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Regulation Z annual inflation-based dollar amount threshold adjustments

The Consumer Financial Protection Bureau (CFPB) recently issued its annual inflation-based adjustments of certain dollar amount thresholds for transactions covered under Regulation Z/Truth in Lending.  The adjustments are based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2019, and will become effective on January 1, 2020. 

These revised thresholds include:

  • Open-end consumer credit plans -- threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00
  • Credit cards -- adjusted dollar amount for the safe harbor for a first violation penalty fee will increase by $1 to $29, and for a subsequent violation the penalty fee will increase by $1 to $40
  • Home Ownership Equity Protection Loans -- adjusted total loan amount threshold for high-cost mortgages will be $21,980; the adjusted points-and-fees dollar trigger will be $1,099
  • Qualified mortgages -- maximum thresholds for total points and fees will be:
    • Three percent of the total loan amount for a loan greater than or equal to $109,898
    • $3,297 for a loan amount greater than or equal to $65,939 but less than $109,898
    • Five percent of the total loan amount for a loan greater than or equal to $21,980 but less than $65,939
    • $1,099 for a loan amount greater than or equal to $13,737 but less than $21,980
    • Eight percent of the total loan amount for a loan amount less than $13,737

For additional information, see the Final Rule

 

More on Credit Cards

Regulation Z prohibits a credit card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee is based on costs or falls within the safe harbor provision. 

Imposing a fee based on costs would require a detailed analysis and re-evaluation at least once a year so credit unions typically choose to follow the safe harbor provision of Section 1026.52(b)(1)(ii)

In addition, the fee cannot exceed the dollar amount associated with the violation.  In other words, if a member’s late payment due is only $15, you cannot charge a $39 late fee. 

Effective January 1, 2020, the penalty safe harbor for violating the terms of a credit card account will increase by $1 from the 2019 amount to:  $29 for a first late payment; and $40 for each subsequent late payment over six months.

For more information regarding Regulation Z’s adjusted dollar amount thresholds, including Ability to Repay/Qualified Mortgage and Home Ownership and Equity Protection Act (HOEPA), see the final rule.

 

Important Note for Missouri State-Chartered Credit Unions:

There is an additional complication regarding credit card late payment fees for Missouri state-chartered credit unions.  Since there are conflicts between a Missouri statute and Regulation Z, when Regulation Z was first amended, HCUA Compliance consulted with Mike McClain, Assistant General Counsel and Senior Compliance Counsel, Credit Union National Association (CUNA), and reached the following conclusion as to how to handle:

If a credit union operates their credit card program under Missouri Revised Statute 408.140, the late payment fee restrictions imposed by the statute must also be followed (in addition to the restrictions imposed by Regulation Z).  The statute reads “If the contract so provides, a charge for late payment on each installment or minimum payment in default for a period of not less than 15 days in an amount not to exceed five percent of each installment due or the minimum payment due or $15 dollars, whichever is greater, not to exceed $50.  If the contact so provides, a charge for late payment on each $25 or less installment in default for a period of not less than 15 days shall not exceed $5.”

So when a Missouri state-chartered credit union operates their credit cards under this statute, they would basically need to adjust the wording slightly as follows to incorporate BOTH the statute and Regulation Z:

“If the contract so provides, a charge for late payment on each installment or minimum payment in default for a period of not less than 15 days in an amount not to exceed five percent of each installment due or the minimum payment due or $15 dollars, whichever is greater, not to exceed $50 $29 for a first offense or $40 for a subsequent offense during the next six billing cycles.  Except that the fee cannot exceed the dollar amount associated with the violation and in addition, if the contract so provides a charge for late payment on each $25 or less installment in default for a period of not less than 15 days shall not exceed $5.”

Depending on how late payment fees were disclosed initially for existing cardholder, i.e., if making a change would adversely affect your members, you will need to determine whether or not a change-in-terms notice is required.  Please see Regulation Z, Section 1026.9 for additional details.

If your credit union operates its credit card program under Missouri Revised Statute 408.145, also known as the “contiguous state statute,” you will need to consider the laws of the state your credit union adopted for your credit card program to see if they are also more limited than what is provided for in Regulation Z. 

For future reference, Missouri state-chartered credit unions can find a recap of the above posted to the Compliance Forms & Resources page of our website, under “Resources.”  Note:  Your username and password are required. 

Vocab Compliance: