Compliance Blog

Written by Steve Van Beek

One of the biggest issues from the CFPB's mortgage proposals was their completely voluntary proposal to amend the definition of "finance charge" under the Truth in Lending Act.  Keep in mind that their proposal was not mandated by the Dodd-Frank Act.  In fact, the plain language of the existing Truth in Lending Act provides a clear definition of "finance charge" (which was not changed by Dodd-Frank).  This definition includes a clear description of which fees and charges are specifically excluded.

With that background, it was very welcome news in the final regulations to see the CFPB delay any decision on the "All-in APR" until the TILA/RESPA Integrated Disclosures are finalized (most likely this fall).  Here is from the CFPB's High-Cost Final Rule:

"The Bureau's 2012 TILA-RESPA Proposal sought comment on whether to finalize the more inclusive finance charge proposal in conjunction with the Title XIV Rulemakings or with the rest of the TILA-RESPA Proposal concerning the integration of mortgage disclosure forms.  Upon additional consideration and review of comments received, the Bureau decided to defer a decision whether to adopt the more inclusive finance charge proposal and any related adjustments to regulatory thresholds until it later finalizes the TILA-RESPA Proposal."

Good news on the delay - but the CFPB didn't provide any hint of which way they were leaning (or where they obtain the authority to override the clear language Congress adopted over 20 years ago). 

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Consumer Group Comments.  You can bet that credit union and other financial institutions were not the only ones submitting comments on this issue.  Consumer groups have been very active and the final rule indicates they are expanding their calls for an "All-in APR" to open-end home equity lines of credit (HELOCs).  The CFPB's original "All-in APR" proposal was limited to closed-end mortgage loans.  This meant that non-mortgage closed-end loans (i.e., auto loans) and open-end loans - including HELOCs - would not have been impacted.  But, the CFPB has been getting comments on expanding this to HELOCs:

"One consumer group commenter urged the Bureau to make the APR coverage test more consistent between closed- and open-end credit by adopting a more inclusive APR calculation for HELOCs.  The commenter argued that, under the Bureau's proposal, a creditor could impose astronomical closing costs on a HELOC without meeting the APR coverage test, because such charges are not included in the APR calculation for HELOCs.  The commenter expressed concern that the difference in the APR for HELOCs versus closed-end transactions will unduly encourage creditors to steer consumers toward HELOCs, and particularly to HELOCs with excessively high closing costs.

The Bureau acknowledges that Regulation Z requires a different calculation of APR for closed-end transactions (interest rate plus other charges) than for HELOCs (interest rate only) for disclosure purposes.  Using these existing APRs for HOEPA coverage necessarily means that non-interest charges will be reflected in the APR for closed-end, but not for open-end.  The Bureau declines at this time, however, to adopt a different APR for HELOCs........Thus, the Bureau believes that comments concerning the disparity between the APR for closed- and open-end credit transactions are better considered as part of a broader reevaluation of the HELOC provisions of Regulation Z, rather than in the context of this rulemaking to implement section 1431 of the Dodd-Frank Act."

As they say, stay tuned.