There are a lot of lenders that use MoneyThumb's PDF financial file converters to help them make quicker and more informed lending decisions. This best-selling MoneyThumb product specifically designed for lenders allows them to easily convert the financial statements of potential borrowers.
Since lenders are some of our favorite customers, the Rules of Thumb blog wants to make sure we provide our readers who are lenders with the most updated information when it comes to changes in the lending industry.
The change we want to discuss today is the truth in lending threshold adjustments for 2020. The updated thresholds become effective on January 1, 2020. Below are a few notable adjustments:
Credit Cards
Regulation Z prohibits a card issuer from imposing a fee for violating the terms or other requirements of a credit card account under an open-end (not home-secured) plan unless the fee “represents a reasonable proportion of the total costs” incurred for the violation, or is within the safe harbor provision of section 1026.52(b). If a credit card issuer charges anything up to the safe harbor amount for certain violations, it is considered to be in compliance with Regulation Z. For 2020, the safe harbor will increase by $1 from the 2019 amount to:
- $29 for a first late payment; and
- $40 for each subsequent late payment over six months.
The threshold that triggers requirements to disclose minimum interest charges for open-end consumer credit plans will remain unchanged at $1.00.
Ability-to-Repay/Qualified Mortgage
Regulation Z requires credit unions to make a reasonable, good-faith determination of a consumer’s ability to repay a dwelling-secured credit transaction. Section 1026.43(e) of Regulation Z establishes a “qualified mortgage” safe harbor and presumption of compliance for loans that meet a variety of underwriting factors including certain limits on “points and fees.” See, 12 CFR §1026.43(e)(3). For dollar amounts related to determining a borrower’s ability to repay a transaction secured by a dwelling, the QM threshold in 2020 will require that total points and fees not exceed:
- 3 percent of the total loan amount for a loan greater than or equal to $109,898;
- $3,297 for a loan amount greater or equal to $65,939 but less than $109,898;
- 5 percent of the total loan amount for a loan greater than or equal to $21,980 but less than $65,939;
- $1,099 for a loan amount greater or equal to $13,737 but less than $21,980; and
- 8 percent of the total loan amount for a loan amount less than $13,737.
Home Ownership and Equity Protection Act (HOEPA) Loans
Regulation Z sets additional disclosure and counseling requirements for credit unions making what is considered a “high-cost mortgage loan.” To be considered a high-cost loan, the transaction must be secured by the consumer’s principal dwelling and meet one of three tests. In the second such test, a transaction is considered high-cost where the “points and fees” exceed a certain threshold that varies based upon the loan amount. These thresholds are also adjusted annually for inflation based upon changes to the CPI-W. See, 12 CFR § 1026.32(a)(ii).
For 2020, the total loan amount threshold will be increased to $21,980 and the adjusted points and fees must exceed 5% of the total loan amount. Loans below $21,980 will also be considered a high-cost transaction if the points and fees exceed the lesser of 8% of the total loan amount or $1,099. For additional HOEPA guidance, the CFPB’s Small Entity Compliance Guide for the HOEPA Rule provides a helpful summary of each test and the requirements.
Source: NAFCU Compliance Blog
MoneyThumb provides PDF financial file converters to lenders who offer payday loans. The Truth in Lending Act also applies to these types of lenders. Congress passed the Truth in Lending Act (TILA) in 1968, a central feature of which was the requirement that lenders disclose the APR for all types of loans. The intent was to give consumers an accurate measure of the cost of the various credit options they might be considering so that they need not pay unnecessarily high rates of interest or be caught in loans
with hidden fees or arduous terms that make it more difficult to pay off the loan.
For in-depth details about the laws and specifically the Truth in Lending Act as they apply to payday loans, read this report from The Center for Responsible Lending. Compliance keeps everyone honest and gives both lenders and borrowers a fair playing field.
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