CFPB Expands Definition of Small Creditor and Rural Areas

The CFPB has issued a final rule that revises the definitions of “small creditor” and “rural areas” under Regulation Z of the Truth in Lending Act (TILA). The final rule is effective January 1, 2016. The CFPB created special small creditor provisions with regard to certain Regulation Z requirements. The revised definitions will affect the availability of some special provisions and exemptions to Regulation Z’s Ability-to-Repay, high-cost mortgage, and higher-priced mortgage loan (HPML) escrow requirements. Certain provisions apply to small creditors in general, while other provisions apply to small creditors that operate predominantly in rural or undeserved areas. The new rule:

  • Expands the definition of “small creditor”: The loan origination limit for small-creditor status is raised from 500 first-lien mortgage loans to 2,000 and excludes loans held in portfolio by the creditor and its affiliates.
  • Include mortgage affiliates in calculation of small-creditor status: The final rule does not change the current asset limit for small-creditor status. However, under the new rule the assets of the creditor’s mortgage-originating affiliates are included in calculating whether a creditor is under the limit.
  • Expand the definition of “rural” areas: In addition to counties that are considered to be “rural” under the CFPB’s current mortgage rules, the definition of “rural” has been expanded to include census blocks that are not designated as “urban” by the Census Bureau. The rule adds two new safe harbors for determining whether a property location meets the definition of rural. A creditor is now able to rely on an automated address look-up tool available on the Census Bureau’s website or on a new automated tool that is provided on the Bureau’s website. The rule maintains the current safe harbor for creditors who choose to rely on the county lists available on the Bureau’s website. The safe harbors are not the only means of demonstrating compliance, but a printout or electronic copy from the Bureau’s automated tool or the Census Bureau’s website may be used as evidence that one or more properties are located in rural areas as defined by the Rule.
  • Provide grace periods for small creditor and rural or underserved creditor status: Creditors that exceed the origination limit or asset-size limit in the preceding calendar year are allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions with applications received prior to April 1 of the current calendar year. The new rule creates a similar grace period for creditors that no longer operated predominantly in rural or underserved areas during the preceding calendar year.
  • Create a one-year qualifying period for rural or underserved creditor status: The time period used in determining whether a creditor is operating predominately in rural or underserved areas has been adjusted, from any of the three preceding calendar years to the preceding calendar year.
  • Provide additional implementation time for small creditors: Eligible small creditors are currently able to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption scheduled to expire on January 10, 2016. That time period has been extended to include balloon-payment mortgage transactions with applications received before April 1, 2016, giving creditors more time to understand how any changes will affect their status, and to adjust their business practices.

If you have any further questions, please email Jennifer Winston

Originally posted October 7, 2015