This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents.

Rules and Regulations Federal Register

9837 

Vol. 86, No. 30 

Wednesday, February 17, 2021 

1Prioritized Paycheck Protection Program Act, S. 

4116, 116th Cong. section 1 (2020). 

2Consolidated Appropriations Act, 2021, H.R. 

133, 116th Cong. section 323 (2020). 

3Consolidated Appropriations Act, 2021, H.R. 

133, 116th Cong. section 311. 

4Sections 22(g) and 22(h), and Regulation O, 

apply to all banks that are members of the Federal 

Reserve System. Other federal law subjects federally 

insured state non-member banks and insured 

savings associations to sections 22(g) and 22(h) in 

the same manner and to the same extent as if they 

were member banks. 12 U.S.C. 1828(j) (non-member 

banks); 12 U.S.C. 1468(b) (savings associations); 12 

CFR 337.3 (state non-member banks and state 

savings associations); 12 CFR 31.2 (national banks 

and federal savings associations). Accordingly, any 

reference to ‘‘bank’’ in this notice applies to all 

member banks and institutions subject to sections 

22(g) and 22(h) in the same manner and to the same 

extent as member banks. 

5See generally 12 CFR part 215. 

6 12 U.S.C. 375b. 

FEDERAL RESERVE SYSTEM 

12 CFR Part 215 

[Regulation O; Docket No. R–1740] 

RIN 7100–AG 10 

Loans to Executive Officers, Directors, 

and Principal Shareholders of Member 

Banks 

AGENCY: Board of Governors of the 

Federal Reserve System (Board). 

ACTION: Interim final rule with request 

for comment. 

SUMMARY: On April 17 and July 15, 

2020, the Board issued two interim final 

rules to except certain loans made 

through June 30 and August 8, 2020, 

respectively, that are guaranteed under 

the Small Business Administration’s 

Paycheck Protection Program from the 

requirements of section 22(h) of the 

Federal Reserve Act and the Board’s 

Regulation O. The Board is issuing this 

interim final rule to further extend this 

relief to PPP loans, including PPP 

second draw loans, made through 

March 31, 2021. 

DATES: This interim final rule is 

effective February 17, 2021. Comments 

on the interim final rule must be 

received no later than April 5, 2021. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1740 and 

RIN 7100 AG 10, by any of the following 

methods: 

• Agency Website: http://

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

https://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Email: regs.comments@

federalreserve.gov. Include docket and 

RIN numbers in the subject line of the 

message. 

• Fax: (202) 452–3819 or (202) 452–

3102. 

• Mail: Ann E. Misback, Secretary,

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue NW, Washington, 

DC 20551. 

All public comments will be made 

available on the Board’s website at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm as 

submitted, unless modified for technical 

reasons or to remove personally 

identifiable information at the 

commenter’s request. Accordingly, 

comments will not be edited to remove 

any identifying or contact information. 

Public comments also may be viewed 

electronically or in paper form in Room 

146, 1709 New York Avenue NW, 

Washington, DC 20006, between 9:00 

a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT:

Benjamin McDonough, Associate

General Counsel, (202) 452–2036,

Alison Thro, Deputy Associate General

Counsel, (202) 452–3236, Dan Hickman,

Senior Counsel, (202) 973–7432, Josh

Strazanac, Senior Attorney, (202) 452–

2457, Jasmin Keskinen, Attorney, (202)

475–6650, Legal Division; or Anna Lee

Hewko, Associate Director, (202) 530–

6360, Juan Climent, Assistant Director,

(202) 872–7526, (202) 452–5239,

Kathryn Ballintine, Manager, (202) 452–

2555, Rebecca Zak, Lead Financial

Institution Policy Analyst, (202) 912–

7995, Eusebius Luk, Senior Financial

Policy Analyst I, (202) 452–2874,

Division of Supervision and Regulation;

Board of Governors of the Federal

Reserve System, 20th Street and

Constitution Avenue NW, Washington,

DC 20551. Users of Telecommunication

Device for Deaf (TDD) only, call (202)

263–4869.

SUPPLEMENTARY INFORMATION:

Table of Contents 

I. Background

II. The Interim Final Rule

III. Administrative Law Matters

A. Administrative Procedure Act

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Riegle Community Development and

Regulatory Improvement Act of 1994

E. Use of Plain Language

I. Background

On March 27, 2020, the President

signed into law the Coronavirus Aid, 

Relief, and Economic Security (CARES) 

Act which, among other things, created 

the Paycheck Protection Program (PPP) 

to facilitate lending to small businesses 

affected by the outbreak of COVID–19 

and imposition of associated 

containment measures (COVID event). 

Although the CARES Act specified that 

the PPP would end on June 30, 2020, it 

was later extended to August 8, 2020.1

On December 27, 2020, the President 

signed into law the Consolidated 

Appropriations Act, 2021 

(Appropriations Act), which further 

extended the PPP to March 31, 2021.2

The Appropriations Act also created 

‘‘PPP second draw loans,’’ which are 

substantially similar to the PPP loans 

that have been made to date.3

Regulation O sets forth quantitative 

and qualitative requirements for loans 

made by a bank 4 to its directors, 

executive officers, and principal 

shareholders, as well as to any 

companies owned by such persons 

(collectively, insiders).5 Regulation O 

also sets forth procedural and 

recordkeeping requirements for loans by 

banks to their insiders. These 

requirements normally would apply to 

PPP loans made by banks to the small 

businesses owned by their insiders. In 

some cases, the restrictions in 

Regulation O could delay or entirely 

prohibit a bank from making a PPP loan 

to such a business. This could be 

particularly challenging in small 

communities where bank insiders often 

own small businesses and there are few 

alternative lenders. 

On April 17, 2020, the Board issued 

an exception to section 22(h) of the 

Federal Reserve Act 6 and the 

corresponding provisions of Regulation 

O for PPP loans made to insiders that 

would not be prohibited from receiving 

a PPP loan under the Small Business 

Administration (SBA) lending 


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9838 Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 

7 ‘‘Loans to Executive Officers, Directors, and 

Principal Shareholders of Member Banks,’’ 85 FR 

22345 (Apr. 22, 2020)). 8 ‘‘Loans to Executive Officers, Directors, and 

Principal Shareholders of Member Banks,’’ 85 FR 

43119 (July 16, 2020)). 9 13 CFR 120.110 (prohibiting an ‘‘Associate’’ of 

a lender from receiving a loan made by the lender 

pursuant to section 7(a) of the Small Business Act); 

13 CFR 120.10 (defining ‘‘Associate of a Lender’’ to 

include ‘‘an officer’’). 

10 12 U.S.C. 375b(9)(D)(ii). 

11 85 FR 22346. 

12For example, only borrowers who already have 

received a PPP loan may obtain a PPP second draw 

loan. PPP Second draw loans also are only available 

to employers with 300 or fewer employees. 

Consolidated Appropriations Act, 2021, H.R. 133, 

116th Cong. section 311. 

13 85 FR 22345, 22346 (Apr. 22, 2020); 85 FR 

43119, 43119–20 (July 16, 2020). 

14Business Loan Program Temporary Changes; 

Paycheck Protection Program as Amended by the 

Economic Aid Act, 86 FR 3712 (Jan. 6, 2021). 

15 12 U.S.C. 375a; 12 CFR 215.5. 

16 Id. at 14–15. 

17 5 U.S.C. 553. 

18 5 U.S.C. 553(b)(B). 

19 5 U.S.C. 553(b)(B); 553(d)(3). 

restrictions (original IFR).7 The 

exception was intended to facilitate 

lending by banks to a broad range of 

small businesses within their 

communities, consistent with applicable 

law and safe and sound banking 

practices. The exception applied only to 

PPP loans made by June 30, 2020, the 

original date on which the PPP was set 

to expire. The Board extended the 

exception after Congress extended the 

PPP.8

The Board received a dozen 

comments in response to the IFRs it 

issued in April and July from one trade 

association, several small businesses, 

and several individuals. Most of the 

comments expressed support for the 

Board’s relief, indicating that it would 

bolster the effectiveness of the PPP in 

providing support to small businesses. 

Several raised issues related to the terms 

and administration of the PPP. One 

commenter asserted that no bank 

executives should receive loans from 

their banks in excess of $15,000 because 

executives could take advantage of their 

banks to the detriment of depositors. 

In response to comments about the 

terms and administration of the PPP, the 

Board notes that the SBA is the agency 

responsible for setting forth the 

requirements and administering the 

program. Any comments concerning 

those matters are properly addressed to 

the SBA. Regarding one commenter’s 

suggestion that no executive should be 

able to borrow more than $15,000 from 

its banks because executives could exert 

undue influence and cause harm to a 

bank, the Board notes that PPP loans 

have standardized terms and are fully 

guaranteed as to principal and interest 

by the U.S. government. Accordingly, a 

bank may not amend the terms of a PPP 

loan to be unduly favorable to an 

executive and the bank is unlikely to 

suffer a loss because of the loan 

guarantee. The Board also notes that the 

relief only extends to insiders who 

would not be prohibited from receiving 

a PPP loan by the SBA’s lending 

restrictions, which currently prohibit an 

‘‘officer’’ from receiving a PPP loan from 

his or her bank.9

The Board is issuing this interim final 

rule to extend the exception to PPP 

loans made through March 31, 2021, 

and to PPP second draw loans. 

II. The Interim Final Rule

Section 22(h) authorizes the Board to

adopt, by regulation, exceptions to the 

definition of ‘‘extension of credit’’ in 

section 22(h) for transactions that ‘‘pose 

minimal risk.’’ 10 Therefore, the Board 

may except PPP loans and PPP second 

draw loans from the restrictions in 

section 22(h) and the corresponding 

provisions of Regulation O upon a 

determination that such loans pose 

minimal risk. 

The Board determined in the original 

IFR that PPP loans pose minimal risk.11

Among other things, this determination 

relieved member banks from ensuring 

that PPP loans made to certain insiders 

complied with the qualitative, 

quantitative, and procedural 

requirements set forth in section 22(h) 

and Regulation O. The Appropriations 

Act did not change any of the features 

of PPP loans on which the Board relied 

in the original IFR to determine that PPP 

loans pose minimal risk. Moreover, 

under the Appropriations Act, PPP 

second draw loans have the same 

features as PPP loans, except that fewer 

borrowers are eligible for PPP second 

draw loans as for PPP loans.12

Accordingly, for the same reasons cited 

in the original IFR, the Board has 

determined that PPP loans and PPP 

second draw loans appear to pose 

minimal risk to bank safety and 

soundness.13

SBA lending restrictions continue to 

apply to certain PPP loans and PPP 

second draw loans that also would be 

subject to section 22(h) and the 

corresponding provisions of Regulation 

O.14 Excepting loans that would be

prohibited by the SBA lending

restrictions from the requirements of

section 22(h) and the corresponding

provisions in Regulation O would not

achieve any meaningful regulatory

purpose. Excepting these loans from one

regime and not the other also may create

confusion because some lenders may

mistakenly interpret an exception under

one regime to extend to both regimes.

Accordingly, the exception continues to

apply only for insiders that would not

be prohibited from receiving a PPP loan

or PPP second draw loan by the SBA 

lending restrictions. 

This interim final rule does not except 

a PPP loan or PPP second draw loan 

from other restrictions that may apply to 

the loan, including section 22(g) of the 

Federal Reserve Act or section 215.5 of 

Regulation O.15 This determination also 

does not affect application of SBA 

lending restrictions to a PPP loan or PPP 

second draw loan. The SBA has stated 

that ‘‘[f]avoritism by [a PPP] [l]ender in 

processing time or prioritization of [a] 

director’s or equity holder’s PPP 

application is prohibited.’’ 16 The Board 

will administer the interim final rule 

accordingly. 

Question 1: Are there any additional 

terms or conditions that should apply to 

the exception? Why? 

Question 2: Based on the experience 

with the PPP program, what, if any, 

terms or conditions for PPP second draw 

loans would make it unreasonable for 

such loans to be exempted from the 

requirements of section 22(h)? 

III. Administrative Law Matters

A. Administrative Procedure Act

The Board is issuing the interim final

rule without prior notice and the 

opportunity for public comment and the 

delayed effective date ordinarily 

prescribed by the Administrative 

Procedure Act (APA).17 Pursuant to 

section 553(b)(B) of the APA, general 

notice and the opportunity for public 

comment are not required with respect 

to a rulemaking when an ‘‘agency for 

good cause finds (and incorporates the 

finding and a brief statement of reasons 

therefor in the rules issued) that notice 

and public procedure thereon are 

impracticable, unnecessary, or contrary 

to the public interest.’’ 18

The Board believes that the public 

interest is best served by implementing 

the interim final rule immediately in 

light of the short timeframe for 

execution of the renewed PPP mandated 

by the Appropriations Act. Accordingly, 

the Board finds that there is good cause 

consistent with the public interest to 

issue the rule without advance notice 

and comment.19

The APA also requires a 30-day 

delayed effective date, except for (1) 

substantive rules which grant or 

recognize an exemption or relieve a 

restriction; (2) interpretative rules and 

statements of policy; or (3) as otherwise 

provided by the agency for good 


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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 9839 

20 5 U.S.C. 553(d). 

21 5 U.S.C. 553(d)(1). 

22 5 U.S.C. 601 et seq. 

23Under regulations issued by the SBA, a small 

entity includes a depository institution, bank 

holding company, or savings and loan holding 

company with total assets of $600 million or less 

and trust companies with total assets of $41.5 

million or less. See 13 CFR 121.201. 

24 12 U.S.C. 4802(a). 

25 12 U.S.C. 4802. 

26 12 U.S.C. 4809. 

cause.20 Because the rules relieve a 

restriction by providing an exception to 

the definition of ‘‘extension of credit’’ in 

section 22(h) and Regulation O, the 

interim final rule is exempt from the 

APA’s delayed effective date 

requirement.21

While the Board believes that there is 

good cause to issue the rule without 

advance notice and comment and with 

an immediate effective date, the Board 

is interested in the views of the public 

and requests comment on all aspects of 

the interim final rule. 

B. Paperwork Reduction Act

The Paperwork Reduction Act (44

U.S.C. 3501–3521) (PRA) states that no 

agency may conduct or sponsor, nor is 

the respondent required to respond to, 

an information collection unless it 

displays a currently valid OMB control 

number. On June 15, 1984, OMB 

delegated to the Board authority under 

the PRA to approve and assign OMB 

control numbers to collections of 

information conducted or sponsored by 

the Board, as well as the authority to 

temporarily approve a new collection of 

information without providing 

opportunity for public comment if the 

Board determines that a change in an 

existing collection must be instituted 

quickly and that public participation in 

the approval process would defeat the 

purpose of the collection or 

substantially interfere with the Board’s 

ability to perform its statutory 

obligation. 

This interim final rule does not 

contain any collections of information 

subject to the PRA. 

C. Regulatory Flexibility Act

The Regulatory Flexibility Act

(RFA) 22 requires an agency to consider 

whether the rules it proposes will have 

a significant economic impact on a 

substantial number of small entities.23

The RFA applies only to rules for which 

an agency publishes a general notice of 

proposed rulemaking pursuant to 5 

U.S.C. 553(b). As discussed previously, 

consistent with section 553(b)(B) of the 

APA, the Board has determined for good 

cause that general notice and 

opportunity for public comment are 

unnecessary, and therefore the Board is 

not issuing a notice of proposed 

rulemaking. Accordingly, the Board has 

concluded that the RFA’s requirements 

relating to initial and final regulatory 

flexibility analysis do not apply. 

Nevertheless, the Board seeks 

comment on whether, and the extent to 

which, the interim final rule would 

affect a significant number of small 

entities. 

D. Riegle Community Development and

Regulatory Improvement Act of 1994

Pursuant to section 302(a) of the 

Riegle Community Development and 

Regulatory Improvement Act 

(RCDRIA),24 in determining the effective 

date and administrative compliance 

requirements for new regulations that 

impose additional reporting, disclosure, 

or other requirements on insured 

depository institutions (IDIs), the federal 

banking agencies must consider, 

consistent with the principle of safety 

and soundness and the public interest, 

any administrative burdens that such 

regulations would place on depository 

institutions, including small depository 

institutions, and customers of 

depository institutions, as well as the 

benefits of such regulations. In addition, 

section 302(b) of RCDRIA requires new 

regulations and amendments to 

regulations that impose additional 

reporting, disclosures, or other new 

requirements on IDIs generally to take 

effect on the first day of a calendar 

quarter that begins on or after the date 

on which the regulations are published 

in final form, with certain exceptions, 

including for good cause.25 The Board 

believes that the public interest is best 

served by implementing the interim 

final rule immediately. As discussed in 

the original IFR, the COVID event has 

disrupted economic activity in the 

United States and other countries. The 

magnitude and persistence of the 

COVID event on the economy remain 

uncertain. In light of the substantial 

disruptions in the economy, and the 

likelihood that this interim final rule 

would help ameliorate those disruptions 

by promoting lending to small 

businesses, the Board finds good cause 

exists under section 302 of RCDRIA to 

publish this interim final rule with an 

immediate effective date. 

As such, the interim final rule will be 

effective immediately on publication. 

Nevertheless, the Board seeks comment 

on RCDRIA. 

E. Use of Plain Language

Section 722 of the Gramm-LeachBliley Act 26 requires the federal 

banking agencies to use plain language 

in all proposed and final rules 

published after January 1, 2000. The 

Board has sought to present the interim 

final rule in a simple and 

straightforward manner. The Board 

invites comments on whether there are 

additional steps it could take to make 

the rule easier to understand. For 

example: 

• Have we organized the material to

suit your needs? If not, how could this 

material be better organized? 

• Are the requirements in the

regulation clearly stated? If not, how 

could the regulation be more clearly 

stated? 

• Does the regulation contain

language or jargon that is not clear? If 

so, which language requires 

clarification? 

• Would a different format (grouping

and order of sections, use of headings, 

paragraphing) make the regulation 

easier to understand? If so, what 

changes to the format would make the 

regulation easier to understand? 

• What else could we do to make the

regulation easier to understand? 

List of Subjects in 12 CFR Part 215 

Credit, Penalties, Reporting and 

Recordkeeping requirements. 

Authority and Issuance 

For the reasons stated in the 

preamble, the Board of Governors of the 

Federal Reserve System amends 12 CFR 

chapter II as follows: 

PART 215—LOANS TO EXECUTIVE 

OFFICERS, DIRECTORS, AND 

PRINCIPAL SHAREHOLDERS OF 

MEMBER BANKS (REGULATION O) 

■ 1. The authority citation for part 215 

is revised to read as follows:

Authority: 12 U.S.C. 248(a), 375a(10), 

375b(9) and (10), 1468, 1817(k), 5412; and 

Pub. L. 102–242, 105 Stat. 2236 (1991) (12 

U.S.C. 1811 note). 

■ 2. In § 215.3, revise paragraphs 

(b)(8)(i) through (iii) to read as follows:

§ 215.3 Extension of credit.

* * * * * 

(b) * * *

(8) * * *

(i) Made pursuant to the ‘‘Paycheck

Protection Program’’ in which the 

participation by the Small Business 

Administration on a deferred basis is 

100 percent pursuant to section 1102 of 

Public Law 116–136 or section 311 of 

Public Law 116–260; 

(ii) That is made during the period

beginning on February 15, 2020, and 

ending on March 31, 2021; and 

(iii) That would not be prohibited by

13 CFR 120.110(o) or rules or 


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9840 Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations 

1 12 CFR 1026.35(a) and (b). An HPML is defined 

in 12 CFR 1026.35(a)(1) and generally means a 

closed-end consumer credit transaction secured by 

the consumer’s principal dwelling with an annual 

percentage rate (APR) that exceeds the average 

prime offer rate (APOR) for a comparable 

transaction as of the date the interest rate is set by: 

1.5 percentage points or more for a first-lien 

transaction at or below the Freddie Mac conforming 

loan limit; 2.5 percentage points or more for a firstlien transaction above the Freddie Mac conforming 

loan limit; or 3.5 percentage points or more for a 

subordinate-lien transaction. The escrow 

requirement only applies to first-lien HPMLs. 

2 12 CFR 1026.35(b)(2)(i) and (iii). 

3Public Law 115–174, 132 Stat. 1296 (2018). 

4As discussed in more detail in the section-bysection analysis of § 1026.35(b)(2)(iv), this obsolete 

text includes, among other text, language related to 

a recently issued interpretive rule. On June 23, 

2020, the Bureau issued an interpretive rule that 

describes the Home Mortgage Disclosure Act of 

1975 (HMDA), Public Law 94–200, 89 Stat. 1125 

(1975), data to be used in determining that an area 

is ‘‘underserved.’’ 85 FR 38299 (June 26, 2020). As 

the Bureau explained in the interpretive rule, 

certain parts of the methodology described in 

comment 35(b)(2)(iv)–1.ii became obsolete because 

they referred to HMDA data points replaced or 

otherwise modified by a 2015 Bureau final rule 

(2015 HMDA Final Rule). 80 FR 66128, 66256–58 

(Oct. 28, 2015). The Bureau stated that it was 

issuing the interpretive rule to supersede the 

outdated portions of the commentary and to 

identify current HMDA data points it will use to 

determine whether a county is underserved. 85 FR 

at 38299. In this final rule the Bureau amends the 

comment to remove the obsolete text. 

5As discussed in more detail in the section-bysection analysis of § 1026.35(b)(2)(iii), the 

scrivener’s errors that this rule corrects were in the 

commentary from Truth in Lending Act (Regulation 

Z) Adjustment to Asset-Size Exemption Threshold, 

85 FR 83411 (Dec. 22, 2020). 

6When amending commentary, the Office of the 

Federal Register requires reprinting of certain 

subsections being amended in their entirety rather 

than providing more targeted amendatory 

instructions and related text. The sections of 

commentary text included in this document show 

the language of those sections with the changes as 

adopted in this final rule. In addition, the Bureau 

is releasing an unofficial, informal redline to assist 

industry and other stakeholders in reviewing the 

changes this final rule makes to the regulatory and 

commentary text of Regulation Z. This redline is 

posted on the Bureau’s website with the final rule. 

If any conflicts exist between the redline and the 

text of Regulation Z or this final rule, the 

documents published in the Federal Register and 

the Code of Federal Regulations are the controlling 

documents. 

7Public Law 111–203, 124 Stat. 1376 (2010). 

8 73 FR 44522 (July 30, 2008). 

9 Id. at 44532. 

10 Id. at 44557–61. Prime market loans generally 

include an escrow account, which may make the 

monthly payment appear higher than for a higherpriced loan that does not include an escrow 

account. 

11 Dodd-Frank Act sections 1022, 1061, 1100A 

and 1100B, 124 Stat. 1980, 2035–39, 2107–10. 

12 Dodd-Frank Act section 1461(a); 15 U.S.C. 

1639d. 

13 Id. 

14 78 FR 4726 (Jan. 22, 2013). This rule was 

subsequently amended several times, including in 

2013 and 2015. See 78 FR 30739 (May 23, 2013) and 

80 FR 59944 (Oct. 2, 2015). 

interpretations thereof issued by the 

Small Business Administration. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, February 9, 2021. 

Ann Misback, 

Secretary of the Board. 

[FR Doc. 2021–02966 Filed 2–16–21; 8:45 am] 

BILLING CODE 6210–01–P 

BUREAU OF CONSUMER FINANCIAL 

PROTECTION 

12 CFR Part 1026 

[Docket No. CFPB–2020–0023] 

RIN 3170–AA83 

Higher-Priced Mortgage Loan Escrow 

Exemption (Regulation Z) 

AGENCY: Bureau of Consumer Financial 

Protection. 

ACTION: Final rule; official 

interpretation. 

SUMMARY: The Bureau of Consumer 

Financial Protection (Bureau) is issuing 

this final rule to amend Regulation Z, 

which implements the Truth in Lending 

Act, as mandated by section 108 of the 

Economic Growth, Regulatory Relief, 

and Consumer Protection Act. The 

amendments exempt certain insured 

depository institutions and insured 

credit unions from the requirement to 

establish escrow accounts for certain 

higher-priced mortgage loans. 

DATES: This rule is effective on February 

17, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Joseph Devlin, Senior Counsel, Office of 

Regulations, at 202–435–7700 or https:// 

reginquiries.consumerfinance.gov/. If 

you require this document in an 

alternative electronic format, please 

contact CFPB_Accessibility@cfpb.gov. 

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule 

Regulation Z, 12 CFR part 1026, 

implements the Truth in Lending Act 

(TILA), 15 U.S.C. 1601 et seq., and 

includes a requirement that creditors 

establish an escrow account for certain 

higher-priced mortgage loans (HPMLs),1

and also provides for certain 

exemptions from this requirement.2 In 

the 2018 Economic Growth, Regulatory 

Relief, and Consumer Protection Act 

(EGRRCPA),3 Congress directed the 

Bureau to issue regulations to add a new 

exemption from TILA’s escrow 

requirement that exempts transactions 

by certain insured depository 

institutions and insured credit unions. 

This final rule implements the 

EGRRCPA section 108 statutory 

directive, removes certain obsolete text 

from the Official Interpretations to 

Regulation Z (commentary),4 and also 

corrects prior inadvertent deletions from 

and two scrivener’s errors in existing 

commentary.5

New § 1026.35(b)(2)(vi) exempts from 

the Regulation Z HPML escrow 

requirement any loan made by an 

insured depository institution or 

insured credit union and secured by a 

first lien on the principal dwelling of a 

consumer if: (1) The institution has 

assets of $10 billion or less; (2) the 

institution and its affiliates originated 

1,000 or fewer loans secured by a first 

lien on a principal dwelling during the 

preceding calendar year; and (3) certain 

of the existing HPML escrow exemption 

criteria are met, as described below in 

part V.6

II. Background 

A. Federal Reserve Board Escrow Rule 

and the Dodd-Frank Act 

Prior to the enactment of the DoddFrank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act),7 the 

Board of Governors of the Federal 

Reserve System (Board) issued a rule 8

requiring, among other things, the 

establishment of escrow accounts for 

payment of property taxes and 

insurance for certain ‘‘higher-priced 

mortgage loans,’’ a category which the 

Board defined to capture what it 

deemed to be subprime loans.9 The 

Board explained that this rule was 

intended to reduce consumer and 

systemic risks by requiring the subprime 

market to structure loans and disclose 

their pricing similarly to the prime 

market.10

In 2010, Congress enacted the DoddFrank Act, which amended TILA and 

transferred TILA rulemaking authority 

and other functions from the Board to 

the Bureau.11 The Dodd-Frank Act 

added TILA section 129D(a), which 

adopted the Board’s rule requiring that 

creditors establish an escrow account 

for higher-priced mortgage loans.12 The 

Dodd-Frank Act also excluded certain 

loans, such as reverse mortgages, from 

this escrow requirement. The DoddFrank Act further granted the Bureau 

authority to structure an exemption 

based on asset size and mortgage 

lending activity for creditors operating 

predominantly in rural or underserved 

areas.13 In 2013, the Bureau exercised 

this authority to exempt from the 

escrow requirement creditors with 

under $2 billion in assets and meeting 

other criteria.14 In the Helping Expand 

Lending Practices in Rural Communities 

Act of 2015, Congress amended TILA 

section 129D again by striking the term 


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