The Federal Reserve has issued a number of finals rules that amend Regulation Z (Truth in Lending) to implement the Dodd-Frank Act’s expansion of the coverage of consumer protection regulations to credit transactions and leases of higher dollar amounts and to clarify aspects of the rules that implement the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act) of 2009. The Federal Reserve approved 2 final rules on March 25 that will amend Regulation Z and Regulation M (Consumer Leasing) to apply the protections of the Truth in Lending Act and the Consumer Leasing Act to consumer credit transactions and consumer leases (including auto leases) up to $50,000, compared with $25,000 under the current rules. The new threshold will be adjusted annually to reflect increases in the consumer price index. Currently, consumer loans of more than $25,000 are generally exempt from the Truth in Lending Act. (Private education loans and loans secured by real property (such as mortgages) are subject to the Truth in Lending Act regardless of the amount of the loan.) The Consumer Leasing Act requires lessors to provide consumers with disclosures regarding the cost and other terms of personal property leases. Currently, a lease is exempt from the Consumer Leasing Act if the consumer’s total obligation exceeds $25,000. The amendments to Regulations Z and M will become effective on July 21.
Notes: The Federal Reserve on March 18 approved a final rule amending Regulation Z to clarify aspects of prior rules implementing the Credit CARD Act of 2009. The new rule provides enhanced protections for consumers who use credit cards and resolves areas of uncertainty for card issuers related to their compliance obligations. The Credit CARD Act requires that, before opening a new credit card account or increasing the credit limit on an existing account, card issuers consider a consumer’s ability to make the required payments on the account. The new rule addresses practices that can result in decisions to approve applications by consumers who lack the ability to pay. Specifically, the rule provides that credit card applications generally cannot request a consumer’s “household income” because that term is too vague to allow issuers to properly evaluate the consumer’s ability to pay. The new rule requires credit card issuers to evaluate a consumer’s ability to pay based on individual income or salary. In addition, the rule clarifies that promotional programs that waive interest charges for a specified period of time are subject to the same Credit CARD Act protections as promotional programs that apply a reduced rate for a specified period. The Credit CARD Act amendments to Regulation Z become effective on October 1.