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​CFPB Proposes Modifications Relating to Small Creditors and Rural and Underserved Areas Under the Truth in Lending Act (Regulation Z)

Financial Institutions Law Update Stanley F. Orszula, Jacob Bradley, Michael Hearon, James D. Friedman, Kathryn A. Kronquist, James I. Kaplan, David E. Funkhouser

On January 29, 2015, the Consumer Financial Protection Bureau (“CFPB”) issued notice of proposed rulemaking aimed at insuring consumers in rural and underserved communities have access to mortgage credit.

The proposed changes include raising the loan origination limit for determining eligibility for small-creditor status from 500 to 2,000 loans per calendar year. Under the proposed rule, loans held in portfolio by the creditor are excluded from these totals. CFPB also proposes providing a grace period, through April 1 of the following year, during which a creditor who exceeded the origination limit in the preceding calendar year may, in certain circumstances, continue to operate as a small creditor.

Another proposed change would revise the asset limit to qualify for small-creditor status (i.e., less than $2 billion in assets at the end of the preceding calendar year) to include in the calculation the creditor’s affiliates that originate mortgage loans. The CFPB proposes providing a similar grace period through April 1 of the following year for small creditors who exceed the asset cap in the preceding calendar year.

The CFPB further proposes extending, to applications received before April 1, 2016, the temporary two-year transition period for small creditors to make Qualifying Mortgages with balloon payments.

The final set of changes applies to creditors operating predominantly in rural or underserved areas. These changes would adjust the time period used in determining whether a creditor qualifies from any of the three preceding calendar years to the preceding calendar year. CFPB also proposes adding a grace period for lenders who no longer apply, through April 1 of the following year, similar to the grace period for the origination and asset limits for small creditors. The proposed changes would also clarify and expand the definition of rural areas to include any county or census block not defined by the U.S. Census Bureau as an urban area. The proposed rule further includes a safe harbor for creditors who use the Census Bureau or CFPB websites to confirm rural or underserved status.

Comments on the proposed rulemaking must be received no later than March 30, 2015. The proposed rules would take effect on January 1, 2016. You may view the propose rule here.

If you have questions about the modifications, please contact Stanley Orszula at (312) 715-5123 /stanley.orszula@quarles.com, Jacob Bradley at (317) 399-2884 / jacob.bradley@quarles.com, Michael Hearon at (317) 399-2817 / michael.hearon@quarles.com, James Friedman at (414) 277-5735 / jim.friedman@quarles.com, Kathryn Kronquist at (202) 372-9519 / kathryn.kronquist@quarles.com, James Kaplan at (312) 715-5028 /james.kaplan@quarles.com, David Funkhouser at (602) 229-5242 / david.funkhouser@quarles.com, or your local Quarles & Brady attorney.