THE CFPB INHERITS REGULATION Z

Congress enacted the Truth in Lending Act (TILA) in 1968 based on findings that the informed use of credit resulting from consumers’ awareness of the cost of credit would enhance economic stability and would strengthen competition among consumer credit providers. One of the purposes of TILA is to provide meaningful disclosure of credit terms to enable consumers to compare credit terms available in the marketplace more readily and avoid the uninformed use of credit. TILA also contains procedural and substantive protections for consumers.

Historically, the Federal Reserve Board’s Regulation Z (Board), 12 CFR Part 226, has implemented TILA. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) transferred rulemaking authority for TILA to the Bureau of Consumer Financial Protection (CFPB), effective July 21, 2011. The CFPB is publishing for public comment an interim final rule establishing a new Regulation Z, 12 CFR 1026, implementing TILA.

The interim final rule substantially duplicates the Board’s Regulation Z as the CFPB’s new Regulation Z, making only certain non-substantive, technical, formatting, and stylistic changes. To minimize any potential confusion, the CFPB is preserving the numbering system of the Board’s Regulation Z, other than the new part number. The interim final rule does not impose any new substantive obligations on regulated entities.

Appendix I, entitled “Federal Enforcement Agencies,” is being removed and reserved because it was designed to be informational only and is unnecessary for purposes of implementing the TILA, as amended. Conforming edits have also been made to reflect the scope of the CFPB’s authority pursuant to TILA, as amended by the Dodd-Frank Act. Historical references that are no longer applicable, and references to effective dates that have passed, have been removed as appropriate.

In addition, certain changes have been made to the text of the Board’s Regulation Z to conform to current codification standards of the Code of Federal Regulations. For example, previously undesignated paragraphs in the regulation and the official commentary have been enumerated, and footnotes have been eliminated and their substance moved to the body of the regulation as appropriate. Other provisions have been redesignated as necessary to accommodate these changes.

Most significantly, the Board’s §§ 226.5a and 226.5b have been renumbered as §§ 1026.60 and 1026.40, respectively. These two sections, as numbered in the Board’s existing Regulation Z, do not meet the current requirements for section numbering for publication in the Code of Federal Regulations. Because existing § 226.5a relates to credit card disclosures, the CFPB is codifying it as § 1026.60 so that it will appear in subpart G, Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students. Because existing § 226.5b relates to home-equity plans, the CFPB is codifying it as § 1026.40 so that it will appear in subpart E, Special Rules for Certain Home Mortgage Transactions. All existing cross-references to these two sections are changed accordingly throughout the CFPB’s new Regulation Z.

Existing §§ 226.5a(b)(15) and 226.6(b)(2)(xiv) require card issuers to include in their applications and solicitations disclosures and their account opening disclosures, respectively, a reference to the Web site established by the Board and a statement that consumers may obtain on the Web site information about shopping for and using credit cards. The interim final rule revises those provisions to require a reference to the CFPB in §§ 1026.60(b)(15) and 1026.6(b)(2)(xiv). The affected model forms in Appendix G are revised accordingly. The CFPB recognizes that this change to the disclosure requirements will require card issuers that maintain standardized disclosure forms in their systems to make modifications to those systems. To afford adequate time to make such modifications, the CFPB is also adding to §§ 1026.60(b)(15) and 1026.6(b)(2)(xiv) a provision that, until January 1, 2013, issuers may substitute for the required reference a reference to the Web site established by the Board of Governors of the Federal Reserve System. Similarly, the CFPB is adding to comment app. G-5 a new paragraph viii to clarify that, until January 1, 2013, issuers using model forms G-10(A) and G-17(A) may substitute references to the Board and its Web site for the references to the CFPB and its Web site contained in those models. This provision preserves the safe harbor for card issuers using the old version of these models until they have modified their systems as necessary, provided they do so by January 1, 2013.

A copy of revised Regulation Z is located at: https://www.jackscomplianceresource.com/CFPB-Reg-Z-Truth-In-Lending.html. The Federal Register copy is available at: https://www.jackscomplianceresource.com/CFPB-The-Inherited-Regulations.html.

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