|For immediate release|
The Federal Reserve Board today published its annual adjustment of the dollar amount that triggers additional disclosure requirements under Truth in Lending for mortgage loans that bear fees above a certain amount.
The Home Ownership and Equity Protection Act of 1994 bars credit terms such as balloon payments and requires additional disclosures when total points and fees payable by the consumer exceed $400 or 8 percent of the total loan amount, whichever is larger. The Board must adjust this amount each year based on the annual percentage change in the Consumer Price Index in effect on June 1.
The Board has adjusted the dollar amount from $424 for 1997 to $435 for 1998.
A copy of the Board's notice is attached.
FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Regulation Z; Docket No. R-0998]
Truth in Lending
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice; adjustment of dollar amount.
SUMMARY: The Board is publishing an adjustment to the dollar amount that triggers certain requirements of Regulation Z (Truth in Lending) for mortgages bearing fees above a certain amount. The Home Ownership and Equity Protection Act of 1994 sets forth rules for home-secured loans in which the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. The Board is required to annually adjust the $400 amount based on the annual percentage change in the Consumer Price Index as reported on June 1. The Board adjusted the $400 amount to $412 for 1996 and to $424 for 1997. The Board has adjusted the dollar amount from $424 to $435 for 1998.
EFFECTIVE DATE: January 1, 1998 through December 21, 1998.
FOR FURTHER INFORMATION CONTACT: Michael Hentrel, Staff Attorney, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667. For the users of Telecommunications Device for the Deaf only, please contact Diane Jenkins at (202) 452-3544.
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The Truth in Lending Act (TILA; 15 U.S.C. 1601 - 1666j) requires creditors to disclose credit terms and the cost of consumer credit as an annual percentage rate. The act requires additional disclosures for loans secured by a consumer's home, and permits consumers to cancel certain transactions that involve their principal dwelling. The TILA is implemented by the Board's Regulation Z (12 CFR part 226).
On March 24, 1995, the Board published amendments to Regulation Z implementing the Home Ownership and Equity Protection Act of 1994 (HOEPA), contained in the Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, 108 Stat. 2160 (60 FR 15463). These amendments, which became effective on October 1, 1995, are contained in section 226.32 of the regulation and impose additional disclosure requirements and substantive limitations on certain closed-end mortgage loans bearing rates or fees above a certain percentage or amount. As to fees, creditors are generally required to comply with the rules in section 226.32 if the total points and fees payable by the consumer at or before loan consummation exceed the greater of $400 or 8 percent of the total loan amount. The TILA (15 U.S.C. 1602(aa)(3)) and section 226.32(a)(1)(ii) of Regulation Z provide that the $400 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index (CPI) that was reported on the preceding June 1.
The Bureau of Labor Statistics publishes consumer-based indices monthly, but does not "report" a CPI change on June 1; adjustments are reported in the middle of each month. The Board believes the CPI-U index, which is based on all urban consumers and represents approximately 80 percent of the U.S. population, is the appropriate index to use in the adjustment to the $400 dollar figure.
The adjustment to the $400 dollar figure reflects the adjustment reported on May 15, 1997, the rate "in effect" on June 1, which states the percentage increase from April 1996 to April 1997. In 1995, the Board adjusted the $400 amount to $412 for 1996. Last year, the Board adjusted the $400 amount from $412 to $424, reflecting a 2.9 percent increase in the CPI-U. During the period from April 1996 to April 1997, the CPI-U increased by 2.5 percent, bringing the adjusted amount to $434.60. The Board is rounding that number to whole dollars for ease of compliance.
By order of the Board of Governors of the Federal Reserve System, February 2, 1998.
(signed) William W. Wiles
William W. Wiles
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1998 Banking and consumer regulatory policy