I. INTRODUCTION
Section 1100(E) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) increased the threshold for the exemption of non-real estate secured consumer loans from the Truth in Lending Act. The Federal Reserve Board has finalized amendments to Regulation Z increasing the minimum amount for loans not secured by real estate or a dwelling that are subject to Regulation Z to $50,000 from the present limit of $25,000. Currently, if a consumer loan that is not secured by real estate or a dwelling is in an amount greater than $25,000, then the transaction is not subject to Regulation Z.
The amendments became effective for all transactions closed on or after July 21, 2011. In addition, the Dodd-Frank Act provides that after December 31, 2011, the threshold under Regulation Z is to be adjusted annually for inflation.
II. CLOSED-END CREDIT
A closed-end loan is exempt if the loan commitment at consummation exceeds the threshold amount in effect. If the transaction was not subject to Regulation Z at the time it was made, it does not become subject to Regulation Z because of the new rule. It remains exempt even if the total amount of credit actually extended does not exceed the threshold amount. This provision addresses loan commitments for closed-end credit with terms that provide for scheduled advances or advances at the consumer’s option, whether the total amount of credit ultimately drawn may be less than the original loan commitment on which the exemption was based.
III. OPEN-END CREDIT
The final rule makes a distinction between “firm commitments” and “initial extensions of credit.” The rules are slightly different for purposes of the “transition rule.” A “firm commitment” is essentially the credit limit. An “initial extension” refers to the first extension of credit on a new account.
A. Transition Rule
If an open-end credit account is exempt on July 20, 2011, based on a firm commitment to extend more than $25,000 in credit, the creditor has until December 31, 2011, to either (1) retain the exemption by increasing the firm commitment to more than $50,000; or (2) begin complying with Regulation Z. This is a one-time transition rule. In contrast, if an open-end credit account is exempt based on an initial extension of credit, (e.g. an initial extension of $30,000), the transaction remains exempt even though the threshold under the final rule will have increased to $50,000.
B. Initial Extension of Credit Made after Account Opening
In determining whether an account is exempt based on the initial extension of credit exceeding the threshold amount, the extension of credit need not be made at account opening. For example, the initial extension of credit may be made subsequent to account opening. However, for a firm commitment to be exempt, the firm commitment must exceed the threshold amount at the time of account opening.
C. Consequences if Account is no Longer Exempt
If an open-end account ceases to be exempt, (e.g., the creditor lowers the credit limit below the threshold or takes a security interest in real property), the credit must within a reasonable period of time provide the disclosures required by Section 226.6 (reflecting current terms) and begin providing periodic statements. If the creditor previously provided disclosures, it need not provide Section 226.6 disclosures reflecting the current terms of the account.
D. Subsequent Threshold Adjustments (Those Made After Initial Final Rule Adjustment)
If a creditor makes a firm written commitment after account opening to extend credit in an amount exceeding the threshold amount in effect at that time, the open-end account remains exempt regardless of subsequent increases in the threshold amount. However, if the creditor reduces the amount of a firm commitment that is exempt at account opening, the account ceases to be exempt unless the reduced firm commitment exceeds the threshold amount in effect at the time of reduction.
If an initial extension of credit for an open-end account exceeds the threshold amount in effect at that time, the account remains exempt regardless of a subsequent increase in the threshold amount even if:
IV. ANNUAL INFLATION ADJUSTMENT
On or after December 31, 2011, the $50,000 exemption threshold will be adjusted annually for inflation by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, as published by the Bureau of Labor Statistics. Effective January 1, 2026, the Regulation Z exemption threshold increased from $71,900 to $73,400.