[Federal Register Volume 88, Number 228 (Wednesday, November 29, 2023)]
[Rules and Regulations]
[Pages 83322-83329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25048]


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FEDERAL RESERVE SYSTEM

12 CFR Part 226

[Docket No. R-1820]
RIN 7100-AG69

CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026


Truth in Lending (Regulation Z)

AGENCY: Board of Governors of the Federal Reserve System (Board) and 
Consumer Financial Protection Bureau (Bureau).

ACTION: Final rules, official interpretations, and commentary.

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SUMMARY: The Board and the Bureau (collectively, the Agencies) are 
publishing final rules amending the official interpretations and 
commentary for the Agencies' regulations that implement the Truth in 
Lending Act (TILA). The Dodd-Frank Wall Street

[[Page 83323]]

Reform and Consumer Protection Act (Dodd-Frank Act) amended TILA by 
requiring that the dollar threshold for exempt consumer credit 
transactions be adjusted annually by the annual percentage increase in 
the Consumer Price Index for Urban Wage Earners and Clerical Workers 
(CPI-W). Under regulations adopted by the Agencies, if there is no 
annual percentage increase in the CPI-W, the Agencies will not adjust 
this exemption threshold from the prior year. Additionally, in years 
following a year in which the exemption threshold was not adjusted 
because the CPI-W decreased, the threshold is calculated by applying 
the annual percentage change in the CPI-W to the dollar amount that 
would have resulted, after rounding, if the decreases and any 
subsequent increases in the CPI-W had been taken into account. Based on 
the annual percentage increase in the CPI-W as of June 1, 2023, the 
exemption threshold will increase from $66,400 to $69,500 effective 
January 1, 2024. Because the Dodd-Frank Act also requires similar 
adjustments in the Consumer Leasing Act's threshold for exempt consumer 
leases, the Agencies are making similar amendments to each of their 
respective regulations implementing the Consumer Leasing Act elsewhere 
in the Rules section of this issue of the Federal Register.

DATES: This final rule is effective January 1, 2024.

FOR FURTHER INFORMATION CONTACT: Board: Vivian W. Wong, Senior Counsel, 
Division of Consumer and Community Affairs, Board of Governors of the 
Federal Reserve System, at (202) 452-3667. For users of TTY-TRS, please 
call 711 from any telephone, anywhere in the United States.
    Bureau: Anna Boadwee and Adrien Fernandez, Attorney-Advisors, 
Office of Regulations, Consumer Financial Protection Bureau, at (202) 
435-7700. If you require this document in an alternative electronic 
format, please contact <a href="/cdn-cgi/l/email-protection#2c6f6a7c6e736d4f4f495f5f454e45404558556c4f4a5c4e024b435a"><span class="__cf_email__" data-cfemail="93d0d5c3d1ccd2f0f0f6e0e0faf1fafffae7ead3f0f5e3f1bdf4fce5">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Dodd-Frank Act increased the threshold in TILA for exempt 
consumer credit transactions,\1\ and the threshold in the Consumer 
Leasing Act (CLA) for exempt consumer leases, from $25,000 to $50,000, 
effective July 21, 2011.\2\ In addition, the Dodd-Frank Act requires 
that, on and after December 31, 2011, these thresholds be adjusted 
annually for inflation by the annual percentage increase in the CPI-W, 
as published by the Bureau of Labor Statistics.\3\ In April 2011, the 
Board issued a final rule amending Regulation Z (which implements TILA) 
consistent with these provisions of the Dodd-Frank Act, along with a 
similar final rule amending Regulation M (which implements the CLA) 
(collectively, the Board Final Threshold Rules).\4\
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    \1\ Although consumer credit transactions above the threshold 
are generally exempt, loans secured by real property or by personal 
property used or expected to be used as the principal dwelling of a 
consumer and private education loans are covered by TILA regardless 
of the loan amount. See 12 CFR 226.3(b)(1)(i) (Board) and 12 CFR 
1026.3(b)(1)(i) (Bureau).
    \2\ Public Law 111-203, section 1100E, 124 Stat. 1376, 2111 
(2010).
    \3\ Id.
    \4\ 76 FR 18354 (Apr. 4, 2011); 76 FR 18349 (Apr. 4, 2011).
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    Title X of the Dodd-Frank Act transferred rulemaking authority for 
a number of consumer financial protection laws from the Board to the 
Bureau, effective July 21, 2011. In connection with this transfer of 
rulemaking authority, the Bureau issued its own Regulation Z 
implementing TILA, 12 CFR part 1026, substantially duplicating the 
Board's Regulation Z.\5\ Although the Bureau has the authority to issue 
rules to implement TILA for most entities, the Board retains authority 
to issue rules under TILA for certain motor vehicle dealers covered by 
section 1029(a) of the Dodd-Frank Act, and the Board's Regulation Z 
continues to apply to those entities.\6\
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    \5\ See 76 FR 79768 (Dec. 22, 2011); 81 FR 25323 (Apr. 28, 
2016).
    \6\ Section 1029(a) of the Dodd-Frank Act states: ``Except as 
permitted in subsection (b), the Bureau may not exercise any 
rulemaking, supervisory, enforcement, or any other authority . . . 
over a motor vehicle dealer that is predominantly engaged in the 
sale and servicing of motor vehicles, the leasing and servicing of 
motor vehicles, or both.'' 12 U.S.C. 5519(a). Section 1029(b) of the 
Dodd-Frank Act provides that ``[s]ubsection (a) shall not apply to 
any person, to the extent that such person--(1) provides consumers 
with any services related to residential or commercial mortgages or 
self-financing transactions involving real property; (2) operates a 
line of business--(A) that involves the extension of retail credit 
or retail leases involving motor vehicles; and (B) in which--(i) the 
extension of retail credit or retail leases are provided directly to 
consumers; and (ii) the contract governing such extension of retail 
credit or retail leases is not routinely assigned to an unaffiliated 
third party finance or leasing source; or (3) offers or provides a 
consumer financial product or service not involving or related to 
the sale, financing, leasing, rental, repair, refurbishment, 
maintenance, or other servicing of motor vehicles, motor vehicle 
parts, or any related or ancillary product or service.'' 12 U.S.C. 
5519(b).
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    The Agencies' regulations,\7\ and their accompanying commentaries, 
provide that the exemption threshold will be adjusted annually 
effective January 1 of each year based on any annual percentage 
increase in the CPI-W that was in effect on the preceding June 1. They 
further provide 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.\8\ Since 2011, the Agencies have adjusted the 
Regulation Z exemption threshold annually, in accordance with these 
rules.
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    \7\ 12 CFR 226.3(b)(1)(ii) (Board) and 12 CFR 1026.3(b)(1)(ii) 
(Bureau).
    \8\ See comments 3(b)-1 in supplements I of 12 CFR parts 226 and 
1026.
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    On November 30, 2016, the Agencies published a final rule in the 
Federal Register to memorialize the calculation method used by the 
Agencies each year to adjust the exemption threshold to ensure that, as 
contemplated by section 1100E(b) of the Dodd-Frank Act, the values for 
the exemption threshold keep pace with the CPI-W (Regulation Z 
Adjustment Calculation Rule).\9\ The Regulation Z Adjustment 
Calculation Rule memorialized the policy that, if there is no annual 
percentage increase in the CPI-W, the Agencies will not adjust the 
exemption threshold from the prior year. The Regulation Z Adjustment 
Calculation Rule also provided that, in years following a year in which 
the exemption threshold was not adjusted because there was a decrease 
in the CPI-W from the previous year, the threshold is calculated by 
applying the annual percentage change in the CPI-W to the dollar amount 
that would have resulted, after rounding, if the decreases and any 
subsequent increases in the CPI-W had been taken into account. If the 
resulting amount calculated, after rounding, is greater than the 
current threshold, then the threshold effective January 1 the following 
year will increase accordingly; if the resulting amount calculated, 
after rounding, is equal to or less than the current threshold, then 
the threshold effective January 1 the following year will not change, 
but future increases will be calculated based on the amount that would 
have resulted, after rounding.
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    \9\ See 81 FR 86260 (Nov. 30, 2016).
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II. 2024 Adjustment and Commentary Revision

    Effective January 1, 2024, the exemption threshold amount is 
increased from $66,400 to $69,500. This amount is based on the CPI-W in 
effect on June 1, 2023, which was reported on

[[Page 83324]]

May 10, 2023 (based on April 2023 data).\10\ The CPI-W is a subset of 
the CPI-U index (based on all urban consumers) and represents 
approximately 30 percent of the U.S. population. The CPI-W reported on 
May 10, 2023, reflects a 4.6 percent increase in the CPI-W from April 
2022 to April 2023. Accordingly, the 4.6 percent increase in the CPI-W 
from April 2022 to April 2023 results in an exemption threshold amount 
of $69,500, after rounding. The Agencies are revising the commentaries 
to their respective regulations to add new comment 3(b)-3.xv to state 
that, from January 1, 2024, through December 31, 2024, the threshold 
amount is $69,500. These revisions are effective January 1, 2024.
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    \10\ The Bureau of Labor Statistics calculates consumer-based 
indices for each month but does not report those indices until the 
middle of the following month. As such, the most recently reported 
indices as of June 1, 2023, were reported on May 10, 2023, and 
reflect economic conditions in April 2023.
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III. Regulatory Analysis

Administrative Procedure Act

    Under the Administrative Procedure Act, notice and opportunity for 
public comment are not required if the Agencies find that notice and 
public comment are impracticable, unnecessary, or contrary to the 
public interest.\11\ The amendments in this rule are technical and 
apply the method previously set forth in the Board Final Threshold 
Rules and the Regulation Z Adjustment Calculation Rule. For these 
reasons, the Agencies have determined that publishing a notice of 
proposed rulemaking and providing opportunity for public comment are 
unnecessary. Therefore, the amendments are adopted in final form.
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    \11\ 5 U.S.C. 553(b)(B).
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Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) does not apply to a rulemaking 
where a general notice of proposed rulemaking is not required.\12\ As 
noted previously, the Agencies have determined that it is unnecessary 
to publish a general notice of proposed rulemaking for this joint final 
rule. Accordingly, the RFA's requirements relating to an initial and 
final regulatory flexibility analysis do not apply.
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    \12\ 5 U.S.C. 603(a), 604(a).
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Paperwork Reduction Act

    The information collections contained in Regulation Z which 
implements TILA are approved by OMB under Control number 3170-0015. The 
current approval for this control number expires on May 31st, 2026. In 
accordance with the Paperwork Reduction Act of 1995,\13\ the Agencies 
reviewed this final rule. The Agencies have determined that this rule 
does not create any new information collections or substantially revise 
any existing collections.
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    \13\ 44 U.S.C. 3506; 5 CFR part 1320.
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Bureau Congressional Review Act Statement

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Bureau will submit a report containing this rule and other required 
information to the U.S. Senate, the U.S. House of Representatives, and 
the Comptroller General of the United States prior to the rule taking 
effect. The Office of Information and Regulatory Affairs has designated 
this rule as not a ``major rule'' as defined by 5 U.S.C. 804(2).

List of Subjects

12 CFR Part 226

    Advertising, Consumer protection, Federal Reserve System, Reporting 
and recordkeeping requirements, Truth in lending.

12 CFR Part 1026

    Advertising, Banks, banking, Consumer protection, Credit, Credit 
unions, Mortgages, National banks, Reporting and recordkeeping 
requirements, Savings associations, Truth-in-lending.

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Authority and Issuance

    For the reasons set forth in the preamble, the Board amends 
Regulation Z, 12 CFR part 226, as set forth below:

PART 226--TRUTH IN LENDING (REGULATION Z)

0
1. The authority citation for part 226 continues to read as follows:

    Authority:  12 U.S.C. 3806; 15 U.S.C. 1604, 1637(c)(5), 1639(l) 
and 1639h; Pub. L. 111-24, section 2, 123 Stat. 1734; Pub. L. 111-
203, 124 Stat. 1376.


0
2. In Supplement I to part 226, under Section 226.3--Exempt 
Transactions, revise 3(b) Credit over applicable threshold amount, to 
read as follows:

Supplement I to Part 226--Official Staff Interpretations

* * * * *

Subpart A--General

* * * * *

Section 226.3--Exempt Transactions

* * * * *
    3(b) Credit over applicable threshold amount.
    1. Threshold amount. For purposes of Sec.  226.3(b), the threshold 
amount in effect during a particular period is the amount stated in 
comment 3(b)-3 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. Comment 3(b)-3 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.
    2. No increase in the CPI-W. If the CPI-W in effect on June 1 does 
not increase from the CPI-W in effect on June 1 of the previous year, 
the threshold amount effective the following January 1 through December 
31 will not change from the previous year. When this occurs, for the 
years that follow, the threshold is calculated based on the annual 
percentage change in the CPI-W applied to the dollar amount that would 
have resulted, after rounding, if decreases and any subsequent 
increases in the CPI-W had been taken into account.
    i. Net increases. If the resulting amount calculated, after 
rounding, is greater than the current threshold, then the threshold 
effective January 1 the following year will increase accordingly.
    ii. Net decreases. If the resulting amount calculated, after 
rounding, is equal to or less than the current threshold, then the 
threshold effective January 1 the following year will not change, but 
future increases will be calculated based on the amount that would have 
resulted.
    3. Threshold. For purposes of Sec.  226.3(b), the threshold amount 
in effect during a particular period is the amount stated below for 
that period.
    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.
    iii. From January 1, 2012, through December 31, 2012, the threshold 
amount is $51,800.

[[Page 83325]]

    iv. From January 1, 2013, through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014, through December 31, 2014, the threshold 
amount is $53,500.
    vi. From January 1, 2015, through December 31, 2015, the threshold 
amount is $54,600.
    vii. From January 1, 2016, through December 31, 2016, the threshold 
amount is $54,600.
    viii. From January 1, 2017, through December 31, 2017, the 
threshold amount is $54,600.
    ix. From January 1, 2018, through December 31, 2018, the threshold 
amount is $55,800.
    x. From January 1, 2019, through December 31, 2019, the threshold 
amount is $57,200.
    xi. From January 1, 2020, through December 31, 2020, the threshold 
amount is $58,300.
    xii. From January 1, 2021, through December 31, 2021, the threshold 
amount is $58,300.
    xiii. From January 1, 2022, through December 31, 2022, the 
threshold amount is $61,000.
    xiv. From January 1, 2023, through December 31, 2023, the threshold 
amount is $66,400.
    xv. From January 1, 2024, through December 31, 2024, the threshold 
amount is $69,500.
    4. Open-end credit.
    i. Qualifying for exemption. An open-end account is exempt under 
Sec.  226.3(b) (unless secured by any real property, or by personal 
property used or expected to be used as the consumer's principal 
dwelling) if either of the following conditions is met:
    A. The creditor makes an initial extension of credit at or after 
account opening that exceeds the threshold amount in effect at the time 
the initial extension is made. If a creditor makes an initial extension 
of credit after account opening that does not exceed the threshold 
amount in effect at the time the extension is made, the creditor must 
have satisfied all of the applicable requirements of this part from the 
date the account was opened (or earlier, if applicable), including but 
not limited to the requirements of Sec.  226.6 (account-opening 
disclosures), Sec.  226.7 (periodic statements), Sec.  226.52 
(limitations on fees), and Sec.  226.55 (limitations on increasing 
annual percentages rates, fees, and charges). For example:
    (1) Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $60,000. In this 
circumstance, no requirements of this part apply to the account.
    (2) Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $50,000 or less. In 
this circumstance, the account is not exempt, and the creditor must 
have satisfied all of the applicable requirements of this part from the 
date the account was opened (or earlier, if applicable).
    B. The creditor makes a firm written commitment at account opening 
to extend a total amount of credit in excess of the threshold amount in 
effect at the time the account is opened with no requirement of 
additional credit information for any advances on the account (except 
as permitted from time to time with respect to open-end accounts 
pursuant to Sec.  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 Sec.  226.3(b). In these circumstances, 
the creditor must begin to comply with all of the applicable 
requirements of this part within a reasonable period of time after the 
account ceases to be exempt. Once an account ceases to be exempt, the 
requirements of this part apply to any balances on the account. The 
creditor, however, is not required to comply with the requirements of 
this part with respect to the period of time during which the account 
was exempt. For example, if an open-end credit account ceases to be 
exempt, the creditor must within a reasonable period of time provide 
the disclosures required by Sec.  226.6 reflecting the current terms of 
the account and begin to provide periodic statements consistent with 
Sec.  226.7. However, the creditor is not required to disclose fees or 
charges imposed while the account was exempt. Furthermore, if the 
creditor provided disclosures consistent with the requirements of this 
part while the account was exempt, it is not required to provide 
disclosures required by Sec.  226.6 reflecting the current terms of the 
account. See also comment 3(b)-6.
    iii. Subsequent changes when exemption is based on initial 
extension of credit. If a creditor makes an initial extension of credit 
that exceeds the threshold amount in effect at that time, the open-end 
account remains exempt under Sec.  226.3(b) regardless of a subsequent 
increase in the threshold amount, including an increase pursuant to 
Sec.  226.3(b)(1)(ii) as a result of an increase in the CPI-W. 
Furthermore, in these circumstances, the account remains exempt even if 
there are no further extensions of credit, subsequent extensions of 
credit do not exceed the threshold amount, the account balance is 
subsequently reduced below the threshold amount (such as through 
repayment of the extension), or the credit limit for the account is 
subsequently reduced below the threshold amount. However, if the 
initial extension of credit on an account does not exceed the threshold 
amount in effect at the time of the extension, the account is not 
exempt under Sec.  226.3(b) even if a subsequent extension exceeds the 
threshold amount or if the account balance later exceeds the threshold 
amount (for example, due to the subsequent accrual of interest).
    iv. Subsequent changes when exemption is based on firm commitment.
    A. General. If a creditor makes a firm written commitment at 
account opening to extend a total amount of credit that exceeds the 
threshold amount in effect at that time, the open-end account remains 
exempt under Sec.  226.3(b) regardless of a subsequent increase in the 
threshold amount pursuant to Sec.  226.3(b)(1)(ii) as a result of an 
increase in the CPI-W. However, see comment 3(b)-8 with respect to the 
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec.  226.3(b) based on a firm commitment 
to extend credit, the account remains exempt even if the amount of 
credit actually extended does not exceed the threshold amount. In 
contrast, if the firm commitment does not exceed the threshold amount 
at account opening, the account is not exempt under Sec.  226.3(b) even 
if the account balance later exceeds the threshold amount. In addition, 
if a creditor reduces a firm commitment, the account ceases to be 
exempt unless the reduced firm commitment exceeds the threshold amount 
in effect at the time of the reduction. For example:
    (1) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If during year one the creditor reduces its firm commitment to 
$53,000, the account remains exempt under Sec.  226.3(b). However, if 
during year one the creditor reduces its firm commitment to $40,000, 
the account is no longer exempt under Sec.  226.3(b).
    (2) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is

[[Page 83326]]

exempt under Sec.  226.3(b) based on the creditor's firm commitment to 
extend $55,000 in credit. If the threshold amount is $56,000 on January 
1 of year six as a result of increases in the CPI-W, the account 
remains exempt. However, if the creditor reduces its firm commitment to 
$54,000 on July 1 of year six, the account ceases to be exempt under 
Sec.  226.3(b).
    B. Initial extension of credit. If an open-end account qualifies 
for a Sec.  226.3(b) exemption at account opening based on a firm 
commitment, that account may also subsequently qualify for a Sec.  
226.3(b) exemption based on an initial extension of credit. However, 
that initial extension must be a single advance in excess of the 
threshold amount in effect at the time the extension is made. In 
addition, the account must continue to qualify for an exemption based 
on the firm commitment until the initial extension of credit is made. 
For example:
    (1) Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. The account is not used for an extension of credit during year 
one. On January 1 of year two, the threshold amount is increased to 
$51,000 pursuant to Sec.  226.3(b)(1)(ii) as a result of an increase in 
the CPI-W. On July 1 of year two, the consumer uses the account for an 
initial extension of $52,000. As a result of this extension of credit, 
the account remains exempt under Sec.  226.3(b) even if, after July 1 
of year two, the creditor reduces the firm commitment to $51,000 or 
less.
    (2) Same facts as in paragraph 4.iv.B(1) of this section 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 Sec.  
226.3(b) based on the $30,000 initial extension of credit because that 
extension did not exceed the applicable threshold amount ($51,000), 
although the account remains exempt based on the firm commitment to 
extend $55,000 in credit.
    (3) Same facts as in paragraph 4.iv.B(1) of this section 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 Sec.  226.3(b) exemption on 
April 1 of year two, the account does not qualify for a Sec.  226.3(b) 
exemption based on a $52,000 initial extension of credit on July 1 of 
year two.
    5. Closed-end credit.
    i. Qualifying for exemption. A closed-end loan is exempt under 
Sec.  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 Sec.  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 Sec.  226.3(b) even 
if the amount owed is subsequently reduced below the threshold amount 
(such as through repayment of the loan).
    B. The creditor makes a commitment at consummation to extend a 
total amount of credit in excess of the threshold amount in effect at 
the time of consummation. In these circumstances, the loan remains 
exempt under Sec.  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 Sec.  226.3(b) regardless of a subsequent 
increase in the threshold amount. However, a closed-end loan is not 
exempt under Sec.  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 Sec.  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 Sec.  226.3(b). See also comment 3(b)-
6.
    6. 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 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 Sec.  
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)-4.ii. If a security interest is taken in the 
consumer's principal dwelling, the creditor must also give the consumer 
the right to rescind the security interest consistent with Sec.  
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 Sec.  226.3(b). 
However, the addition of a security interest in the consumer's 
principal dwelling is a transaction for purposes of Sec.  226.23, and 
the creditor must give the consumer the right to rescind the security 
interest consistent with that section. See Sec.  226.23(a)(1) and the 
accompanying commentary. In contrast, if a closed-end loan that is 
exempt under Sec.  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 Sec.  226.3(b) and the creditor must comply with all of 
the applicable requirements of this part. See comment 3(b)-5.
    7. Application to extensions secured by mobile homes. Because a 
mobile home can be a dwelling under Sec.  226.2(a)(19), the exemption 
in Sec.  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)-6.
    8. Transition rule for open-end accounts exempt prior to July 21, 
2011. Section 226.3(b)(2) applies only to open-end accounts opened 
prior to July 21, 2011. Section 226.3(b)(2) does not apply if a 
security interest is taken by the creditor in any real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling. If, on July 20, 2011, an open-end account is exempt 
under Sec.  226.3(b) based on a firm commitment to extend credit in 
excess of $25,000, the account remains exempt under Sec.  226.3(b)(2) 
until December 31, 2011 (unless the firm commitment is reduced to 
$25,000 or less). If the firm commitment is increased on or before 
December 31, 2011, to an amount in excess of $50,000, the account 
remains exempt under Sec.  226.3(b)(1) regardless of subsequent 
increases in the threshold amount as a result of increases in the CPI-
W. If the firm commitment is not increased on or before December 31, 
2011, to an amount in excess of $50,000, the account ceases to be 
exempt under Sec.  226.3(b) based on a firm commitment to extend 
credit. For example:

[[Page 83327]]

    i. Assume that, on July 20, 2011, the account is exempt under Sec.  
226.3(b) based on the creditor's firm commitment to extend $30,000 in 
credit. On November 1, 2011, the creditor increases the firm commitment 
on the account to $55,000. In these circumstances, the account remains 
exempt under Sec.  226.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W.
    ii. Same facts as paragraph 8.i. of this section except, on 
November 1, 2011, the creditor increases the firm commitment on the 
account to $40,000. In these circumstances, the account ceases to be 
exempt under Sec.  226.3(b)(2) after December 31, 2011, and the 
creditor must begin to comply with the applicable requirements of this 
part.
* * * * *

CONSUMER FINANCIAL PROTECTION BUREAU

Authority and Issuance

    For the reasons set forth in the preamble, the Bureau amends 
Regulation Z, 12 CFR part 1026, as set forth below:

PART 1026--TRUTH IN LENDING (REGULATION Z)

0
3. The authority citation for part 1026 continues to read as follows:

    Authority: 12 U.S.C. 2601, 2603-2605, 2607, 2609, 2617, 3353, 
5511, 5512, 5532, 5581; 15 U.S.C. 1601 et seq.

0
4. In Supplement I to part 1026, under Section 1026.3--Exempt 
Transactions, revise 3(b)--Credit Over Applicable Threshold Amount to 
read as follows:

Supplement I to Part 1026--Official Interpretations

* * * * *

Section 1026.3--Exempt Transactions

* * * * *
3(b) Credit Over Applicable Threshold Amount
    1. Threshold amount. For purposes of Sec.  1026.3(b), the threshold 
amount in effect during a particular period is the amount stated in 
comment 3(b)-3 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. Comment 3(b)-3 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.
    2. No increase in the CPI-W. If the CPI-W in effect on June 1 does 
not increase from the CPI-W in effect on June 1 of the previous year, 
the threshold amount effective the following January 1 through December 
31 will not change from the previous year. When this occurs, for the 
years that follow, the threshold is calculated based on the annual 
percentage change in the CPI-W applied to the dollar amount that would 
have resulted, after rounding, if decreases and any subsequent 
increases in the CPI-W had been taken into account.
    i. Net increases. If the resulting amount calculated, after 
rounding, is greater than the current threshold, then the threshold 
effective January 1 the following year will increase accordingly.
    ii. Net decreases. If the resulting amount calculated, after 
rounding, is equal to or less than the current threshold, then the 
threshold effective January 1 the following year will not change, but 
future increases will be calculated based on the amount that would have 
resulted.
    3. Threshold. For purposes of Sec.  1026.3(b), the threshold amount 
in effect during a particular period is the amount stated below for 
that period.
    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.
    iii. From January 1, 2012, through December 31, 2012, the threshold 
amount is $51,800.
    iv. From January 1, 2013, through December 31, 2013, the threshold 
amount is $53,000.
    v. From January 1, 2014, through December 31, 2014, the threshold 
amount is $53,500.
    vi. From January 1, 2015, through December 31, 2015, the threshold 
amount is $54,600.
    vii. From January 1, 2016, through December 31, 2016, the threshold 
amount is $54,600.
    viii. From January 1, 2017, through December 31, 2017, the 
threshold amount is $54,600.
    ix. From January 1, 2018, through December 31, 2018, the threshold 
amount is $55,800.
    x. From January 1, 2019, through December 31, 2019, the threshold 
amount is $57,200.
    xi. From January 1, 2020, through December 31, 2020, the threshold 
amount is $58,300.
    xii. From January 1, 2021, through December 31, 2021, the threshold 
amount is $58,300.
    xiii. From January 1, 2022, through December 31, 2022, the 
threshold amount is $61,000.
    xiv. From January 1, 2023, through December 31, 2023, the threshold 
amount is $66,400.
    xv. From January 1, 2024, through December 31, 2024, the threshold 
amount is $69,500.
    4. Open-end credit. i. Qualifying for exemption. An open-end 
account is exempt under Sec.  1026.3(b) (unless secured by real 
property, or by personal property used or expected to be used as the 
consumer's principal dwelling) if either of the following conditions is 
met:
    A. The creditor makes an initial extension of credit at or after 
account opening that exceeds the threshold amount in effect at the time 
the initial extension is made. If a creditor makes an initial extension 
of credit after account opening that does not exceed the threshold 
amount in effect at the time the extension is made, the creditor must 
have satisfied all of the applicable requirements of this part from the 
date the account was opened (or earlier, if applicable), including but 
not limited to the requirements of Sec.  1026.6 (account-opening 
disclosures), Sec.  1026.7 (periodic statements), Sec.  1026.52 
(limitations on fees), and Sec.  1026.55 (limitations on increasing 
annual percentage rates, fees, and charges). For example:
    1. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $60,000. In this 
circumstance, no requirements of this part apply to the account.
    2. Assume that the threshold amount in effect on January 1 is 
$50,000. On February 1, an account is opened but the creditor does not 
make an initial extension of credit at that time. On July 1, the 
creditor makes an initial extension of credit of $50,000 or less. In 
this circumstance, the account is not exempt, and the creditor must 
have satisfied all of the applicable requirements of this part from the 
date the account was opened (or earlier, if applicable).
    B. The creditor makes a firm written commitment at account opening 
to

[[Page 83328]]

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 Sec.  1026.2(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 Sec.  1026.3(b). In these 
circumstances, the creditor must begin to comply with all of the 
applicable requirements of this part within a reasonable period of time 
after the account ceases to be exempt. Once an account ceases to be 
exempt, the requirements of this part apply to any balances on the 
account. The creditor, however, is not required to comply with the 
requirements of this part with respect to the period of time during 
which the account was exempt. For example, if an open-end credit 
account ceases to be exempt, the creditor must within a reasonable 
period of time provide the disclosures required by Sec.  1026.6 
reflecting the current terms of the account and begin to provide 
periodic statements consistent with Sec.  1026.7. However, the creditor 
is not required to disclose fees or charges imposed while the account 
was exempt. Furthermore, if the creditor provided disclosures 
consistent with the requirements of this part while the account was 
exempt, it is not required to provide disclosures required by Sec.  
1026.6 reflecting the current terms of the account. See also comment 
3(b)-6.
    iii. Subsequent changes when exemption is based on initial 
extension of credit. If a creditor makes an initial extension of credit 
that exceeds the threshold amount in effect at that time, the open-end 
account remains exempt under Sec.  1026.3(b) regardless of a subsequent 
increase in the threshold amount, including an increase pursuant to 
Sec.  1026.3(b)(1)(ii) as a result of an increase in the CPI-W. 
Furthermore, in these circumstances, the account remains exempt even if 
there are no further extensions of credit, subsequent extensions of 
credit do not exceed the threshold amount, the account balance is 
subsequently reduced below the threshold amount (such as through 
repayment of the extension), or the credit limit for the account is 
subsequently reduced below the threshold amount. However, if the 
initial extension of credit on an account does not exceed the threshold 
amount in effect at the time of the extension, the account is not 
exempt under Sec.  1026.3(b) even if a subsequent extension exceeds the 
threshold amount or if the account balance later exceeds the threshold 
amount (for example, due to the subsequent accrual of interest).
    iv. Subsequent changes when exemption is based on firm commitment.
    A. General. If a creditor makes a firm written commitment at 
account opening to extend a total amount of credit that exceeds the 
threshold amount in effect at that time, the open-end account remains 
exempt under Sec.  1026.3(b) regardless of a subsequent increase in the 
threshold amount pursuant to Sec.  1026.3(b)(1)(ii) as a result of an 
increase in the CPI-W. However, see comment 3(b)-8 with respect to the 
increase in the threshold amount from $25,000 to $50,000. If an open-
end account is exempt under Sec.  1026.3(b) based on a firm commitment 
to extend credit, the account remains exempt even if the amount of 
credit actually extended does not exceed the threshold amount. In 
contrast, if the firm commitment does not exceed the threshold amount 
at account opening, the account is not exempt under Sec.  1026.3(b) 
even if the account balance later exceeds the threshold amount. In 
addition, if a creditor reduces a firm commitment, the account ceases 
to be exempt unless the reduced firm commitment exceeds the threshold 
amount in effect at the time of the reduction. For example:
    1. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If during year one the creditor reduces its firm commitment to 
$53,000, the account remains exempt under Sec.  1026.3(b). However, if 
during year one the creditor reduces its firm commitment to $40,000, 
the account is no longer exempt under Sec.  1026.3(b).
    2. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. If the threshold amount is $56,000 on January 1 of year six as 
a result of increases in the CPI-W, the account remains exempt. 
However, if the creditor reduces its firm commitment to $54,000 on July 
1 of year six, the account ceases to be exempt under Sec.  1026.3(b).
    B. Initial extension of credit. If an open-end account qualifies 
for a Sec.  1026.3(b) exemption at account opening based on a firm 
commitment, that account may also subsequently qualify for a Sec.  
1026.3(b) exemption based on an initial extension of credit. However, 
that initial extension must be a single advance in excess of the 
threshold amount in effect at the time the extension is made. In 
addition, the account must continue to qualify for an exemption based 
on the firm commitment until the initial extension of credit is made. 
For example:
    1. Assume that, at account opening in year one, the threshold 
amount in effect is $50,000 and the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $55,000 in 
credit. The account is not used for an extension of credit during year 
one. On January 1 of year two, the threshold amount is increased to 
$51,000 pursuant to Sec.  1026.3(b)(1)(ii) as a result of an increase 
in the CPI-W. On July 1 of year two, the consumer uses the account for 
an initial extension of $52,000. As a result of this extension of 
credit, the account remains exempt under Sec.  1026.3(b) even if, after 
July 1 of year two, the creditor reduces the firm commitment to $51,000 
or less.
    2. Same facts as in paragraph 4.iv.B.1 of this section 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 Sec.  
1026.3(b) based on the $30,000 initial extension of credit because that 
extension did not exceed the applicable threshold amount ($51,000), 
although the account remains exempt based on the firm commitment to 
extend $55,000 in credit.
    3. Same facts as in paragraph 4.iv.B.1 of this section 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 Sec.  1026.3(b) exemption on April 
1 of year two, the account does not qualify for a Sec.  1026.3(b) 
exemption based on a $52,000 initial extension of credit on July 1 of 
year two.
    5. Closed-end credit. i. Qualifying for exemption. A closed-end 
loan is exempt under Sec.  1026.3(b) (unless the extension of credit is 
secured by 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 Sec.  1026.46(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 Sec.  1026.3(b) even 
if the amount owed is subsequently reduced below the threshold amount 
(such as through repayment of the loan).

[[Page 83329]]

    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 Sec.  1026.3(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 Sec.  1026.3(b) regardless of a subsequent 
increase in the threshold amount. However, a closed-end loan is not 
exempt under Sec.  1026.3(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 Sec.  1026.3(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 Sec.  1026.3(b). See also comment 3(b)-
6.
    6. 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 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 Sec.  1026.3(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)-4.ii. If a security interest is taken 
in the consumer's principal dwelling, the creditor must also give the 
consumer the right to rescind the security interest consistent with 
Sec.  1026.15.
    ii. Closed-end credit. For closed-end loans, if after consummation 
a security interest is taken in real property, or in personal property 
used or expected to be used as the consumer's principal dwelling, an 
exempt loan remains exempt under Sec.  1026.3(b). However, the addition 
of a security interest in the consumer's principal dwelling is a 
transaction for purposes of Sec.  1026.23, and the creditor must give 
the consumer the right to rescind the security interest consistent with 
that section. See Sec.  1026.23(a)(1) and its commentary. In contrast, 
if a closed-end loan that is exempt under Sec.  1026.3(b) is satisfied 
and replaced by a loan that is secured by 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 Sec.  1026.3(b), and the 
creditor must comply with all of the applicable requirements of this 
part. See comment 3(b)-5.
    7. Application to extensions secured by mobile homes. Because a 
mobile home can be a dwelling under Sec.  1026.2(a)(19), the exemption 
in Sec.  1026.3(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)-6.
    8. Transition rule for open-end accounts exempt prior to July 21, 
2011. Section 1026.3(b)(2) applies only to open-end accounts opened 
prior to July 21, 2011. Section 1026.3(b)(2) does not apply if a 
security interest is taken by the creditor in real property, or in 
personal property used or expected to be used as the consumer's 
principal dwelling. If, on July 20, 2011, an open-end account is exempt 
under Sec.  1026.3(b) based on a firm commitment to extend credit in 
excess of $25,000, the account remains exempt under Sec.  1026.3(b)(2) 
until December 31, 2011 (unless the firm commitment is reduced to 
$25,000 or less). If the firm commitment is increased on or before 
December 31, 2011, to an amount in excess of $50,000, the account 
remains exempt under Sec.  1026.3(b)(1) regardless of subsequent 
increases in the threshold amount as a result of increases in the CPI-
W. If the firm commitment is not increased on or before December 31, 
2011, to an amount in excess of $50,000, the account ceases to be 
exempt under Sec.  1026.3(b) based on a firm commitment to extend 
credit. For example:
    i. Assume that, on July 20, 2011, the account is exempt under Sec.  
1026.3(b) based on the creditor's firm commitment to extend $30,000 in 
credit. On November 1, 2011, the creditor increases the firm commitment 
on the account to $55,000. In these circumstances, the account remains 
exempt under Sec.  1026.3(b)(1) regardless of subsequent increases in 
the threshold amount as a result of increases in the CPI-W.
    ii. Same facts as paragraph 8.i of this section except, on November 
1, 2011, the creditor increases the firm commitment on the account to 
$40,000. In these circumstances, the account ceases to be exempt under 
Sec.  1026.3(b)(2) after December 31, 2011, and the creditor must begin 
to comply with the applicable requirements of this part.
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Secretary of the Board under delegated 
authority.
Michele Taylor Fennell,
Deputy Associate Secretary of the Board.
Brian Shearer,
Senior Advisor, Consumer Financial Protection Bureau.
[FR Doc. 2023-25048 Filed 11-28-23; 8:45 am]
BILLING CODE 4810-AM-P; 6210-01-P


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