Compliance Blog

My favorite holiday, Halloween, is officially over, signaling the beginning of the end of the year. To prepare for the upcoming holidays, I have already started test baking various apple pies to find the perfect recipe. If you have a tried and true apple pie recipe, please feel free to send that my way! 

With Thanksgiving and Christmas quickly arriving, it’s the perfect time for credit unions to review their internal procedures and make any necessary updates regarding the Bureau of Consumer Financial Protection’s (CFPB) annual inflation-based adjustments of certain threshold dollar amounts for transactions covered under Regulation Z.

On August 19, 2020 the CFPB issued a final rule revising the threshold amounts of the sections of Regulation Z that implement the Credit Card Accountability Responsibility and Disclosure Act (CARD Act), the Home Ownership and Equity Protection Act (HOEPA), and the ability-to-repay/qualified mortgage provisions of the Dodd-Frank Act.  All adjustments will be effective January 1, 2021.

CARD Act

Section 1026.52(b) states that one way a credit union may “impose a fee for violating the terms or other requirements of an account,” is if the dollar amount does not exceed the safe harbor threshold for open-end (not home-secured) lines of credit set out by the same section. The penalty fee safe harbor amounts will remain unchanged for 2021:

• $29 for a first late payment; and
• $40 for each subsequent late payment over six months.

The threshold that triggers requirements to disclose minimum interest charges for open-end consumer credit plans will also remain unchanged at $1.00.

HOEPA

HOEPA enacted a high-cost coverage test, that subjects specific loans to special disclosure requirements and restrictions on loan terms. As explained in the CFPB HOEPA Small Entity Compliance Guide, there are three separate HOEPA coverage tests:

“1. The transaction’s annual percentage rate (APR)

2. The amount of points and fees paid in connection with the transaction

3. The prepayment penalties you may charge under the loan or credit agreement”

Only one needs to apply for the loan to be considered a high-cost mortgage subject to the HOEPA requirements. The points and fees test is described in section 1026.32(a)(1)(ii), and the annual adjustment will increase the threshold so that a loan will be considered high cost if points and fees exceed 5 % of the total loan amount for loans $22,052 or more; or for loans less than $22,052, the points and fees exceed the lesser of 8% or $1,103.

ATR/QM

Section 1026.43(e) of Regulation Z establishes a “qualified mortgage” safe harbor and presumption of compliance for loans that meet a variety of underwriting factors including certain limits on “points and fees.” The total points and fees thresholds for determining whether a covered transaction is a qualified mortgage, are based on the amount of the loan and will be increasing in 2021 to:

• for a loan amount of $110,260 or more, 3 percent of the total loan amount;
• for a loan amount of greater than or equal to $66,156 but less than $110,260, $3,308;
• for a loan amount of greater than or equal to $22,052 but less than $66,156, 5 percent of the total loan;
• for a loan amount of greater than or equal to $13,783 but less than $22,052, $1,103; and
• for a loan amount of less than $13,783, 8 percent of the total loan amount.