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2019 Rate and Exemption Thresholds Set

The below article is the Special Focus section of the December 2018 Compliance Journal. The full issue may be viewed by clicking here.

Introduction

The new year often brings changes to a certain interest rate requirement under Wisconsin law and various exemption threshold amounts under Federal law, all of which can impact certain consumer compliance requirements. This article provides a handy list of several amounts that are changing for calendar year 2019.

2019 Interest Rate Set for Certain Required Escrow Accounts 

Under 138.052(5)(am), Wis Stats., interest must be paid on required escrow accounts established in connection with residential mortgage loans that were originated before April 18, 2018. The interest rate to be paid on these accounts is established annually by the Wisconsin Department of Financial Institutions (DFI). DFI has calculated the interest rate to be paid on such accounts to be 0.18 percent beginning January 1, 2019. The interest rate shall remain in effect through December 31, 2019.

Wisconsin Bankers Association was instrumental in the passage of 2017 Wisconsin Act 340, which eliminated the requirement to pay interest on required escrow accounts established in connection residential mortgage loans that are originated on or after April 18, 2018. This was a big win for the industry. DFI’s notice may be viewed at: http://www.wdfi.org/_resources/indexed/site/fi/banks/EscrowNotice.pdf.

Appraisals for Higher-Priced Mortgage Loans Exemption Threshold

The Bureau of Consumer Financial Protection (CFPB), the Board of Governors of the Federal Reserve System (FRB) and the Office of the Comptroller of the Currency (OCC) have finalized amendments to the official interpretations for their regulations that implement section 129H of the Truth in Lending Act (TILA). Section 129H establishes special appraisal requirements for “higher-risk mortgages,” termed “higher-priced mortgage loans” or “HPMLs” in the agencies’ regulations. When the Agencies’ rules were first established, they exempted, among other loan types, transactions of $25,000 or less, and required that this loan amount be adjusted annually based on any annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W). Thus, if there is no annual percentage increase in the CPI–W, the agencies will not adjust this exemption threshold from the prior year. However, in years following a year in which the exemption threshold was not adjusted, the threshold is calculated by applying the annual percentage increase in the CPI–W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI–W had been taken into account. Based on the CPI–W in effect as of June 1, 2018, the exemption threshold will increase from $26,000 to $26,700, effective January 1, 2019. The final rule may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-11-23/pdf/2018-25400.pdf

Regulations Z & M General Exemption Thresholds

CFPB and FRB have finalized amendments to the official interpretations for the agencies’ regulations that implement the Truth in Lending Act (Regulation Z) and the Consumer Leasing Act (Regulation M). The Dodd-Frank Act requires that the dollar thresholds for exempt consumer credit transactions and consumer leases be adjusted annually by the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI–W). If there is no annual percentage increase in the CPI–W, the agencies will not adjust these exemption thresholds from the prior year. However, in years following a year in which the applicable exemption threshold was not adjusted, the threshold is calculated by applying the annual percentage change in the CPI–W to the dollar amount that would have resulted, after rounding, if the decreases and any subsequent increases in the CPI–W had been taken into account. Based on the annual percentage increase in the CPI–W as of June 1, 2018, the exemption threshold for both Regulations Z and M will increase from $55,800 to $57,200, effective January 1, 2019. The Regulation Z final rule may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-11-23/pdf/2018-25398.pdf, and the Regulation M final rule may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2018-11-23/pdf/2018-25396.pdf

Regulation Z’s HOEPA, Ability-to-Repay, Open-end Credit, & CARD Act Threshold Amounts

CFPB has finalized amendments to the regulation text and official interpretations for Regulation Z, which implements TILA, to update the dollar amounts of thresholds regarding HOEPA, Ability-to-Repay rules, certain open-end credit plans, and the CARD Act. These thresholds are adjusted annually based on the annual percentage change in the CPI as published by the Bureau of Labor Statistics. The threshold amounts listed below are effective January 1, 2019.

For HOEPA loans, the adjusted total loan amount threshold for high-cost mortgages will be $21,549. The adjusted points-and-fees dollar trigger for high-cost mortgages will be $1,077

For qualified mortgages, which receive certain protections from liability under the Ability-to-Repay rule, the maximum thresholds for total points and fees in 2019 will be 3 percent of the total loan amount for a loan greater than or equal to $107,747; $3,232 for a loan amount greater than or equal to $64,648 but less than $107,747; 5 percent of the total loan amount for a loan greater than or equal to $21,549 but less than $64,648; $1,077 for a loan amount greater than or equal to $13,468 but less than $21,549; and 8 percent of the total loan amount for a loan amount less than $13,468. The final rule may be viewed at: https://www.govinfo.gov/content/pkg/FR-2018-08-27/pdf/2018-18209.pdf.

For open-end consumer credit plans under 1026.6(b)(2)(iii) and 1026.60(b)(3), the threshold that triggers requirements to disclose minimum interest charges will remain unchanged at $1.00 in 2019. 

For open-end consumer credit plans under the CARD Act amendments to TILA, the adjusted dollar amount in 2019 for the safe harbor for a first violation penalty fee will increase by $1 to $28 and the adjusted dollar amount for the safe harbor for a subsequent violation penalty fee will increase by $1 to $39.

Conclusion

As noted above, these various amounts are effective beginning January 1, 2019. Therefore, creditors should ensure that any and all applicable adjustments to systems are in place on the effective date.

By, Ally Bates