78636 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 

collection techniques or other forms of 

information technology. Comments on 

the collection of information should be 

sent to Cynthia Ayouch, Acting Federal 

Reserve 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– 

0202), Washington, DC 20503. 

List of Subjects in 12 CFR Part 213 

Advertising, Federal Reserve System, 

Reporting and recordkeeping 

requirements, Truth in lending. 

Text of Proposed Revisions 

For the reasons set forth in the 

preamble, the Board proposes to amend 

Regulation M, 12 CFR part 213, as set 

forth below: 

PART 213—CONSUMER LEASING 

(REGULATION M) 

1. The authority citation for part 213 

is revised to read as follows: 

Authority: 15 U.S.C. 1604 and 1667f; 

flPub. L. 111–203 § 1100E, 124 Stat. 1376fi. 

2. Section 213.2(e)(1) is revised to 

read as follows: 

§ 213.2 Definitions. 

* * * * * 

(e)(1) Consumer lease means a 

contract in the form of a bailment or 

lease for the use of personal property by 

a natural person primarily for personal, 

family, or household purposes, for a 

period exceeding four months and for a 

total contractual obligation not 

exceeding flthe applicable threshold 

amountfi [$25,000], whether or not the 

lessee has the option to purchase or 

otherwise become the owner of the 

property at the expiration of the lease. 

flFor purposes of this paragraph, the 

threshold amount 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 for the threshold amount 

applicable to a specific consumer 

lease.fi Unless the context indicates 

otherwise, in this part ‘‘lease’’ means 

‘‘consumer lease.’’ 

* * * * * 

3. In Supplement I to Part 213: 

A. Under Section 213.2—Definitions, 

under 2(e) Consumer Lease, paragraph 

9. is added; and 

B. Under Section 213.7—Advertising, 

under 7(a) General Rule, paragraph 3. is 

added to read as follows: 

Supplement I to Part 213—Official Staff 

Commentary to Regulation M 

* * * * * 

Section 213.2—Definitions 

* * * * * 

2(e) Consumer Lease. 

* * * * * 

fl9. Threshold amount. 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. The threshold amount in 

effect during a particular time 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. If a 

consumer lease is exempt from the 

requirements of this Part because the total 

contractual obligation exceeds the threshold 

amount in effect at the time of 

consummation, the lease remains exempt 

regardless of a subsequent increase in the 

threshold amount as a result of an increase 

in the CPI–W. 

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.fi 

* * * * * 

Section 213.7—Advertising 

7(a) General Rule. 

* * * * * 

fl3. 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: 

i. 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. 

ii. 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. 

iii. 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.fi 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, December 10, 2010. 

Robert deV. Frierson, 

Deputy Secretary of the Board. 

[FR Doc. 2010–31530 Filed 12–15–10; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 226 

[Regulation Z; Docket No. R–1399] 

RIN 7100–AD59 

Truth in Lending 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Proposed rule; request for 

public comment. 

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 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 78637 

Earners and Clerical Workers. 

Accordingly, the Board is proposing to 

make 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 proposing similar amendments 

to Regulation M elsewhere in today’s 

Federal Register. 

DATES: Comments must be received on 

or before February 1, 2011. Comments 

on the Paperwork Reduction Act 

analysis set forth in Section V of 

SUPPLEMENTARY INFORMATION must be 

received on or before February 14, 2011. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1399 and 

RIN No. 7100–AD59, by any of the 

following methods: 

• Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

• Facsimile: (202) 452–3819 or (202) 

452–3102. 

• Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. Public comments 

may also be viewed electronically or in 

paper form in Room MP–500 of the 

Board’s Martin Building (20th and C 

Streets, NW.) between 9 a.m. and 5 p.m. 

on weekdays. 

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 proposed 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, 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. Beginning on January 1, 

2012, the $50,000 threshold will be 

adjusted annually based on any annual 

percentage increase in the CPI–W. 

The Board is proposing to amend 

§ 226.3(b) and the accompanying 

commentary for consistency with the 

amendments made by the Dodd-Frank 

Act. In addition, because the DoddFrank Act makes similar amendments to 

the exemption threshold in the 

Consumer Leasing Act (which is part of 

TILA), the Board is proposing elsewhere 

in today’s Federal Register to amend 

Regulation M, which implements the 

Consumer Leasing Act. 

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 newly established 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, the Board 

intends to make the amendments to 

Regulation Z effective on that date. 

Comment Period 

Because the new threshold for exempt 

consumer credit transactions in TILA 

Section 104(3) goes into effect on July 

21, 2011, the Board must issue the final 

rule implementing the new threshold 

sufficiently in advance of that date to 

permit creditors to make the necessary 

changes to bring their systems and 

practices into compliance. To ensure 

that the Board has adequate time to 

analyze the comments received on the 

proposed rule, the Board is requiring 

that comments be submitted by the later 

of February 1, 2011 or 30 days after 

publication of the proposal in the 

Federal Register (although comments 

on the Board’s Paperwork Reduction 

Act analysis are not due until 60 days 

after publication). Because the proposal 

is narrow in scope, the Board believes 

that interested parties will have 

sufficient time to review the proposed 

rule and prepare their comments. 

II. 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. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
78638 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 

1The Board notes that, consistent with the DoddFrank Act, proposed § 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 with revised § 226.3(b), the 

Board also proposes to make corresponding 

amendments to comments 2(a)(19)–3 and 23(a)(1)– 

5. 

3For organizational purposes, the guidance in 

current comment 3(b)–1 would be moved to other 

comments, as discussed below. 

4The 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 proposes 

to 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 would permit the 

publication of an increased threshold amount 

sufficiently in advance of the January 1 effective 

date. 

III. 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 ‘‘[a]n extension of 

credit not secured by real property, or 

by personal property used or expected 

to be used as the principal dwelling of 

the consumer, 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.’’ 

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 

proposing amendments to § 226.3(b) and 

the accompanying commentary to 

implement Section 1100E. 

3(b)(1) General Exemption 

As an initial matter, current § 226.3(b) 

would be redesignated as § 226.3(b)(1)(i) 

and a new § 226.3(b)(1)(ii) would be 

added 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) would refer to the 

‘‘applicable threshold amount,’’ rather 

than stating a specific amount. Instead, 

new § 226.3(b)(1)(ii) would explain 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 proposes to revise and 

reorganize the commentary to 

§ 226.3(b).2

Threshold Amount 

Revised comment 3(b)–1 would list 

the threshold amount in effect for 

specific periods of time.3 In particular, 

the comment would clarify 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. This 

comment would also explain 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 1.4 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. 

Revised comment 3(b)–1 further 

clarifies 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 the proposed commentary 

clarifies the statutory language in a 

manner consistent with the intent of 

Section 1100E. 

Open-End Credit 

Revised comment 3(b)–2 would 

provide guidance on the application of 

§ 226.3(b)(1) to open-end credit 

accounts. Consistent with the existing 

commentary, comment 3(b)–2.i would 

clarify 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 in effect 

at the time the account is opened; or (2) 

the creditor makes a firm written 

commitment 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)). 

In addition, the Board would clarify 

that the initial extension of credit or 

firm commitment must be made at 

account opening in order for an openend account to be exempt under 

§ 226.3(b). The Board understands that 

some open-end lines of credit associated 

with brokerage accounts are structured 

to be exempt under § 226.3(b) based on 

a requirement that the initial extension 

of credit must exceed $25,000, even if 

that extension does not occur until 

months or years after account opening. 

The Board is concerned that this 

approach could produce uncertainty as 

to whether the account is exempt at 

account opening or only becomes 

exempt when the initial extension in 

excess of $25,000 actually occurs. 

Currently, § 226.3(b) does not address 

when the initial extension of credit 

must occur for purposes of the 

exemption. Therefore, in order to 

provide greater certainty for consumers 

and creditors, the Board believes it is 

appropriate to determine whether an 

account is exempt under § 226.3(b) at 

account opening. The Board, however, 

solicits comment on any operational 

difficulties posed by this proposed 

guidance and whether greater flexibility 

would be appropriate. 

Revised comment 3(b)–2.ii would 

provide general guidance regarding the 

effect of subsequent changes to an openend account or the threshold amount on 

the account’s exempt status. 

Specifically, this comment would 

clarify which 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 

Regulation Z within a reasonable period 

of time after the account ceases to be 

exempt (except as otherwise provided). 

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. The Board 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 78639 

solicits comment on whether additional 

specificity is needed regarding the 

amount of time necessary to begin to 

comply with Regulation Z. 

Revised comment 3(b)–2.iii would 

address 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 would 

clarify that, if a creditor makes an initial 

extension of credit at account opening 

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 

would also clarify 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). 

Revised comment 3(b)–2.iv would 

address 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, the comment would clarify 

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 comment 

would clarify that, in order for an openend 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, a creditor could not 

reduce its firm commitment below the 

threshold amount currently in effect and 

may be required to increase its firm 

commitment when the threshold 

amount is increased as a result of an 

increase in the CPI–W. Illustrative 

examples are provided in the 

commentary. 

The Board believes that if creditors 

were not required to exceed the 

applicable threshold amount on an 

ongoing basis for open-end accounts, it 

could produce anomalous results and, 

in some cases, raise concerns about 

circumvention of Regulation Z. For 

example, if an open-end account 

remained exempt permanently based on 

a firm commitment at account opening 

to extend credit in excess of the 

threshold amount, an account opened in 

December might qualify for an 

exemption based on a firm commitment 

while an identical account with the 

same firm commitment opened in 

January would not because the 

applicable threshold amount had 

increased. Furthermore, the proposed 

rule would prevent accounts from being 

established with firm commitments that 

qualify for the exemption at account 

opening but then have the commitment 

reduced below the threshold. Under the 

proposed rule, the account would lose 

its exempt status in these 

circumstances. The Board believes that, 

because Section 1100E was intended to 

broaden the scope of TILA, it is 

consistent with Congress’s intent to 

construe the exemption in § 226.3(b) 

narrowly. 

However, proposed comment 3(b)– 

2.iv would provide creditors with 

flexibility when an open-end account no 

longer qualifies for an exemption under 

§ 226.3(b) based on a firm commitment. 

Specifically, the comment would clarify 

that the creditor may either begin to 

comply with Regulation Z or, if 

permitted by the account agreement and 

applicable state law, permit the 

consumer to repay any outstanding 

balance on the account consistent with 

the account terms without providing 

additional extensions of credit. The 

Board believes that additional flexibility 

is necessary in these circumstances, so 

that creditors that do not have the 

systems in place to comply with 

Regulation Z do not close the account 

and require the consumer to 

immediately repay the outstanding 

balance. However, the Board solicits 

comment on whether the proposed 

guidance poses any operational 

difficulties and whether additional 

flexibility is warranted in these 

circumstances. 

Finally, revised comment 3(b)–2.iv 

addresses 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 would 

clarify that, in these circumstances, the 

account may qualify 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 

credit limit is subsequently reduced 

below the threshold amount or if the 

threshold amount is subsequently 

increased to reflect an increase in the 

CPI–W. 

For example, assume that, at account 

opening on January 1 of year one, the 

threshold amount under § 226.3(b) is 

$50,000 and an open-end account 

qualifies for an exemption because the 

creditor has made a firm commitment to 

extend $52,000 in credit. On July 1 of 

year one, the consumer uses the account 

for a single advance of $52,000, which 

is the initial extension of credit on the 

account. As a result of this extension of 

credit, the account will remain exempt 

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

year one, the creditor reduces the firm 

commitment to less than $50,000 or if, 

on January 1 of year two, the threshold 

amount increases to $52,500 to reflect 

an increase in the CPI–W. 

As discussed above, the Board 

believes that, as a general matter, 

whether an account is exempt under 

§ 226.3(b) should be determined at 

account opening. However, when an 

account qualifies for an exemption at 

account opening based on a firm 

commitment, the Board believes that it 

may be appropriate to permit the 

account to retain that exemption based 

on an initial extension of credit that 

occurs after account opening. However, 

the Board solicits comment on this 

approach. 

Closed-End Credit 

Revised comment 3(b)–3 would 

provide guidance on the application of 

§ 226.3(b)(1) to closed-end loans. 

Specifically, comment 3(b)–3.i would 

clarify 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 clarifies 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 account balance is 

subsequently reduced below the 

threshold amount, such as through 

repayment. 

Second, the comment clarifies that a 

closed-end loan would be exempt if the 


srobinson on DSKHWCL6B1PROD with PROPOSALS
78640 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 

5This guidance is currently set forth in comment 

3(b)–1. 

6Because the creditors who provide these 

accounts are not broker-dealers, the accounts are 

not exempt under § 226.3(d). 

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 would 

further clarify 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.5 This 

guidance addresses loan commitments 

(such as certain construction loans) 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. The Board, 

however, solicits comment on whether 

this guidance sufficiently addresses 

other types of closed-end loan products. 

Revised comment 3(b)–3.ii would also 

provide guidance on the effect of 

subsequent changes to a closed-end loan 

or loan commitment or to the threshold 

amount. Specifically, the comment 

would clarify 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 as a result of an 

increase in the CPI–W. In addition, the 

revised comment incorporates existing 

guidance regarding the refinancing of an 

exempt closed-end loan. 

Additional Commentary 

New comment 3(b)–4 would provide 

guidance where a security interest in 

any real property, or in personal 

property used or expected to be used as 

a consumer’s principal dwelling, is 

added to an existing account or loan 

that is exempt under § 226.3(b). The 

proposed comment would incorporate 

guidance from current comments 3(b)– 

2.ii and 3(b)–3 with respect to open-end 

credit and closed-end credit, 

respectively. 

Finally, new comment 3(b)-5 would 

incorporate the guidance currently 

provided in comment 3(b)-1 regarding 

credit extensions secured by mobile 

homes. Specifically, this comment 

would clarify 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. 

3(b)(2) Special Exemption; Open-End 

Accounts Exempt Prior to July 21, 2011 

The Board proposes 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 

revised § 226.3(b)(1). Specifically, new 

§ 226.3(b)(2) would provide 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. New § 226.3(b)(2) is 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 platforms 

that cannot presently provide 

Regulation Z disclosures, the Board 

believes that a transition period 

providing additional flexibility may be 

needed in order to facilitate compliance 

with the revisions to § 226.3(b). 

In particular, the Board understands 

that this concern arises with respect to 

certain open-end lines of credit 

associated with brokerage accounts that 

are serviced on platforms that cannot 

currently provide Regulation Z 

disclosures.6 In some cases, the creditor 

may provide in the account terms that 

the initial extension of credit must 

exceed $25,000. However, credit is not 

necessarily extended at account 

opening, and may be extended only 

upon request by the consumer at a later 

date, which may be months or years 

after account opening. Thus, if an 

extension in excess of $25,000 has not 

occurred prior to July 21, 2011, the 

account would cease to qualify for an 

exemption under § 226.3(b), consistent 

with proposed comment 3(b)-2. 

In these circumstances, it appears that 

additional time may be required to 

enable creditors to either develop the 

systems necessary to comply with 

Regulation Z or to take steps necessary 

to retain exempt status for the account 

(such as by making a firm commitment 

in excess of the threshold amount). If 

additional time were not provided, the 

Board believes some creditors might 

choose to close unused accounts shortly 

before July 21, 2011, which could harm 

consumers who rely on their ability to 

access those accounts. Accordingly, in 

this narrow set of circumstances, the 

Board proposes to provide creditors 

with an additional 12 months (in other 

words, until July 21, 2012) to make the 

necessary adjustments. However, the 

Board solicits comment on whether any 

transition period is necessary and, if so, 

whether a different time period (shorter 

or longer) would be more appropriate. 

In other cases, a creditor may provide 

a firm commitment to extend credit in 

an amount equal to the value of the 

securities in the associated brokerage 

account. Thus, a line of credit secured 

by collateral valued at $30,000 would 

cease to be exempt on July 21, 2011. 

While creditors relying on an exemption 

under § 226.3(b) based on a firm 

commitment will have to account for 

regular increases in the exemption 

threshold as a result of increases in the 

CPI–W, the Board believes that, for the 

reasons discussed above, it may be 

appropriate to provide creditors with 

additional time to adjust to the increase 

in the threshold amount from $25,000 to 

$50,000. As above, the Board solicits 

comment on whether any transition 

period is necessary and, if so, whether 

a different time period (shorter or 

longer) would be more appropriate. 

New comment 3(b)–6 would provide 

guidance and illustrative examples 

regarding the application of 

§ 226.3(b)(2). In particular, it would 

clarify 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. 

IV. Regulatory Flexibility Act Analysis 

The Regulatory Flexibility Act (5 

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

requires an agency to perform an initial 

and 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 


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Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 78641 

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 initial regulatory flexibility 

analysis pursuant to section 603 of the 

RFA. 

Based on its analysis and for the 

reasons stated below, the Board believes 

that this proposed rule would not have 

a significant economic impact on a 

substantial number of small entities. 

1. Statement of the need for, and 

objectives of, the proposed rule. The 

proposed rule would implement 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 amount shall be 

increased 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 proposed rule. 

2. Small entities affected by the 

proposed 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 proposed 

rule. Based on June 2010 call report 

data, the Board estimates that there are 

approximately 4,360 banks 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 proposed rule. The 

Board acknowledges, however, that the 

total number of small entities likely to 

be affected by the proposed 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. The 

Board invites comment on the effect of 

the proposed rule on small entities. 

3. Recordkeeping, reporting, and 

compliance requirements. The proposed 

rule would impose 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 proposed 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. The 

Board seeks information and comment 

on any costs, compliance requirements, 

or changes in operating procedures 

arising from the application of the 

proposed rule to small entities. 

Proposed Amendments 

This subsection summarizes several of 

the proposed amendments to Regulation 

Z and their likely impact on small 

entities. More information regarding 

these and other proposed changes can 

be found in III. Section-by-Section 

Analysis. 

On July 21, 2011, the amendments to 

proposed § 226.3(b)(1)(i) and its 

accompanying commentary would 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 would be required to comply 

with all applicable Regulation Z 

requirements. The Board anticipates 

that creditors that are small entities, 

with some additional burden, would 

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 

provide Regulation Z disclosures 

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 proposed § 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), 

proposed § 226.3(b)(1)(ii) would require 

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, would service 

accounts which do not or may not meet 

the applicable threshold for exemption 

on the same systems in place for nonexempt accounts. In addition, as noted 

above, the Board understands that many 

creditors that are small entities 

generally provide Regulation Z 

disclosures regardless of the amount of 

the credit extension. As a result, the 

Board does not anticipate significant 

additional burden on small entities by 

adjusting the exemption threshold 

dollar amount annually for inflation. 

Proposed § 226.3(b)(2) would address 

circumstances where certain previously 

exempt open-end accounts would cease 

to qualify for an exemption on July 21, 

2011 under the revised threshold 

amount. Under proposed § 226.3(b)(2), 

these accounts would have until July 21, 

2012 (one year after the effective date) 

to comply with the revised threshold 

amount in effect at that time. The Board 

would reduce the burden on small 

entities by providing transition 

guidance for these accounts in order to 

ease compliance with the proposed rule. 

Accordingly, the Board believes that, 

in the aggregate, the provisions of its 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

4. Other Federal rules. The Board has 

not identified any Federal rules that 

duplicate, overlap, or conflict with the 

proposed revisions to Regulation Z. 

5. Significant alternatives to the 

proposed revisions. The provisions of 

the proposed rule would implement the 

statutory requirements of the DoddFrank Act, which establish new 

threshold requirements for exempt 

consumer credit transactions. As 

discussed in the supplementary 

information, the Board has sought to 

provide small entities with additional 

time to come into compliance where 

necessary, while effectuating the statute 

in a manner that is beneficial to 

consumers. In addition, the proposed 

rule would clarify that, if an initial 

extension of credit in excess of the 

existing threshold ($25,000) is made 

prior to July 21, 2011, the account 

remains exempt, notwithstanding 

subsequent increases in the threshold 

amount. The Board welcomes comment 

on any significant alternatives, 

consistent with Section 1100E of the 


srobinson on DSKHWCL6B1PROD with PROPOSALS
78642 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 

7The 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. 

8The 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). 

Dodd-Frank Act, which would 

minimize the impact of the proposed 

rule on small entities. 

V. 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 proposed 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 proposes to 

extend for three years the current 

recordkeeping and disclosure 

requirements in connection with 

Regulation Z. The collection of 

information that is required by this 

proposed 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 

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 twenty-four 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 7 supervised by the Board 

that are deemed to be respondents for 

the purposes of the PRA. 

On July 21, 2011, the amendments to 

proposed § 226.3(b)(1)(i) and its 

accompanying commentary would raise 

the threshold for exempt consumer 

credit transactions from $25,000 to 

$50,000. In addition, proposed 

§ 226.3(b)(1)(ii) would require that the 

threshold dollar amount be adjusted 

annually for inflation to reflect any 

annual percentage increase in the CPI– 

W. Creditors would be required to begin 

complying with Regulation Z 

requirements for certain accounts with 

extensions of 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 proposed 

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 begin 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 a final rule is adopted. Thereafter, 

the ongoing total annual burden would 

be 1,506,466.8

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 proposed changes for a given 

financial institution or entity may vary 

based on the size and complexity of the 

respondent. 

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 

proposed rule would impose a one-time 

increase in the estimated annual burden 

by 648,000. On a continuing basis, the 

proposed 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 a 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. 

Comments are invited on: (1) Whether 

the proposed collection of information 

is necessary for the proper performance 


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Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 78643 

of the Board’s functions, including 

whether the information has practical 

utility; (2) the accuracy of the Board’s 

estimate of the burden of the proposed 

information collection, including the 

cost of compliance; (3) ways to enhance 

the quality, utility, and clarity of the 

information to be collected; and (4) 

ways to minimize the burden of 

information collection on respondents, 

including through the use of automated 

collection techniques or other forms of 

information technology. 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 Proposed Revisions 

For the reasons set forth in the 

preamble, the Board proposes to amend 

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 fl; Pub. L. 111–203, 124 Stat. 

1376fi. 

Subpart B—Open-End Credit 

2. Section 226.3(b) is revised to read 

as follows: 

§ 226.3 Exempt transactions. 

* * * * * 

(b) Credit over flapplicable threshold 

amountfi [$25,000 not secured by real 

property or a dwelling]. fl(1) General 

exemption. (i) Requirements.fi An 

extension of credit in which the amount 

flof credit extendedfi [financed] 

exceeds flthe applicable threshold 

amountfi [$25,000] or in which there is 

an express written commitment to 

extend credit in excess of flthe 

applicable threshold amountfi 

[$25,000], unless the extension of credit 

is: 

fl(A)fi [(1)] Secured by flanyfi real 

property, or by personal property used 

or expected to be used as the principal 

dwelling of the consumer; or 

fl(B)fi [(2)] A private education loan 

as defined in § 226.46(b)(5). 

fl(ii) Annual adjustments. For 

purposes of this paragraph, the 

threshold amount 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 for the threshold amount 

applicable to a specific extension of 

credit or express written commitment to 

extend credit. 

(2) Special exemption; open-end 

accounts exempt prior to July 21, 2011. 

An open-end account that is exempt 

under paragraph (b) of this section 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, an account 

ceases to be exempt under this 

paragraph if: 

(i) 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 

(ii) The creditor reduces any express 

written commitment to extend credit to 

$25,000 or less.fi 

* * * * * 

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, the heading 3(b) Credit 

over $25,000 not secured by real 

property or a dwelling and paragraphs 1. 

through 3. are revised and paragraphs 4. 

through 6. are added. 

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) 

[for credit extensions over $25,000]. 

* * * * * 

Section 226.3—Exempt Transactions 

* * * * * 

3(b) Credit over flapplicable threshold 

amountfi [$25,000 not secured by real 

property or a dwelling]. 

fl1. 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 account opening that exceeds the 

threshold amount in effect at the time the 

account is opened; or 

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 (except as otherwise provided). 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. See also comment 3(b)–4. 

iii. Subsequent changes when exemption 

based on initial extension of credit. If a 


srobinson on DSKHWCL6B1PROD with PROPOSALS
78644 Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 

creditor makes an initial extension of credit 

at account opening 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. 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 

not exceed the threshold amount in effect at 

the time of the extension, 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). 

iv. Subsequent changes when exemption 

based on firm commitment. 

A. General. If an open-end 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. However, 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, 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. 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 $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 increases to $50,900 on 

January 1 of year two as a result of an 

increase in the CPI–W, the account remains 

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

threshold amount increases to $55,000 on 

January 1 of year six, the creditor would have 

to increase its firm commitment to an amount 

above $55,000 in order for the account to 

remain exempt. 

B. Accounts no longer qualifying for 

exemption. If an open-end account that was 

exempt under § 226.3(b) based on a firm 

commitment no longer qualifies for that 

exemption, the creditor may 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. However, in 

the alternative, the creditor may, at its 

option, permit the consumer to repay any 

outstanding balance on the account 

consistent with the account terms without 

providing additional extensions of credit, if 

permitted by the terms of the account and 

applicable state law. 

C. Subsequent 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. Although the initial extension of credit 

need not be made at account opening in these 

circumstances, the account must qualify for 

an exemption based on the firm commitment 

at account opening and continue to qualify 

for an exemption on that basis 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 increases to $51,000 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, or 

if, during year three, the threshold amount 

increases to $53,000 to reflect an increase in 

the CPI–W. 

(2) Same facts as in paragraph (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 ($52,000), 

although the account remains exempt based 

on the firm commitment to extend $55,000 in 

credit. 

(3) Same facts as in paragraph (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. 

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 as a result of an increase in the CPI– 

W. Furthermore, in these circumstances, the 

loan remains exempt even if the amount 

owed is subsequently reduced below the 

threshold amount (such as through 

repayment of the loan). However, a closedend 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 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 being to comply with 

all the applicable requirements of this Part. 

See comment 3(b)–3. 


srobinson on DSKHWCL6B1PROD with PROPOSALS
Federal Register / Vol. 75, No. 241 / Thursday, December 16, 2010 / Proposed Rules 78645 

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. Special exemption 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. 

i. Initial extension of credit. 

A. If, prior to July 21, 2011, a creditor 

makes an initial extension of credit of more 

than $25,000 on an open-end account, the 

account remains exempt under § 226.3(b)(1) 

regardless of subsequent increases in the 

threshold amount. 

B. If the terms of an open-end account 

require that the initial extension of credit on 

that account be more than $25,000 but that 

extension has not occurred prior to July 21, 

2011, the account remains exempt under 

§ 226.3(b)(2) until July 21, 2012. However, if 

an initial extension of credit of more than 

$25,000 is actually made prior to July 21, 

2012, the account remains exempt under 

§ 226.3(b)(1) regardless of subsequent 

increases in the threshold amount. If an 

initial extension of credit of more than 

$25,000 is not made prior to July 21, 2012, 

the account is no longer exempt under 

§ 226.3(b). However, if, prior to that date, the 

creditor makes a firm commitment to extend 

credit in excess of the threshold amount in 

effect at that time, the account remains 

exempt under § 226.3(b)(1). 

ii. Firm commitment. If, prior to July 21, 

2011, a creditor makes a firm commitment to 

extend credit in excess of $25,000 on an 

open-end account, the account remains 

exempt under § 226.3(b)(2) until July 21, 

2012 (unless the firm commitment is reduced 

to $25,000 or less). If an initial extension of 

credit of more than $25,000 is made prior to 

July 21, 2012, the account remains exempt 

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

increases in the threshold amount. However, 

if no such extension of credit is made, the 

firm commitment must be increased prior to 

July 21, 2012 to the threshold amount in 

effect at that time in order for the account to 

remain exempt under § 226.3(b)(1).fi 

[1. Coverage. Since a mobile home can be 

a dwelling under § 226.2(a)(19), this 

exemption 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, even if the credit exceeds 

$25,000. A loan commitment for closed-end 

credit in excess of $25,000 is exempt even 

though the amounts actually drawn never 

actually reach $25,000. 

2. Open-end credit. i. An open-end credit 

plan is exempt under § 226.3(b) (unless 

secured by real property or 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 a firm commitment 

to lend over $25,000 with no requirement of 

additional credit information for any 

advances (except as permitted from time to 

time pursuant to § 226.2(a)(20)). 

B. The initial extension of credit on the 

line exceeds $25,000. 

ii. If a security interest is taken at a later 

time in any real property, or in personal 

property used or expected to be used as the 

consumer’s principal dwelling, the plan 

would no longer be exempt. The creditor 

must comply with all of the requirements of 

the regulation including, for example, 

providing the consumer with an initial 

disclosure statement. If the security interest 

being added is in the consumer’s principal 

dwelling, the creditor must also give the 

consumer the right to rescind the security 

interest. (See the commentary to § 226.15 

concerning the right of rescission.) 

3. Closed-end credit—subsequent changes. 

A closed-end loan for over $25,000 may later 

be rewritten for $25,000 or less, or a security 

interest in real property or in personal 

property used or expected to be used as the 

consumer’s principal dwelling may be added 

to an extension of credit for over $25,000. 

Such a transaction is consumer credit 

requiring disclosures only if the existing 

obligation is satisfied and replaced by a new 

obligation made for consumer purposes 

undertaken by the same obligor. (See the 

commentary to § 226.23(a)(1) regarding the 

right of rescission when a security interest in 

a consumer’s principal dwelling is added to 

a previously exempt transaction.)] 

* * * * * 

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 

flunder § 226.3(b)fi [(because it was credit 

over $25,000 not secured by real property or 

a consumer’s principal dwelling)]. 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, December 10, 2010. 

Robert deV. Frierson, 

Deputy Secretary of the Board. 

[FR Doc. 2010–31529 Filed 12–15–10; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 71 

[Docket No. FAA–2010–1054; Airspace 

Docket No. 10–AGL–23] 

Proposed Amendment of Class E 

Airspace; Kenton, OH 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Notice of Proposed Rulemaking 

(NPRM). 

SUMMARY: This action proposes to 

amend Class E airspace at Kenton, OH. 

Additional controlled airspace is 

necessary to accommodate new 

Standard Instrument Approach 

Procedures (SIAP) at Hardin County 

Airport. The FAA is taking this action 

to enhance the safety and management 

of Instrument Flight Rules (IFR) 

operations for SIAPs at the airport. 

DATES: 0901 UTC. Comments must be 

received on or before January 31, 2011. 

ADDRESSES: Send comments on this 

proposal to the U.S. Department of 

Transportation, Docket Operations, 1200 

New Jersey Avenue, SE., West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590–0001. You must 

identify the docket number FAA–2010– 

1054/Airspace Docket No. 10–AGL–23, 

at the beginning of your comments. You 

may also submit comments through the 

Internet at http://www.regulations.gov. 

You may review the public docket 

containing the proposal, any comments 

received, and any final disposition in 

person in the Dockets Office between 9 

a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. The 

Docket Office (telephone 1–800–647– 

5527), is on the ground floor of the 

building at the above address. 

FOR FURTHER INFORMATION CONTACT: 

Scott Enander, Central Service Center, 

Operations Support Group, Federal 

Aviation Administration, Southwest 

Region, 2601 Meacham Blvd., Fort 

Worth, TX 76137; telephone: (817) 321– 

7716. 

SUPPLEMENTARY INFORMATION: 

Comments Invited 

Interested parties are invited to 

participate in this proposed rulemaking 

by submitting such written data, views, 

or arguments, as they may desire. 

Comments that provide the factual basis 

supporting the views and suggestions 

presented are particularly helpful in 

developing reasoned regulatory 

decisions on the proposal. Comments 

are specifically invited on the overall 


srobinson on DSKHWCL6B1PROD with PROPOSALS