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Regulation Z - BankersOnline

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Regulation Z
Truth in Lending Act
Background and Purpose
The Truth in Lending Act – 1968Promote the informed use of creditGives consumers the right to cancel certain credit transactionsRegulates certain credit card practicesRequires maximum interest rate stated in variable rate loansImposes limitations on home equity plansImposes limitations on certain closed-end home mortgages
ConsumersSubject to a finance charge or payable in more than four installmentsCredit primarily for personal, family or household purposes
ConsumerNatural Person to whom credit is offered or extendedIncludes Natural Person in whose principal dwelling a security interest is or will be taken
Definitions - continued
Consumer CreditCredit extended for personal, family, or household purposes
Definitions- continued
Dwelling:A residential structure that contains 1-4 units, whether or not attached to real propertyUse as a residenceMobile homes, boats, trailers, condominium units, vacation or second homePrincipal residenceRight of rescissionResidential mortgage transactionRelation to exemptionsExemption for credit overa specified threshold, notapplicable
Definitions - Continued
Residential Mortgage TransactionTransaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer’s principal dwelling to finance the acquisition or initial construction of that dwelling.Relation to other sectionsExclusions from the finance chargeExemptions from the right of rescissionWhether or not the obligation is assumableSpecial timing rulesDisclosure requirements for assumptions
Definitions – ContinuedPrepaid Finance Charges
Exempt Transactions
Business, commercial, agricultural, or organizational creditAn extension of credit primarily for a business, commercial, or agricultural purposeAn extension of credit to other than a natural personCredit overa specified threshold ($51,800 in 2012), adjusted annually, notsecured by real property or a dwelling
Exempt Transactions - Continued
Primary Purpose – FactorsRelationship of borrower’s primary occupation to the acquisitionDegree of management/personal involvementRatio of income from the acquisition to total incomeSize of the transactionStatement of purpose
Exempt Transactions - Continued
Rental PropertyNon-owner occupiedCredit to acquire, improve or maintain rental property regardless of number of units is business purposeIf owner occupied for more than 14 days during coming year, not considered non-owner occupiedOwner occupiedCredit extended to acquire rental property is business purpose if more than two unitsCredit to improve or maintain rental property is business if more than four units
Exempt Transactions - Continued
Business credit later refinancedRemains exempt unless existing obligation is satisfied and replaced
Exempt Transactions - Continued
Agricultural purposePlanting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages, flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in these activities.Includes real property that includes a dwelling if transaction is primarily for agricultural purposes.
Exempt Transactions - Continued
Credit overa specified threshold ($51,800 for 2012) notsecured by real property or a dwellingReal property or dwelling later added as security to exempt loan, NO LONGER EXEMPT





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Regulation Z - BankersOnline