the CPI–W reported by the Bureau of Labor 

Statistics for June 1 of each year. See 12 CFR 

226.32(a)(1)(ii) and its commentary. The Board 

believes this approach permits the publication of an 

increased threshold amount sufficiently in advance 

of the January 1 effective date. 

creditor’s firm commitment to extend 

credit in excess of the threshold amount 

as the functional equivalent of an 

extension of credit in excess of that 

amount since the 1980s. As a result, 

creditors ranging from large financial 

institutions to small community banks 

and credit unions have been relying on 

this exemption for more than twenty 

years. Section 1100E did not repeal the 

firm commitment exemption, and the 

Board’s December 2010 Regulation Z 

Proposed Rule did not request comment 

on whether the exemption should be 

eliminated. Thus, if the Board were to 

eliminate this exemption, it would do so 

without the benefit of public comment 

regarding the operational burden on 

creditors and the effect on the cost and 

availability of credit for consumers. For 

these reasons, this final rule retains the 

firm commitment exemption.3

The Board also notes that a credit card 

account is not exempt from TILA and 

the Credit Card Act simply because the 

credit card issuer sets the credit limit on 

the account above the threshold 

amount. Instead, as discussed in detail 

below, an open-end account does not 

qualify for an exemption based on a firm 

commitment unless the creditor makes 

an express commitment in writing to 

extend a total amount of credit that 

exceeds the threshold amount. 

Furthermore, the creditor must honor 

transactions up to the committed 

amount without requiring additional 

credit information (although creditors 

are permitted to, for example, verify the 

value of collateral before making an 

extension and perform periodic reviews 

of the consumer’s creditworthiness).4

Thus, unless a credit card issuer can 

satisfy these requirements, a credit card 

account with a credit limit above the 

threshold amount does not qualify for a 

firm commitment exemption and is 

subject to TILA and the Credit Card Act. 

The member of Congress also 

suggested that, for accounts that are 

exempt based on an initial extension of 

credit, the Board require a creditor to 

begin to comply with Regulation Z if, at 

any point in time during the life of the 

account, the outstanding balance does 

not exceed the threshold amount. He 

argued this approach would be 

consistent with TILA Section 104(3), 

which refers to ‘‘the total amount 

financed.’’ Because, however, the 

balance on an account will almost 

always fall below the threshold amount 

as it is repaid, the Board is concerned 

that this approach would be contrary to 

the purpose of TILA Section 104(3) 

because it would effectively prevent any 

account from remaining exempt based 

on an initial extension of credit above 

the threshold. Furthermore, the Board 

believes that conditioning the 

exemption on the amount of credit 

extended—and not the amount 

financed—promotes consumer 

understanding.5

Therefore, in order to effectuate the 

purposes of TILA and to facilitate 

compliance, the Board uses its authority 

under TILA Section 105(a) to adopt 

§ 226.3(b)(1) as proposed, with nonsubstantive revisions to its headings. 15 

U.S.C. 1604(a). As discussed below, the 

Board is also revising and reorganizing 

the commentary to § 226.3(b). 

Threshold Amount 

The Board proposed a new comment 

3(b)–1 listing the threshold amounts in 

effect for specific periods of time.6 In 

particular, the proposed comment 

clarified that, prior to July 21, 2011, the 

threshold amount is $25,000 and that, 

from July 21, 2011 through December 

31, 2011, the threshold amount will be 

$50,000. The proposed comment also 

clarified that the threshold amount will 

be adjusted effective January 1 of each 

year by any annual percentage increase 

in the CPI–W that was in effect on the 

preceding June 1.7 The comment will be 

amended to provide the threshold 

amount for the upcoming year after the 

annual percentage change in the CPI–W 

that was in effect on the previous June 

1 becomes available. For example, after 

the annual percentage change in the 

CPI–W in effect on June 1, 2011 

becomes available, comment 3(b)-1 will 

be amended to provide the threshold 

amount in effect beginning on January 1, 

2012. The Board received only one 

comment regarding this approach, 

which stated that the proposed 

timeframe would provide adequate time 

for creditors to comply with any 

inflation adjustment in the threshold 

amount. 

Proposed comment 3(b)–1 further 

clarified that any increase in the 

threshold amount will be rounded to the 

nearest $100 increment. For example, if 

the annual percentage increase in the 

CPI–W would result in a $950 increase 

in the threshold amount, the threshold 

amount will be increased by $1,000. 

However, if the annual percentage 

increase in the CPI–W would result in 

a $949 increase in the threshold 

amount, the threshold amount will be 

increased by $900. This approach is 

consistent with Section 1100E(b) of the 

Dodd-Frank Act, which provides that 

annual CPI–W adjustments should be 

‘‘rounded to the nearest multiple of 

$100, or $1,000, as applicable.’’ The 

Board believes that Congress did not 

intend for an annual CPI–W adjustment 

to be rounded to the nearest $100 in 

some circumstances but to the nearest 

$1,000 in others, which could lead to 

anomalous results. Because $1,000 is 

itself a multiple of $100, the Board 

believes that this commentary clarifies 

the statutory language in a manner 

consistent with the intent of Section 

1100E. The only comment the Board 

received on this aspect of the proposal 

supported the proposed clarification 

with respect to rounding. Accordingly, 

for the reasons discussed above, the 

Board is adopting comment 3(b)–1 as 

proposed. 

Open-End Credit 

Proposed comment 3(b)–2 provided 

guidance on the application of 

§ 226.3(b)(1) to open-end credit 

accounts. Consistent with the existing 

commentary, proposed comment 3(b)– 

2.i clarified that an open-end account 

qualifies for exemption under § 226.3(b) 

(unless secured by any real property, or 

by personal property used or expected 

to be used as the consumer’s principal 

dwelling) if either: (1) The creditor 

makes an initial extension of credit that 

exceeds the threshold amount; or (2) the 

creditor makes a firm written 

commitment to extend a total amount of 

credit in excess of the threshold amount 

with no requirement of additional credit 

information for any advances on the 

account (except as permitted from time 


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to time with respect to open-end 

accounts pursuant to § 226.2(a)(20)). 

In addition, in order to provide 

certainty regarding the exemption status 

of an account, the Board proposed to 

clarify in comment 3(b)–2.i that the 

initial extension of credit or firm 

commitment must be made at account 

opening for purposes of determining 

whether an open-end account is exempt 

under § 226.3(b). Some industry 

commenters supported the requirement 

that a firm commitment to extend credit 

in excess of the threshold amount occur 

at account opening; however, other 

industry commenters specifically 

opposed this requirement with respect 

to initial extensions of credit. In 

particular, they argued that many 

consumers open an account in order to 

have access to credit at a future time 

and do not want an extension at account 

opening. In addition, some industry 

commenters argued that the proposed 

requirement would impose a significant 

compliance burden on creditors who 

offer open-end lines of credit associated 

with brokerage accounts, which are 

serviced on systems that cannot 

presently provide Regulation Z 

disclosures. They stated that these lines 

of credit are structured to be exempt 

under § 226.3(b) based on a contractual 

requirement that the initial extension of 

credit must exceed the applicable 

threshold amount, even if that extension 

does not occur at account opening. 

Based on the comments and further 

consideration, the Board believes that it 

is not necessary to require that the 

initial extension of credit be made at 

account opening for purposes of 

§ 226.3(b). Instead, the Board has 

revised comment 3(b)–2.i to clarify that 

an account is exempt under § 226.3(b) 

based on an initial extension of credit at 

or after account opening, provided that 

extension exceeds the threshold amount 

in effect at the time the extension is 

made. In addition to providing 

flexibility, this approach is consistent 

with Section 1100E of the Dodd-Frank 

Act because, regardless of when the 

account is opened, the initial extension 

of credit must exceed the threshold 

amount (as adjusted based on the 

CPI–W) that is in effect at the time the 

extension is made. Neither the DoddFrank Act nor TILA requires that the 

initial extension occur at account 

opening. 

However, in order to ensure that 

consumers are fully protected, the final 

rule clarifies that, if a creditor makes an 

initial extension of credit after account 

opening that does not exceed the 

threshold amount in effect at the time 

the extension is made, the creditor must 

have satisfied all of the applicable 

requirements of Regulation Z from the 

date the account was opened (or earlier, 

if applicable). For example, assume that 

the threshold amount is $50,000 and 

that, after account opening, the creditor 

makes an initial extension of credit of 

$50,000 or less. In this circumstance, 

the account is not exempt and the 

creditor must have satisfied all of the 

applicable requirements of Regulation Z 

from the date the account was opened 

(or earlier, if applicable), including but 

not limited to the requirements of 

§ 226.6 (account-opening disclosures), 

§ 226.7 (periodic statements), § 226.52 

(limitations on fees), and § 226.55 

(limitations on increasing annual 

percentages rates, fees, and charges). 

Illustrative examples are provided. 

Comment 3(b)–2.i is otherwise adopted 

as proposed. 

Proposed comment 3(b)–2.ii provided 

general guidance regarding 

circumstances in which an account that 

was exempt under § 226.3(b) no longer 

qualifies for an exemption. An account 

would cease to be exempt, for example, 

if a security interest is taken at a later 

time in any real property, or in the 

consumer’s principal dwelling. 

Specifically, the comment clarified that 

a creditor must begin to comply with all 

of the applicable requirements of 

Regulation Z within a reasonable period 

of time after an account ceases to be 

exempt. For example, if an open-end 

account ceases to be exempt, the 

creditor must within a reasonable 

period of time provide the disclosures 

required by § 226.6 reflecting the 

current terms of the account and begin 

to provide periodic statements 

consistent with § 226.7. 

Industry commenters, including trade 

associations representing credit unions 

and community banks, argued that the 

proposed guidance would impose 

significant operational difficulties and 

requested further clarification regarding 

creditors’ responsibilities when an 

account no longer qualifies for an 

exemption under § 226.3(b). Consumer 

group commenters generally supported 

the proposed guidance, but requested 

that, to the extent that a creditor 

imposed charges that were inconsistent 

with Regulation Z while the account 

was exempt, the creditor be required to 

refund those charges once the 

exemption is lost. 

In order to clarify the proposed 

guidance, the Board is revising 

comment 3(b)–2.ii to state that, once an 

exempt account ceases to be exempt, the 

applicable requirements of Regulation Z 

apply prospectively to any balances on 

the account. For example, if a credit 

card account under an open-end (not 

home-secured) consumer credit plan 

ceases to be exempt, the protections in 

§ 226.55 generally prevent the card 

issuer from increasing the rate that 

applies to the account’s existing 

balance, even if that balance consists of 

transactions that occurred while the 

account was exempt. The Board further 

clarifies, however, that the creditor is 

not required to comply with the 

requirements of Regulation Z 

retroactively for the period of time 

during which the account was exempt. 

Thus, for example, a creditor is not 

required to refund amounts charged 

during the period the account was 

exempt or to provide disclosures 

regarding transactions or changes in 

account terms that occurred during that 

period. Finally, because the Board 

understands that many creditors 

voluntarily comply with Regulation Z 

for exempt accounts, the final rule 

clarifies that, if a creditor provided 

disclosures consistent with the 

requirements of Regulation Z while the 

account was exempt (including accountopening disclosures consistent with 

§ 226.6 and change-in-terms notices 

consistent with § 226.9), the creditor is 

not required to provide the disclosures 

required by § 226.6 reflecting the 

current terms of the account if the 

account ceases to be exempt. 

Proposed comment 3(b)–2.iii 

addressed the effect of subsequent 

changes when an open-end account is 

exempt under § 226.3(b) based on an 

initial extension of credit. The comment 

clarified that, if a creditor makes an 

initial extension of credit that exceeds 

the threshold amount in effect at that 

time, the account remains exempt under 

§ 226.3(b) regardless of a subsequent 

increase in the threshold amount as a 

result of an increase in the CPI–W. 

Furthermore, in these circumstances, 

the account remains exempt even if 

there are no further extensions of credit, 

subsequent extensions of credit do not 

exceed the threshold amount, the 

account balance is subsequently 

reduced below the threshold amount 

(such as through repayment of the 

extension), or the credit limit for the 

account is subsequently reduced below 

the threshold amount. Comment 3(b)– 

2.iii also clarified that, if the initial 

extension of credit on an account does 

not exceed the threshold amount in 

effect at the time of the extension, the 

account will not become exempt under 

§ 226.3(b) even if the account balance 

later exceeds the threshold amount (for 

example, due to the subsequent accrual 

of interest). 

Industry commenters generally 

supported the Board’s proposal. 

Although one industry commenter 

requested that an account become 


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exempt once the total amount of the 

transactions on the account exceeds the 

threshold, the Board does not believe 

that this approach would be consistent 

with the intent of TILA Section 104(3). 

Accordingly, the Board is adopting 

comment 3(b)–2.iii as proposed with 

revisions for clarity and consistency. 

Proposed comment 3(b)–2.iv 

addressed the effect of subsequent 

changes when an open-end account is 

exempt under § 226.3(b) based on a firm 

commitment to extend credit, rather 

than an initial extension of credit. In 

particular, proposed comment 3(b)– 

2.iv.A clarified that if the firm 

commitment does not exceed the 

threshold amount, the account is not 

exempt under § 226.3(b) even if the 

account balance later exceeds the 

threshold amount (for example, due to 

the subsequent accrual of interest). In 

addition, the proposed comment stated 

that, in order for an open-end account 

to remain exempt under § 226.3(b) based 

on a firm commitment, the amount of 

the firm commitment must continue to 

exceed the threshold amount currently 

in effect, as adjusted annually. Thus, in 

order for an account to remain exempt 

under the proposed rule, a creditor 

could not reduce its firm commitment 

below the threshold amount currently in 

effect and would have been required to 

increase its firm commitment when it 

no longer exceeded the threshold 

amount due to increases in the 

threshold as a result of increases in the 

CPI–W. 

Trade associations representing credit 

unions and community banks opposed 

the proposed requirement that, in order 

for an account to remain exempt based 

on a firm commitment, the amount of 

the commitment must continue to 

exceed the threshold amount currently 

in effect. These commenters argued that 

the continuous monitoring of such 

accounts would impose significant 

operational costs and compliance 

burdens, particularly on small 

institutions. Several industry 

commenters requested the Board clarify 

that if an account is exempt based on a 

firm commitment in excess of the 

threshold amount at account opening, 

the account will remain exempt 

regardless of subsequent increases in the 

threshold amount as a result of 

inflation. In addition, some industry 

commenters argued that the account 

should remain exempt even if the 

creditor reduces the firm commitment 

below the applicable threshold amount. 

One industry commenter, however, 

noted that creditors frequently renew 

lines of credit and that the amount of 

firm commitment is rarely reduced 

before renewal. This commenter 

requested that the Board provide 

additional flexibility to creditors when 

the consumer requests a reduction in 

the firm commitment amount. 

As discussed above, consumer groups 

and a member of Congress requested 

that the Board eliminate the firm 

commitment exemption. In the 

alternative, consumer group 

commenters urged the Board to adopt 

the proposed requirement that the firm 

commitment continue to exceed the 

threshold amount. 

Based on the comments and further 

analysis, the Board is revising proposed 

comment 3(b)–2.iv.A in order to ease 

some of the compliance burden for 

creditors, while retaining protections 

against circumvention. As discussed 

below with respect to the transition rule 

in § 226.3(b)(2), all creditors that 

currently rely on the firm commitment 

exemption must review their accounts 

and either increase their firm 

commitments to more than $50,000 by 

December 31, 2011 or begin to comply 

with Regulation Z. Although this 

requirement will impose a one-time 

burden on creditors, the Board believes 

that, because Section 1100E of the 

Dodd-Frank Act was intended to expand 

TILA’s coverage to transactions 

involving higher dollar amounts, it 

would be inconsistent with that intent 

to allow existing accounts to remain 

exempt based on firm commitments of 

less than $50,000. In contrast, however, 

the Board does not believe it would be 

appropriate to require creditors to 

continually review and adjust accounts 

that are exempt based on a firm 

commitment due to any incremental 

CPI–W increases in the threshold 

amount. In particular, the Board notes 

that, for smaller institutions with 

limited resources, the burden of 

monitoring the firm commitment 

amount in accordance with annual 

increases in the threshold amount is 

likely to be significant. In some cases, 

the Board understands that small 

institutions would have to conduct this 

review manually. Accordingly, the 

Board has revised comment 3(b)–2.iv.A 

to clarify that if a creditor makes a firm 

commitment at account opening to 

extend a total amount of credit that 

exceeds the threshold amount in effect 

at that time, the open-end account 

remains exempt under § 226.3(b) 

regardless of a subsequent increase in 

the threshold amount as a result of an 

increase in the CPI–W. For example, if 

the applicable threshold amount is 

$50,000 and an account is exempt at 

account opening based on a firm 

commitment of $55,000, the account 

remains exempt even if the threshold 

amount subsequently increases to 

$56,000 as a result of increases in the 

CPI–W. 

However, in order to prevent 

circumvention, the Board is adopting 

the proposed guidance in comment 

3(b)–2.iv.A with respect to a reduction 

in a firm commitment. Accordingly, the 

revised comment clarifies that if a 

creditor reduces a firm commitment, the 

account ceases to be exempt unless the 

reduced firm commitment exceeds the 

threshold amount in effect at the time of 

the reduction. For example, if the 

applicable threshold amount is $56,000 

and a $60,000 firm commitment on an 

exempt account is reduced to $52,000, 

the account no longer qualifies for an 

exemption based on the firm 

commitment. However, if the firm 

commitment on the exempt account is 

reduced to $58,000, the account remains 

exempt because the firm commitment 

still exceeds the threshold amount in 

effect at the time of the reduction. This 

guidance applies to any reduction in the 

firm commitment, whether upon the 

creditor’s initiative or the borrower’s 

request. The Board believes that the 

final rule does not impose any 

unwarranted monitoring burden in 

these circumstances because the 

creditor presumably would review the 

account in order to determine whether 

to reduce the firm commitment. 

Proposed comment 3(b)–2.iv.B 

clarified that when an open-end account 

no longer qualifies for an exemption 

under § 226.3(b) based on a firm 

commitment, the creditor would not be 

required to begin complying with 

Regulation Z if it permitted the 

consumer to repay any outstanding 

balance on the account consistent with 

the account terms without providing 

additional extensions of credit. This 

guidance was based on the Board’s 

concern that, if an account ceased to be 

exempt, the creditor would close the 

account and require the consumer to 

repay the outstanding balance rather 

than begin to comply with Regulation Z. 

Consumer group commenters opposed 

adoption of this guidance, arguing that 

creditors should be required to comply 

with Regulation Z in these 

circumstances. In addition, an industry 

trade association stated that creditors 

generally comply with Regulation Z 

even if an account qualifies for an 

exemption under § 226.3(b). Based on 

these comments and further analysis, 

the Board believes that this guidance is 

not necessary. Furthermore, as 

discussed above, the Board has revised 

comment 3(b)–2.ii to provide additional 

guidance and flexibility for accounts 

that no longer qualify for an exemption 

under § 226.3(b). Accordingly, the final 


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8This guidance is currently set forth in comment 

3(b)–1. 

rule does not adopt proposed comment 

3(b)–2.iv.B. 

Finally, proposed comment 3(b)– 

2.iv.C addressed circumstances in 

which an account qualifies for a 

§ 226.3(b) exemption at account opening 

based on a firm commitment and the 

creditor subsequently makes an initial 

extension of credit that exceeds the 

applicable threshold amount. The 

comment clarified that, in these 

circumstances, the account qualifies for 

a § 226.3(b) exemption based on the 

initial extension of credit if that 

extension is a single advance exceeding 

the threshold amount at the time of the 

extension. As a result, the account 

would remain exempt under § 226.3(b) 

even if the firm commitment is 

subsequently reduced below the 

threshold amount. For example, assume 

that, at account opening on January 1 of 

year one, the threshold amount in effect 

is $50,000 and the account is exempt 

under § 226.3(b) based on the creditor’s 

firm commitment to extend $53,000 in 

credit. On July 1 of year one, the 

consumer uses the account for an initial 

extension of $52,000, which is taken in 

a single advance. As a result of this 

extension of credit, the account remains 

exempt under § 226.3(b) even if, after 

July 1, the creditor reduces the firm 

commitment to $50,000 or less. 

One industry commenter suggested 

that the Board permit accounts to 

qualify for an exemption in these 

circumstances based on multiple 

advances that, in total, exceed the 

applicable threshold amount, instead of 

a single, initial advance. For consistency 

with the guidance in revised comment 

3(b)–2.i, the Board declines to adopt this 

suggestion. Therefore, comment 3(b)– 

2.iv.C is renumbered as comment 

3(b)(2)–2.iv.B for organizational 

purposes and otherwise adopted as 

proposed, with non-substantive 

revisions for clarity and consistency. 

Closed-End Credit 

Proposed comment 3(b)–3 provided 

guidance on the application of 

§ 226.3(b)(1) to closed-end loans. 

Specifically, comment 3(b)–3.i clarified 

that a closed-end loan is exempt under 

§ 226.3(b) in either of two circumstances 

(unless the extension of credit is 

secured by any real property, or by 

personal property used or expected to 

be used as the consumer’s principal 

dwelling; or is a private education loan 

as defined in § 226.46(b)(5)). 

First, the comment clarified that a 

closed-end loan would be exempt if the 

creditor makes an extension of credit at 

consummation that exceeds the 

threshold amount in effect at the time of 

consummation. In these circumstances, 

the loan remains exempt under 

§ 226.3(b) even if the amount owed is 

subsequently reduced below the 

threshold amount, such as through 

repayment. 

Second, the comment clarified that a 

closed-end loan would be exempt if the 

creditor makes a loan commitment at 

consummation to extend a total amount 

of credit in excess of the threshold 

amount in effect at the time of 

consummation. The comment further 

clarified that, in these circumstances, 

the loan remains exempt under 

§ 226.3(b) even if the total amount of 

credit actually extended does not 

exceed the threshold amount.8 This 

guidance addressed loan commitments 

for closed-end credit with terms that 

provide for scheduled advances or 

advances at the consumer’s option, 

where the total amount of credit 

ultimately drawn may be less than the 

original loan commitment on which the 

exemption was based. 

Proposed comment 3(b)–3.ii provided 

guidance on the effect of subsequent 

changes to a closed-end loan or loan 

commitment or to the threshold amount. 

Specifically, the comment clarified that, 

if a creditor makes an extension of 

credit or loan commitment to extend 

credit that exceeds the threshold 

amount in effect at the time of 

consummation, the closed-end loan 

remains exempt under § 226.3(b) 

regardless of a subsequent increase in 

the threshold amount, such as an 

increase as a result of Section 1100E or 

an increase in the CPI–W. In addition, 

the proposed comment incorporated 

existing guidance regarding the 

refinancing of an exempt closed-end 

loan. Consumer groups and one 

industry commenter generally 

supported the proposed comment. 

Accordingly, the Board is adopting 

comment 3(b)–3 as proposed with nonsubstantive revisions for clarity. 

Additional Commentary 

Proposed comment 3(b)–4 provided 

guidance when a security interest in any 

real property, or in personal property 

used or expected to be used as the 

consumer’s principal dwelling, is added 

to an existing account or loan that is 

exempt under § 226.3(b). The proposed 

comment incorporated guidance from 

current comments 3(b)–2.ii and 3(b)–3 

with respect to open-end credit and 

closed-end credit, respectively. The 

Board did not receive substantive 

comments on proposed comment 3(b)– 

4, which is adopted as proposed with 

non-substantive revisions for clarity. 

Proposed comment 3(b)–5 

incorporated the guidance currently 

provided in comment 3(b)–1 regarding 

credit extensions secured by mobile 

homes. Specifically, this comment 

clarified that the exemption in 

§ 226.3(b) does not apply to a credit 

extension secured by a mobile home 

used or expected to be used as the 

principal dwelling of the consumer. The 

only comment to address this guidance 

supported adoption of the proposal. 

Accordingly, the Board is adopting 

comment 3(b)–5 as proposed. 

3(b)(2) Transition Rule for Open-End 

Accounts Exempt Prior to July 21, 2011 

The Board proposed to add a new 

§ 226.3(b)(2) in order to address 

transition issues related to open-end 

accounts that are exempt under current 

§ 226.3(b) but may not be exempt under 

the revised threshold. Specifically, 

proposed § 226.3(b)(2) provided that an 

open-end account that is exempt under 

§ 226.3(b) on July 20, 2011 based on an 

extension of credit in excess of $25,000 

or an express written commitment to 

extend credit in excess of $25,000 

remains exempt until July 21, 2012. 

However, the account would cease to be 

exempt under § 226.3(b)(2) if the 

creditor takes a security interest in any 

real property, or in personal property 

used or expected to be used as the 

consumer’s principal dwelling; or if the 

creditor reduces any express written 

commitment to extend credit to $25,000 

or less. Section 226.3(b)(2) was 

proposed pursuant to the Board’s 

authority under TILA Section 105(a) to 

make adjustments that are necessary to 

effectuate the purposes of, and to 

facilitate compliance with, TILA. 15 

U.S.C. 1604(a). 

The Board understands that many 

creditors currently choose to comply 

with Regulation Z in circumstances 

where the initial extension or firm 

commitment exceeds $25,000. For 

example, the Board understands that 

creditors offering closed-end automobile 

loans typically provide Regulation Z 

disclosures regardless of the amount of 

the loan. However, because some 

currently exempt open-end credit 

accounts may be serviced on systems 

that cannot presently provide 

Regulation Z disclosures, the Board 

proposed a transition period in order to 

provide additional flexibility and 

facilitate compliance with the revisions 

to § 226.3(b). 

In particular, the Board noted that this 

concern exists with respect to certain 

open-end lines of credit associated with 

brokerage accounts that are serviced on 

systems that cannot currently provide 


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9To the extent the creditors who provide these 

accounts are not broker-dealers, the accounts are 

not exempt under § 226.3(d). 

Regulation Z disclosures.9 Industry 

commenters indicated that creditors 

offering this type of product would 

generally be able to comply with the 

increased threshold amount on July 21, 

2011 by requiring that any initial 

extensions of credit on or after that date 

exceed $50,000; however, they 

requested that the Board delay the 

mandatory compliance date for the 

proposed requirement that an initial 

extension of credit occur at account 

opening. As discussed above, the Board 

is revising its commentary to clarify that 

the initial extension of credit on an 

open-end account is not required to 

occur at account opening for purposes 

of § 226.3(b). Therefore, with respect to 

accounts that are exempt based on an 

initial extension of credit, the Board 

believes additional compliance time is 

not required. Accordingly, the Board is 

not adopting the proposed transition 

rule for these accounts. 

However, the Board believes that it is 

appropriate to provide creditors that are 

currently relying on a firm commitment 

exemption with additional time to 

adjust to the increase in the threshold 

amount from $25,000 to $50,000 

pursuant to Section 1100E. As noted 

above, the Board believes that it would 

be inconsistent with the intent of 

Section 1100E to permit accounts to 

remain exempt based on firm 

commitments to extend more than 

$25,000 (but less than $50,000) in 

credit. Thus, in order to comply with 

the final rule, creditors must review all 

accounts that are currently exempt 

based on a firm commitment and, to the 

extent the commitment does not exceed 

$50,000, either increase the 

commitment or begin to comply with 

Regulation Z. Industry commenters 

argued that this task would be 

burdensome (particularly for small 

institutions) and requested additional 

time to comply. However, as noted 

above, consumer group commenters 

opposed providing any additional time 

for compliance. 

Based on the comments and further 

analysis, the Board believes it is 

appropriate to provide additional time 

for creditors who currently rely on the 

firm commitment exemption to make 

the necessary adjustments to comply 

with the one-time increase from $25,000 

to $50,000; however, the Board does not 

believe that the proposed one-year 

transition period is necessary because 

the Board understands that these 

creditors generally have the systems and 

procedures in place to comply with 

Regulation Z. Accordingly, as adopted 

in the final rule, § 226.3(b)(2) provides 

that an open-end account that is exempt 

on July 20, 2011 based on an express 

written commitment to extend credit in 

excess of $25,000 generally remains 

exempt until December 31, 2011. The 

Board believes that this will provide 

creditors with sufficient time to review 

their accounts and make the necessary 

adjustments. 

The Board is revising proposed 

comment 3(b)–6 to provide guidance 

regarding the application of revised 

§ 226.3(b)(2). In particular, the comment 

clarifies that if, on July 20, 2011, an 

open-end account is exempt under 

§ 226.3(b) based on a firm commitment 

to extend credit in excess of $25,000, 

the account generally remains exempt 

under § 226.3(b)(2) until December 31, 

2011 (unless the firm commitment is 

reduced to $25,000 or less). If the firm 

commitment is increased on or before 

December 31, 2011 to an amount in 

excess of $50,000, the account remains 

exempt under § 226.3(b)(1) regardless of 

subsequent increases in the threshold 

amount as a result of increases in the 

CPI–W. If the firm commitment is not 

increased on or before December 31, 

2011 to an amount in excess of $50,000, 

the account ceases to be exempt under 

the § 226.3(b) based on a firm 

commitment. Furthermore, comment 

3(b)–6 clarifies that § 226.3(b)(2) applies 

only to open-end accounts opened prior 

to July 21, 2011 and does not apply if 

a security interest is taken in any real 

property, or in personal property used 

or expected to be used as the 

consumer’s principal dwelling. 

V. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) generally 

requires an agency to perform an initial 

and a final regulatory flexibility analysis 

on the impact a rule is expected to have 

on small entities. However, under 

section 605(b) of the RFA, the regulatory 

flexibility analysis otherwise required 

under section 604 of the RFA is not 

required if an agency certifies, along 

with a statement providing the factual 

basis for such certification, that the rule 

will not have a significant economic 

impact on a substantial number of small 

entities. The Board has prepared the 

following final regulatory flexibility 

analysis pursuant to section 604 of the 

RFA. 

Based on its initial and final analyses 

and for the reasons stated below, the 

Board believes that this final rule will 

not have a significant economic impact 

on a substantial number of small 

entities. 

1. Statement of the need for, and 

objectives of, the final rule. The final 

rule implements Section 1100E of the 

Dodd-Frank Act, which increases the 

threshold for consumer credit 

transactions exempt under TILA from 

$25,000 to $50,000. Section 1100E also 

provides that this threshold shall be 

adjusted annually to reflect any annual 

percentage increase in the Consumer 

Price Index for Urban Wage Earners and 

Clerical Workers (CPI–W). The 

supplementary information above 

describes in detail the reasons, 

objectives, and legal basis for each 

component of the final rule. 

2. Summary of the significant issues 

raised by public comment on Board’s 

initial analysis, the Board’s assessment 

of such issues, and a statement of any 

changes made as a result of such 

comments. An industry group 

representing credit unions requested 

that, in order to reduce regulatory 

burden, the Board provide additional 

guidance regarding the types of records 

that institutions are required to retain in 

order to demonstrate compliance with 

Regulation Z. Section 226.25 states that 

creditors must retain ‘‘evidence of 

compliance with this regulation (other 

than advertising requirements under 

sections 226.16 and 226.24) for two 

years after the date disclosures are 

required to be made or action is 

required to be taken.’’ Comment 25–2 

clarifies that ‘‘[a]dequate evidence of 

compliance does not necessarily mean 

actual paper copies of disclosure 

statements or other business records.’’ 

Instead, ‘‘[t]he evidence may be retained 

on microfilm, microfiche, or by any 

other method that reproduces records 

accurately (including computer 

programs).’’ Furthermore, ‘‘[t]he creditor 

need retain only enough information to 

reconstruct the required disclosures or 

other records. Thus, for example, the 

creditor need not retain each open-end 

periodic statement, so long as the 

specific information on each statement 

can be retrieved.’’ 

Because the current regulation and 

commentary provide creditors with 

considerable flexibility regarding the 

retention of records, the Board is 

concerned that adopting a more specific 

set of requirements (such as a list of 

documents that creditors must retain) 

could increase regulatory burden, rather 

than reducing it. Furthermore, because 

the Board did not propose any 

amendments to the record retention 

requirements in § 226.25, any revisions 

to those requirements would not have 

the benefit of input from the public, 

including small institutions. 

Accordingly, the final rule does not alter 

the requirements of § 226.25. 


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3. Small entities affected by the final 

rule. All creditors that offer closed-end 

or open-end consumer credit extensions 

that exceed $25,000 but do not exceed 

$50,000, as adjusted annually to reflect 

increases in the CPI–W, would be 

affected by the final rule. Based on 2010 

call report data, the Board estimates that 

there are approximately 4,360 banks and 

thrifts with assets of $175 million or less 

and 6,655 credit unions with assets of 

$175 million or less, that would be 

required to comply with the Board’s 

final rule. The Board acknowledges, 

however, that the total number of small 

entities likely to be affected by the final 

rule is unknown, in part because 

Regulation Z has broad applicability to 

individuals and businesses that extend 

even small amounts of consumer credit. 

In addition, it is unclear how many of 

these small entities currently do not 

have systems in place to comply with 

Regulation Z because they only extend 

credit in excess of $25,000. It is also 

unclear how many of those entities will 

choose to engage in consumer credit 

transactions between $25,000 and 

$50,000, as opposed to only making 

loans above the new threshold. 

4. Recordkeeping, reporting, and 

compliance requirements. The final rule 

imposes new recordkeeping, reporting, 

and compliance requirements under 

Regulation Z on creditors that extend 

consumer credit in amounts that exceed 

$25,000 but do not exceed $50,000, as 

adjusted annually to reflect increases in 

the CPI–W. The Board understands that 

small entities that offer consumer credit 

generally have systems in place to 

comply with Regulation Z for 

extensions of credit of $25,000 or less. 

The Board notes that the precise costs 

to small entities to provide Regulation Z 

disclosures to accounts with consumer 

credit extensions of more than $25,000 

but not more than $50,000, and the costs 

of updating their systems to comply 

with the final rule, are difficult to 

predict. These costs would depend on a 

number of factors that are unknown to 

the Board, including, among other 

things, the specifications of the current 

systems used by such entities to prepare 

and provide disclosures and administer 

accounts, the complexity of the terms of 

the products that they offer, and the 

range of such product offerings. One 

industry commenter noted that the 

Board’s rule could impose operational 

burden on smaller institutions with 

respect to open-end accounts exempt 

prior to July 21, 2011. The Board, 

however, has revised the rule to provide 

creditors, particularly smaller 

institutions, with additional flexibility 

to ease compliance burden. 

Final Amendments 

This subsection summarizes several of 

the final amendments to Regulation Z 

and their likely impact on small entities. 

More information regarding these and 

other changes can be found in IV. 

Section-by-Section Analysis. 

On July 21, 2011, the amendments to 

§ 226.3(b)(1)(i) and its accompanying 

commentary raise the threshold for 

exempt consumer credit transactions 

from $25,000 to $50,000. For accounts 

which do not qualify for the exemption 

under the new threshold, creditors that 

are small entities are required to comply 

with all applicable Regulation Z 

requirements. The Board anticipates 

that creditors that are small entities, 

with some additional burden, will 

service accounts which do not meet the 

increased threshold for exemption on 

the same systems in place for nonexempt accounts. Furthermore, the 

Board understands that some creditors 

that are small entities generally do not 

rely on the exemption in § 226.3(b) and 

comply with Regulation Z regardless of 

the amount of the credit extension. 

Therefore, the Board does not anticipate 

significant additional burden on small 

entities by raising the exemption 

threshold dollar amount. 

Under § 226.3(b)(1)(ii), the threshold 

amount must be adjusted annually by 

any annual percentage increase in the 

CPI–W. To the extent creditors that are 

small entities rely on the exemption 

under § 226.3(b), § 226.3(b)(1)(ii) 

requires those creditors to establish 

processes and alter their systems in 

order to comply with the provision. The 

cost of such changes would depend on 

the size of the institution and the 

composition of its portfolio. The Board 

anticipates that creditors that are small 

entities, with some additional burden, 

will service accounts which do not or 

may not meet the applicable threshold 

for exemption on the same systems in 

place for non-exempt accounts. In 

addition, as noted above, the Board 

understands that many creditors that are 

small entities generally comply with 

Regulation Z regardless of the amount of 

the credit extension. Furthermore, as 

discussed above, the Board has revised 

the proposed rule to reduce the 

monitoring burden for small entities 

that rely on the firm commitment 

exemption. As a result, the Board does 

not anticipate significant additional 

burden on small entities by adjusting 

the exemption threshold dollar amount 

annually for inflation. 

Section 226.3(b)(2) addresses 

circumstances where certain previously 

exempt open-end accounts would cease 

to qualify for an exemption based on a 

firm commitment on July 21, 2011 

under the revised threshold amount. 

Under § 226.3(b)(2), these accounts 

would have until December 31, 2011 to 

comply with the revised threshold 

amount in effect at that time ($50,000). 

Therefore, the Board has reduced the 

burden on small entities that rely on the 

firm commitment exemption by 

providing additional time to comply 

with the final rule. 

Accordingly, the Board believes that, 

in the aggregate, the provisions of its 

final rule would not have a significant 

economic impact on a substantial 

number of small entities. 

5. Significant alternatives to the 

revisions. The provisions of the final 

rule would implement the statutory 

requirements of the Dodd-Frank Act, 

which establish new threshold 

requirements for exempt consumer 

credit transactions. As discussed above 

in the supplementary information, the 

Board has revised the proposed rule to 

reduce the compliance burden for small 

entities and to provide small entities 

with additional time to come into 

compliance, while effectuating the 

statute in a manner that is beneficial to 

consumers. 

VI. Paperwork Reduction Act Analysis 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR part 1320 Appendix A.1), 

the Board reviewed the final rule under 

the authority delegated to the Board by 

the Office of Management and Budget 

(OMB). In addition, as permitted by the 

PRA, the Board extends for three years 

the current recordkeeping and 

disclosure requirements in connection 

with Regulation Z. The collection of 

information that is required by this final 

rule is found in 12 CFR part 226. The 

Board may not conduct or sponsor, and 

an organization is not required to 

respond to, this information collection 

unless the information collection 

displays a currently valid OMB control 

number. The OMB control number is 

7100–0199. 

This information collection is 

required to provide benefits for 

consumers and is mandatory (15 U.S.C. 

1601 et seq.). The respondents/ 

recordkeepers are creditors and other 

entities subject to Regulation Z, 

including for-profit financial 

institutions, small businesses, and 

institutions of higher education. TILA 

and Regulation Z are intended to ensure 

effective disclosure of the costs and 

terms of credit to consumers. For openend credit, creditors are required to, 

among other things, disclose 

information about the initial costs and 

terms and to provide periodic 


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10The number of Federal Reserve-supervised 

creditors was obtained from numbers published in 

the Board of Governors of the Federal Reserve 

System Annual Report: 878 State member banks, 

258 Branches & agencies of foreign banks, and 2 

Commercial lending companies. 

11The burden estimate for this rulemaking does 

not include the burden addressing changes to 

implement the following provisions announced in 

separate rulemakings: Closed-End Mortgages 

(Docket No. R–1366) (74 FR 43232) (75 FR 58470), 

Home-Equity Lines of Credit (Docket No. R–1367) 

(74 FR 43428), Reverse Mortgages (Docket No. R– 

1390) (75 FR 58539), or Appraisal Independence 

(Docket No. R–1394) (75 FR 66554). 

statements of account activity, notices of 

changes in terms, and statements of 

rights concerning billing error 

procedures. Regulation Z requires 

specific types of disclosures for credit 

and charge card accounts and for homeequity plans. For closed-end loans, such 

as mortgage and installment loans, cost 

disclosures are required to be provided 

prior to consummation. Special 

disclosures are required in connection 

with certain products, such as reverse 

mortgages, certain variable-rate loans, 

and certain mortgages with rates and 

fees above specified thresholds. TILA 

and Regulation Z also contain rules 

concerning credit advertising. Creditors 

are required to retain evidence of 

compliance for 24 months (§ 226.25), 

but Regulation Z does not specify the 

types of records that must be retained. 

Under the PRA, the Board accounts 

for the paperwork burden associated 

with Regulation Z for the state member 

banks and other creditors supervised by 

the Board that engage in lending 

covered by Regulation Z and, therefore, 

are respondents under the PRA. 

Appendix I of Regulation Z defines the 

Board-regulated institutions as: state 

member banks, branches and agencies of 

foreign banks (other than federal 

branches, federal agencies, and insured 

state branches of foreign banks), 

commercial lending companies owned 

or controlled by foreign banks, and 

organizations operating under section 

25 or 25A of the Federal Reserve Act. 

Other federal agencies account for the 

paperwork burden on other entities 

subject to Regulation Z. To ease the 

burden and cost of compliance with 

Regulation Z (particularly for small 

entities), the Board provides model 

forms, which are appended to the 

regulation. 

The current total annual burden to 

comply with the provisions of 

Regulation Z is estimated to be 

1,497,362 hours for the 1,138 

institutions 10 supervised by the Board 

that are deemed to be respondents for 

the purposes of the PRA. 

On July 21, 2011, the amendments to 

§ 226.3(b)(1)(i) and its accompanying 

commentary raise the threshold for 

exempt consumer credit transactions 

from $25,000 to $50,000. In addition, 

§ 226.3(b)(1)(ii) requires that the 

threshold dollar amount be adjusted 

annually for inflation to reflect any 

annual percentage increase in the 

CPI–W. As a result, creditors will now 

be required to comply with Regulation 

Z requirements for certain accounts 

with extensions of consumer credit—or 

express written commitments to extend 

consumer credit—of more than $25,000 

but not more than $50,000, as adjusted 

annually to reflect increases in the CPI– 

W. 

The Board estimates that the final rule 

would impose a one-time increase in the 

total annual burden under Regulation Z. 

The 1,138 respondents would take, on 

average, 40 hours (one business week) to 

update their systems to comply with the 

requirements of Regulation Z for loans 

that are no longer exempt. This one-time 

revision would increase the burden by 

45,520 hours. On a continuing basis, the 

Board estimates that 1,138 respondents 

would take, on average, 8 hours (one 

business day) annually to comply with 

the requirements of Regulation Z for 

loans that are no longer exempt and 

would increase the ongoing burden by 

9,104 hours. Thus, the total annual 

burden is estimated to increase by 

54,624 hours (from 1,497,362 to 

1,551,986 hours) during the first year 

after the final rule is adopted. 

Thereafter, the ongoing total annual 

burden would be 1,506,466.11

The total burden increase represents 

averages for all respondents regulated 

by the Board. The Board expects that the 

amount of time required to implement 

each of the changes for a given financial 

institution or entity may vary based on 

the size and complexity of the 

respondent. Furthermore, the Board 

understands that many creditors 

voluntarily comply with Regulation Z 

for accounts that are currently exempt. 

Therefore, the estimated burden 

increase likely overstates the actual 

increase in burden for those creditors. 

The other Federal financial institution 

supervisory agencies (the Office of the 

Comptroller of the Currency (OCC), the 

Office of Thrift Supervision (OTS), the 

Federal Deposit Insurance Corporation 

(FDIC), and the National Credit Union 

Administration (NCUA)) are responsible 

for estimating and reporting to OMB the 

total paperwork burden for the 

domestically chartered commercial 

banks, thrifts, and federal credit unions 

and U.S. branches and agencies of 

foreign banks for which they have 

primary administrative enforcement 

jurisdiction under TILA Section 108(a), 

15 U.S.C. 1607(a). These agencies may, 

but are not required to, use the Board’s 

methodology for estimating burden. 

Using the Board’s method, the total 

current estimated annual burden for the 

approximately 16,200 domestically 

chartered commercial banks, thrifts, and 

federal credit unions and U.S. branches 

and agencies of foreign banks 

supervised by the Board, OCC, OTS, 

FDIC, and NCUA under TILA would be 

approximately 21,813,445 hours. The 

final rule would impose a one-time 

increase in the estimated annual burden 

by 648,000. On a continuing basis, the 

final rule would impose an increase in 

the estimated annual burden by 

129,600. Thus, the total annual burden 

is estimated to increase by 777,600 

hours to 22,591,045 hours during the 

first year after the final rule is adopted. 

Thereafter, the ongoing total annual 

burden would be 21,943,045. The above 

estimates represent an average across all 

respondents and reflect variations 

between institutions based on their size, 

complexity, and practices. As noted 

above, the estimated burden increase 

likely overstates the actual increase in 

burden because many creditors 

voluntarily comply with Regulation Z 

for exempt accounts. 

The Board has a continuing interest in 

the public’s opinion of the collection of 

information. Comments on the 

collection of information should be sent 

to Cynthia Ayouch, Acting Federal 

Reserve Board Clearance Officer, 

Division of Research and Statistics, Mail 

Stop 95–A, Board of Governors of the 

Federal Reserve System, Washington, 

DC 20551, with copies of such 

comments sent to the Office of 

Management and Budget, Paperwork 

Reduction Project (7100–0199), 

Washington, DC 20503. 

List of Subjects in 12 CFR Part 226 

Advertising, Consumer protection, 

Federal Reserve System, Reporting and 

recordkeeping requirements, Truth in 

lending. 

Text of Final Revisions 

For the reasons set forth in the 

preamble, the Board amends Regulation 

Z, 12 CFR part 226, as set forth below: 

PART 226—TRUTH IN LENDING 

(REGULATION Z) 

■ 1. The authority citation for part 226 

is revised to read as follows: 

Authority: 12 U.S.C. 3806; 15 U.S.C. 1604, 

1637(c)(5), and 1639(l); Pub. L. 111–24 § 2, 

123 Stat. 1734; Pub. L. 111–203, 124 Stat. 

1376. 


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Federal Register / Vol. 76, No. 64 / Monday, April 4, 2011 / Rules and Regulations 18363 

Subpart B—Open-End Credit 

■ 2. Section 226.3(b) is revised to read 

as follows: 

§ 226.3 Exempt transactions. 

* * * * * 

(b) Credit over applicable threshold 

amount—(1) Exemption—(i) 

Requirements. An extension of credit in 

which the amount of credit extended 

exceeds the applicable threshold 

amount or in which there is an express 

written commitment to extend credit in 

excess of the applicable threshold 

amount, unless the extension of credit 

is: 

(A) Secured by any real property, or 

by personal property used or expected 

to be used as the principal dwelling of 

the consumer; or 

(B) A private education loan as 

defined in § 226.46(b)(5). 

(ii) Annual adjustments. The 

threshold amount in paragraph (b)(1)(i) 

of this section is adjusted annually to 

reflect increases in the Consumer Price 

Index for Urban Wage Earners and 

Clerical Workers, as applicable. See the 

official staff commentary to this 

paragraph (b) for the threshold amount 

applicable to a specific extension of 

credit or express written commitment to 

extend credit. 

(2) Transition rule for open-end 

accounts exempt prior to July 21, 2011. 

An open-end account that is exempt on 

July 20, 2011 based on an express 

written commitment to extend credit in 

excess of $25,000 remains exempt until 

December 31, 2011 unless: 

(i) The creditor takes a security 

interest in any real property, or in 

personal property used or expected to 

be used as the principal dwelling of the 

consumer; or 

(ii) The creditor reduces the express 

written commitment to extend credit to 

$25,000 or less. 

* * * * * 

■ 3. In Supplement I to part 226: 

■ A. Under Section 226.2—Definitions 

and Rules of Construction, under 

2(a)(19) Dwelling, paragraph 3. is 

revised. 

■ B. Under Section 226.3—Exempt 

Transactions, section 3(b) Credit over 

$25,000 not secured by real property or 

a dwelling is revised. 

■ C. Under Section 226.23—Right of 

Rescission, under 23(a) Consumer’s 

Right to Rescind, under Paragraph 

23(a)(1), paragraph 5. is revised. 

The additions and revisions read as 

follows: 

Supplement I to Part 226—Official Staff 

Interpretations 

* * * * * 

Subpart A—General 

* * * * * 

Section 226.2—Definitions and Rules of 

Construction 

* * * * * 

2(a)(19) Dwelling. 

* * * * * 

3. Relation to exemptions. Any transaction 

involving a security interest in a consumer’s 

principal dwelling (as well as in any real 

property) remains subject to the regulation 

despite the general exemption in § 226.3(b). 

* * * * * 

Section 226.3—Exempt Transactions 

* * * * * 

3(b) Credit over applicable threshold 

amount. 

1. Threshold amount. For purposes of 

§ 226.3(b), the threshold amount in effect 

during a particular period is the amount 

stated below for that period. The threshold 

amount is adjusted effective January 1 of 

each year by any annual percentage increase 

in the Consumer Price Index for Urban Wage 

Earners and Clerical Workers (CPI–W) that 

was in effect on the preceding June 1. This 

comment will be amended to provide the 

threshold amount for the upcoming year after 

the annual percentage change in the CPI–W 

that was in effect on June 1 becomes 

available. Any increase in the threshold 

amount will be rounded to the nearest $100 

increment. For example, if the annual 

percentage increase in the CPI–W would 

result in a $950 increase in the threshold 

amount, the threshold amount will be 

increased by $1,000. However, if the annual 

percentage increase in the CPI–W would 

result in a $949 increase in the threshold 

amount, the threshold amount will be 

increased by $900. 

i. Prior to July 21, 2011, the threshold 

amount is $25,000. 

ii. From July 21, 2011 through December 

31, 2011, the threshold amount is $50,000. 

2. Open-end credit. 

i. Qualifying for exemption. An open-end 

account is exempt under § 226.3(b) (unless 

secured by any real property, or by personal 

property used or expected to be used as the 

consumer’s principal dwelling) if either of 

the following conditions is met: 

A. The creditor makes an initial extension 

of credit at or after account opening that 

exceeds the threshold amount in effect at the 

time the initial extension is made. If a 

creditor makes an initial extension of credit 

after account opening that does not exceed 

the threshold amount in effect at the time the 

extension is made, the creditor must have 

satisfied all of the applicable requirements of 

this Part from the date the account was 

opened (or earlier, if applicable), including 

but not limited to the requirements of § 226.6 

(account-opening disclosures), § 226.7 

(periodic statements), § 226.52 (limitations 

on fees), and § 226.55 (limitations on 

increasing annual percentages rates, fees, and 

charges). For example: 

(1) Assume that the threshold amount in 

effect on January 1 is $50,000. On February 

1, an account is opened but the creditor does 

not make an initial extension of credit at that 

time. On July 1, the creditor makes an initial 

extension of credit of $60,000. In this 

circumstance, no requirements of this Part 

apply to the account. 

(2) Assume that the threshold amount in 

effect on January 1 is $50,000. On February 

1, an account is opened but the creditor does 

not make an initial extension of credit at that 

time. On July 1, the creditor makes an initial 

extension of credit of $50,000 or less. In this 

circumstance, the account is not exempt and 

the creditor must have satisfied all of the 

applicable requirements of this Part from the 

date the account was opened (or earlier, if 

applicable). 

B. The creditor makes a firm written 

commitment at account opening to extend a 

total amount of credit in excess of the 

threshold amount in effect at the time the 

account is opened with no requirement of 

additional credit information for any 

advances on the account (except as permitted 

from time to time with respect to open-end 

accounts pursuant to § 226.2(a)(20)). 

ii. Subsequent changes generally. 

Subsequent changes to an open-end account 

or the threshold amount may result in the 

account no longer qualifying for the 

exemption in § 226.3(b). In these 

circumstances, the creditor must begin to 

comply with all of the applicable 

requirements of this Part within a reasonable 

period of time after the account ceases to be 

exempt. Once an account ceases to be 

exempt, the requirements of this Part apply 

to any balances on the account. The creditor, 

however, is not required to comply with the 

requirements of this Part with respect to the 

period of time during which the account was 

exempt. For example, if an open-end credit 

account ceases to be exempt, the creditor 

must within a reasonable period of time 

provide the disclosures required by § 226.6 

reflecting the current terms of the account 

and begin to provide periodic statements 

consistent with § 226.7. However, the 

creditor is not required to disclose fees or 

charges imposed while the account was 

exempt. Furthermore, if the creditor provided 

disclosures consistent with the requirements 

of this Part while the account was exempt, 

it is not required to provide disclosures 

required by § 226.6 reflecting the current 

terms of the account. See also comment 3(b)– 

4. 

iii. Subsequent changes when exemption is 

based on initial extension of credit. If a 

creditor makes an initial extension of credit 

that exceeds the threshold amount in effect 

at that time, the open-end account remains 

exempt under § 226.3(b) regardless of a 

subsequent increase in the threshold amount, 

including an increase pursuant to 

§ 226.3(b)(1)(ii) as a result of an increase in 

the CPI–W. Furthermore, in these 

circumstances, the account remains exempt 

even if there are no further extensions of 

credit, subsequent extensions of credit do not 

exceed the threshold amount, the account 

balance is subsequently reduced below the 

threshold amount (such as through 

repayment of the extension), or the credit 

limit for the account is subsequently reduced 

below the threshold amount. However, if the 

initial extension of credit on an account does 


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18364 Federal Register / Vol. 76, No. 64 / Monday, April 4, 2011 / Rules and Regulations 

not exceed the threshold amount in effect at 

the time of the extension, the account is not 

exempt under § 226.3(b) even if a subsequent 

extension exceeds the threshold amount or if 

the account balance later exceeds the 

threshold amount (for example, due to the 

subsequent accrual of interest). 

iv. Subsequent changes when exemption is 

based on firm commitment. 

A. General. If a creditor makes a firm 

written commitment at account opening to 

extend a total amount of credit that exceeds 

the threshold amount in effect at that time, 

the open-end account remains exempt under 

§ 226.3(b) regardless of a subsequent increase 

in the threshold amount pursuant to 

§ 226.3(b)(1)(ii) as a result of an increase in 

the CPI–W. However, see comment 3(b)–6 

with respect to the increase in the threshold 

amount from $25,000 to $50,000. If an openend account is exempt under § 226.3(b) based 

on a firm commitment to extend credit, the 

account remains exempt even if the amount 

of credit actually extended does not exceed 

the threshold amount. In contrast, if the firm 

commitment does not exceed the threshold 

amount at account opening, the account is 

not exempt under § 226.3(b) even if the 

account balance later exceeds the threshold 

amount. In addition, if a creditor reduces a 

firm commitment, the account ceases to be 

exempt unless the reduced firm commitment 

exceeds the threshold amount in effect at the 

time of the reduction. For example: 

(1) Assume that, at account opening in year 

one, the threshold amount in effect is 

$50,000 and the account is exempt under 

§ 226.3(b) based on the creditor’s firm 

commitment to extend $55,000 in credit. If 

during year one the creditor reduces its firm 

commitment to $53,000, the account remains 

exempt under § 226.3(b). However, if during 

year one the creditor reduces its firm 

commitment to $40,000, the account is no 

longer exempt under § 226.3(b). 

(2) Assume that, at account opening in year 

one, the threshold amount in effect is 

$50,000 and the account is exempt under 

§ 226.3(b) based on the creditor’s firm 

commitment to extend $55,000 in credit. If 

the threshold amount is $56,000 on January 

1 of year six as a result of increases in the 

CPI–W, the account remains exempt. 

However, if the creditor reduces its firm 

commitment to $54,000 on July 1 of year six, 

the account ceases to be exempt under 

§ 226.3(b). 

B. Initial extension of credit. If an open-end 

account qualifies for a § 226.3(b) exemption 

at account opening based on a firm 

commitment, that account may also 

subsequently qualify for a § 226.3(b) 

exemption based on an initial extension of 

credit. However, that initial extension must 

be a single advance in excess of the threshold 

amount in effect at the time the extension is 

made. In addition, the account must continue 

to qualify for an exemption based on the firm 

commitment until the initial extension of 

credit is made. For example: 

(1) Assume that, at account opening in year 

one, the threshold amount in effect is 

$50,000 and the account is exempt under 

§ 226.3(b) based on the creditor’s firm 

commitment to extend $55,000 in credit. The 

account is not used for an extension of credit 

during year one. On January 1 of year two, 

the threshold amount is increased to $51,000 

pursuant to § 226.3(b)(1)(ii) as a result of an 

increase in the CPI–W. On July 1 of year two, 

the consumer uses the account for an initial 

extension of $52,000. As a result of this 

extension of credit, the account remains 

exempt under § 226.3(b) even if, after July 1 

of year two, the creditor reduces the firm 

commitment to $51,000 or less. 

(2) Same facts as in paragraph iv.B(1) above 

except that the consumer uses the account for 

an initial extension of $30,000 on July 1 of 

year two and for an extension of $22,000 on 

July 15 of year two. In these circumstances, 

the account is not exempt under § 226.3(b) 

based on the $30,000 initial extension of 

credit because that extension did not exceed 

the applicable threshold amount ($51,000), 

although the account remains exempt based 

on the firm commitment to extend $55,000 in 

credit. 

(3) Same facts as in paragraph iv.B(1) above 

except that, on April 1 of year two, the 

creditor reduces the firm commitment to 

$50,000, which is below the $51,000 

threshold then in effect. Because the account 

ceases to qualify for a § 226.3(b) exemption 

on April 1 of year two, the account does not 

qualify for a § 226.3(b) exemption based on 

a $52,000 initial extension of credit on July 

1 of year two. 

3. Closed-end credit. 

i. Qualifying for exemption. A closed-end 

loan is exempt under § 226.3(b) (unless the 

extension of credit is secured by any real 

property, or by personal property used or 

expected to be used as the consumer’s 

principal dwelling; or is a private education 

loan as defined in § 226.46(b)(5)), if either of 

the following conditions is met: 

A. The creditor makes an extension of 

credit at consummation that exceeds the 

threshold amount in effect at the time of 

consummation. In these circumstances, the 

loan remains exempt under § 226.3(b) even if 

the amount owed is subsequently reduced 

below the threshold amount (such as through 

repayment of the loan). 

B. The creditor makes a commitment at 

consummation to extend a total amount of 

credit in excess of the threshold amount in 

effect at the time of consummation. In these 

circumstances, the loan remains exempt 

under § 226.3(b) even if the total amount of 

credit extended does not exceed the 

threshold amount. 

ii. Subsequent changes. If a creditor makes 

a closed-end extension of credit or 

commitment to extend closed-end credit that 

exceeds the threshold amount in effect at the 

time of consummation, the closed-end loan 

remains exempt under § 226.3(b) regardless 

of a subsequent increase in the threshold 

amount. However, a closed-end loan is not 

exempt under § 226.3(b) merely because it is 

used to satisfy and replace an existing 

exempt loan, unless the new extension of 

credit is itself exempt under the applicable 

threshold amount. For example, assume a 

closed-end loan that qualified for a § 226.3(b) 

exemption at consummation in year one is 

refinanced in year ten and that the new loan 

amount is less than the threshold amount in 

effect in year ten. In these circumstances, the 

creditor must comply with all of the 

applicable requirements of this Part with 

respect to the year ten transaction if the 

original loan is satisfied and replaced by the 

new loan, which is not exempt under 

§ 226.3(b). See also comment 3(b)–4. 

4. Addition of a security interest in real 

property or a dwelling after account opening 

or consummation. 

i. Open-end credit. For open-end accounts, 

if, after account opening, a security interest 

is taken in any real property, or in personal 

property used or expected to be used as the 

consumer’s principal dwelling, a previously 

exempt account ceases to be exempt under 

§ 226.3(b) and the creditor must begin to 

comply with all of the applicable 

requirements of this Part within a reasonable 

period of time. See comment 3(b)–2.ii. If a 

security interest is taken in the consumer’s 

principal dwelling, the creditor must also 

give the consumer the right to rescind the 

security interest consistent with § 226.15. 

ii. Closed-end credit. For closed-end loans, 

if, after consummation, a security interest is 

taken in any real property, or in personal 

property used or expected to be used as the 

consumer’s principal dwelling, an exempt 

loan remains exempt under § 226.3(b). 

However, the addition of a security interest 

in the consumer’s principal dwelling is a 

transaction for purposes of § 226.23 and the 

creditor must give the consumer the right to 

rescind the security interest consistent with 

that section. See § 226.23(a)(1) and the 

accompanying commentary. In contrast, if a 

closed-end loan that is exempt under 

§ 226.3(b) is satisfied and replaced by a loan 

that is secured by any real property, or by 

personal property used or expected to be 

used as the consumer’s principal dwelling, 

the new loan is not exempt under § 226.3(b) 

and the creditor must comply with all of the 

applicable requirements of this Part. See 

comment 3(b)-3. 

5. Application to extensions secured by 

mobile homes. Because a mobile home can be 

a dwelling under § 226.2(a)(19), the 

exemption in § 226.3(b) does not apply to a 

credit extension secured by a mobile home 

that is used or expected to be used as the 

principal dwelling of the consumer. See 

comment 3(b)–4. 

6. Transition rule for open-end accounts 

exempt prior to July 21, 2011. Section 

226.3(b)(2) applies only to open-end accounts 

opened prior to July 21, 2011. Section 

226.3(b)(2) does not apply if a security 

interest is taken by the creditor in any real 

property, or in personal property used or 

expected to be used as the consumer’s 

principal dwelling. If, on July 20, 2011, an 

open-end account is exempt under § 226.3(b) 

based on a firm commitment to extend credit 

in excess of $25,000, the account remains 

exempt under § 226.3(b)(2) until December 

31, 2011 (unless the firm commitment is 

reduced to $25,000 or less). If the firm 

commitment is increased on or before 

December 31, 2011 to an amount in excess 

of $50,000, the account remains exempt 

under § 226.3(b)(1) regardless of subsequent 

increases in the threshold amount as a result 

of increases in the CPI–W. If the firm 

commitment is not increased on or before 

December 31, 2011 to an amount in excess 

of $50,000, the account ceases to be exempt 


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Federal Register / Vol. 76, No. 64 / Monday, April 4, 2011 / Rules and Regulations 18365 

under § 226.3(b) based on a firm commitment 

to extend credit. For example: 

i. Assume that, on July 20, 2011, the 

account is exempt under § 226.3(b) based on 

the creditor’s firm commitment to extend 

$30,000 in credit. On November 1, 2011, the 

creditor increases the firm commitment on 

the account to $55,000. In these 

circumstances, the account remains exempt 

under § 226.3(b)(1) regardless of subsequent 

increases in the threshold amount as a result 

of increases in the CPI–W. 

ii. Same facts as paragraph i. above except, 

on November 1, 2011, the creditor increases 

the firm commitment on the account to 

$40,000. In these circumstances, the account 

ceases to be exempt under § 226.3(b)(2) after 

December 31, 2011, and the creditor must 

begin to comply with the applicable 

requirements of this Part. 

* * * * * 

Section 226.23—Right of Rescission 

* * * * * 

23(a) Consumer’s right to rescind 

Paragraph 23(a)(1). 

* * * * * 

5. Addition of a security interest. Under 

footnote 47, the addition of a security interest 

in a consumer’s principal dwelling to an 

existing obligation is rescindable even if the 

existing obligation is not satisfied and 

replaced by a new obligation, and even if the 

existing obligation was previously exempt 

under § 226.3(b). The right of rescission 

applies only to the added security interest, 

however, and not to the original obligation. 

In those situations, only the § 226.23(b) 

notice need be delivered, not new material 

disclosures; the rescission period will begin 

to run from the delivery of the notice. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, March 24, 2011. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2011–7376 Filed 4–1–11; 8:45 am] 

BILLING CODE 6210–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Parts 717 and 748 

Fair Credit Reporting Act and Bank 

Secrecy Act Compliance 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final rule; technical 

amendments. 

SUMMARY: NCUA is amending its Bank 

Secrecy Act (BSA) Compliance and Fair 

Credit Reporting Act (FCRA) regulations 

involving the Fair and Accurate Credit 

Transactions Act of 2003 (FACTA) to 

make minor, non-substantive technical 

amendments. These technical 

amendments update citations in these 

NCUA regulations to conform to the 

reorganization of the Financial Crimes 

Enforcement Network, Department of 

Treasury (FinCEN) BSA regulations. 

DATES: Effective Date: April 4, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Regina Metz, Staff Attorney, 703–518– 

6561, or Jennifer Vickers, Trial 

Attorney, 703–518–6547, National 

Credit Union Administration, 1775 

Duke Street, Alexandria, VA 22314. 

SUPPLEMENTARY INFORMATION: Effective 

March 1, 2011, FinCEN is reorganizing 

and moving its existing BSA regulations 

from 31 CFR part 103 to 31 CFR chapter 

X. See 75 FR 65806, October 26, 2010. 

NCUA is amending provisions of its 

FCRA FACTA regulations (12 CFR part 

717), including Appendix J to 12 CFR 

part 717, and BSA Compliance (12 CFR 

part 748) regulations to make minor, 

non-substantive technical amendments 

to conform the citations therein to 

FinCEN’s reorganized BSA regulations. 

Description of the Final Rule 

NCUA’s FCRA FACTA and BSA 

Compliance regulations currently cite to 

FinCEN’s BSA regulations in 31 CFR 

part 103. Due to FinCEN’s 

reorganization of its BSA regulations, 

these citations to 31 CFR part 103 in 

NCUA’s regulations would become 

obsolete on March 1, 2011. To avoid 

this, the final rule amends NCUA’s 

FCRA FACTA regulations (12 CFR 

717.82(c)(2)(i)(A)), including Appendix 

J to 12 CFR part 717, Section III(a), and 

BSA Compliance regulations (12 CFR 

748.1(c)(2)(ii) and (iii) and 748.2(a) and 

(b)(1) and (2)) to comport with FinCEN’s 

reorganized BSA regulations at 31 CFR 

chapter X. 

Administrative Procedure Act 

Under 5 U.S.C. 553(b)(B) of the 

Administrative Procedure Act (APA), an 

agency may, for good cause, find (and 

incorporate the finding and a brief 

statement of reasons therefore in the 

rules issued) that notice and public 

procedure thereon are impracticable, 

unnecessary, or contrary to the public 

interest. 

This final rule makes minor, nonsubstantive technical amendments to 

NCUA’s FCRA FACTA and BSA 

Compliance regulations as described 

above, to conform certain citations to 

FinCEN’s reorganized BSA regulations. 

Therefore, NCUA, for good cause, finds 

that the notice and comment procedures 

prescribed by the APA are unnecessary 

because the final rule makes technical 

amendments to citations without 

substantive change to the relevant 

provisions of 12 CFR parts 717 and 748. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

does not apply to a rulemaking where a 

general notice of proposed rulemaking 

is not required. See 5 U.S.C. 603 and 

604. As noted above under 

Administrative Procedure Act, NCUA 

has determined, for good cause, that it 

is unnecessary to publish a notice of 

proposed rulemaking for this final rule. 

Accordingly, the RFA’s requirements 

relating to an initial and final regulatory 

flexibility analysis do not apply. 

Paperwork Reduction Act of 1995 

There are no information collection 

requirements in this final rule. 

List of Subjects 

12 CFR Part 717 

Consumer protection, Credit unions, 

Fair and accurate credit, Fair credit 

reporting, Privacy, Reporting and 

recordkeeping requirements. 

12 CFR Part 748 

Consumer protection, Credit unions, 

Crime, Currency, Reporting and 

recordkeeping requirements, Security 

measures. 

For the reasons discussed in the 

SUPPLEMENTARY INFORMATION section 

above, 12 CFR part 717 and 12 CFR part 

748 are amended as follows: 

PART 717—FAIR CREDIT REPORTING 

■ 1. The authority citation for part 717 

continues to read as follows: 

Authority: 12 U.S. C. 1751 et seq.; 15 

U.S.C. 1681a, 1681b, 1681c, 1681s, 1681s–1, 

1681t, 1681w, 6801, and 6805, Pub. L. 108– 

159, 117 Stat. 1952. 

■ 2. Amend § 717.82 by revising 

paragraph (c)(2)(i)(A) to read as follows: 

§ 717.82 Duties of users regarding address 

discrepancies. 

* * * * * 

(c) * * * 

(2) * * * 

(i) * * * 

(A) Obtains and uses to verify the 

consumer’s identity in accordance with 

the requirements of the Customer 

Identification Program (CIP) rules 

implementing 31 U.S.C. 5318(l) (31 CFR 

1020.220); 

* * * * * 

■ 3. In Appendix J to part 717, revise 

Section III, paragraph (a) to read as 

follows: 

Appendix J to Part 717—Interagency 

Guidelines on Identity Theft Detection, 

Prevention, and Mitigation 

III. Detecting Red Flags 

* * * * * 


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