On December 23, the CFPB published a final rule in the Federal Register regarding various annual adjustments it is required to make under provisions of Regulation Z (TILA) that implement the CARD Act, HOEPA, and the ability to repay/qualified mortgage provisions of Dodd-Frank. The adjustments reflect changes in the Consumer Price Index (CPI) in effect on June 1, 2022 and will take effect January 1, 2023.
In addition to not including adjustments to the credit card penalty fees safe harbor, the 2023 adjustments are notable for the lateness of their publication by the CFPB. By way of comparison, the CFPB published the adjustments for 2022 in the Federal Register on November 2, 2021. Given the systems and operational changes that the adjustments require mortgage lenders to have in place by their January 1 effective date, the CFPB’s delay in publishing the 2023 adjustments is inexcusable.
CARD Act. Regulation Z provides for the CFPB to annually adjust (1) the minimum interest charge threshold that triggers disclosure of the minimum interest charge in credit card applications, solicitations and account opening disclosures, and (2) the penalty fees safe harbor amounts.
In the notice, the CFPB announced that the calculation did not result in a change for 2023 to the current minimum interest charge threshold (which requires disclosure of any minimum interest charge above $1.00). (An increase in the minimum interest charge requires the change in the CPI to cause an increase in the minimum charge of at least $1.00.)
The notice does not mention the credit card penalty fees safe harbors, which are set forth in Regulation Z Section 1026.52(b)(1)(ii)(A) and (B). Section 1026.52(b)(1)(ii)(D) provides that that these amounts “will be adjusted annually by the Bureau to reflect changes in the Consumer Price Index.” For purposes of determining whether to make an adjustment in the minimum interest charge threshold, the CFPB used the CPI for Urban Wage Earners and Clerical Workers (CPI–W), which increased by 8.9 percent over the relevant period. Since the CFPB has also used the CPI-W when making past adjustments to the penalty fees safe harbor amounts, an adjustment for 2023 to the safe harbor amounts using the CPI-W presumably would reflect an 8.9 percent increase.
In June 2022, the CFPB issued an Advance Notice of Proposed Rulemaking (ANPR) regarding credit card late fees. The issuance of the ANPR followed the CFPB’s release of a report on late fees in March 2022. Both the CFPB’s press release about the report and its press release about the ANPR contained comments from Director Chopra regarding the amount of revenues that credit card issuers generate from late fees and concerns about fee “hikes” based on inflation. Director Chopra has also identified the CARD Act rules on credit card late fees as needing a “fresh look” from the CFPB. It would seem that the CFPB’s delay in announcing adjustments to the credit card penalty safe harbor amounts for 2023 is tied to these developments. Until an adjustment is made, the current safe harbor penalty fees of $30 for a first violation and $41 for a subsequent violation remain in effect.
HOEPA. Regulation Z provides for the CFPB to annually adjust the total loan amount and fee thresholds that determine whether a transaction is a high cost mortgage. In the final rule, for 2023, the CFPB increased the total loan amount threshold to $24,866, and the current points and fees threshold to $1,243. As a result, in 2023, a transaction will be a high-cost mortgage (1) if the total loan amount is $24,866 or more and the points and fees exceed 5 percent of the total loan amount, or (2) if the total loan amount is less than $24,866 and the points and fees exceed the lesser of $1,243 or 8 percent of the total loan amount.
Ability to repay/QM rule. The CFPB’s ability to repay/QM rule provides for the CFPB to annually adjust the points and fees limits that a loan cannot exceed to satisfy the requirements for a QM. The CFPB must also annually adjust the related loan amount limits. In the final rule, the CFPB increased these limits for 2023 to the following:
- For a loan amount greater than or equal to $124,331, points and fees may not exceed 3 percent of the total loan amount;
- For a loan amount greater than or equal to $74,599 but less than $124,331, points and fees may not exceed $3,730;
- For a loan amount greater than or equal to $24,866 but less than $74,599, points and fees may not exceed 5 percent of the total loan amount;
- For a loan amount greater than or equal to $15,541 but less than $24,866, points and fees may not exceed $1,243; and
- For a loan amount less than $15,541, points and fees may not exceed 8 percent of the total loan amount.