I was told that with the Regulation Z changes from $25,000 to $50,000 that if Bank’s have an unsecured personal line of credit between those amounts as of December 31, 2011 that they would need to send out a new TIL and they must send monthly periodic statements.

Is a new TIL required due to the change in the threshold?

Do you mean the 2012 adjustment?

I wrote in my notes: If, as of Dec 31, a non RE secured consumer line of credit is bewteen $25,000 and $50,000, a new TIL disclosure is required and monthly periodic statements.

From the Third Quarter Consumer Compliance Outlook:

"If an exempt account becomes a covered account, the creditor must begin complying with all applicable provisions of Regulation Z within a reasonable period of time, including providing initial disclosures under §226. and periodic statements under §226.7."

I guess I need clarification on which circumstances require re-disclosre. I've read the article a couple times and I am still getting tangled up in it.

I also found this in the Federal Register vol 76, no. 64, page 18358 from 4/4/11:

As discussed below with respect to the transition rule
in § 226.3(b)(2), all creditors that currently rely on the firm commitment exemption must review their accounts
and either increase their firm commitments to more than $50,000 by December 31, 2011 or begin to comply with Regulation Z. Although this requirement will impose a one-time burden on creditors, the Board believes that, because Section 1100E of the
Dodd-Frank Act was intended to expand TILA’s coverage to transactions involving higher dollar amounts, it would be inconsistent with that intent to allow existing accounts to remain exempt based on firm commitments of less than $50,000. In contrast, however, the Board does not believe it would be appropriate to require creditors to continually review and adjust accounts that are exempt based on a firm commitment due to any incremental CPI–W increases in the threshold amount.

That is saying if you had lines of credit for firm commitments of credit between $25,000 and $50,000 as of 07/21/11, by 12/31/11 you would have to provide them a full TIL disclosure and initiate the required monthly periodic statements. If you had or closed a line at $51,000 prior to 01/01/12, then as long as the firm commitment to lend stayed at $51,000, then that account would remain exempt from Regulation Z for the life of the line.

Can I get your thoughts on a specific example?....

Borrower has a unsecured line of credit in the amount of 25,500. The line matures in January 2013. Per the credit agreement, the borrower will be billed on an annual basis for the interest due. The first payment is 10/10/12 with the remaining due at maturity in January 2013. As a result, they are not billed on a monthly basis but rather an annual basis.

At this time there is no balance.

Should this one receive a new TIL and monthly periodic statements (assuming the system can support monthly statements with no amount due - until such time that the annual interest payment is due)?

Bump

You do not have to mail a statement to a zero balance account. Technically, you would not have to mail a statement until prior to the payment is due by the requisite number of days. However, sending annual statements on lines of credit do present some risk, as if an authorized transaction happens in month two and you don't mail a statement until month eleven, the customer time for dispute doesn't start until they receive the statement.

Now that I have had a few more minutes to look at this, I am a bit perplexed over this I guess. Take a closer look…..

In the Federal Register on the attached page it says:

“…with respect to the transition rule in § 226.3(b)(2), all creditors that currently rely on the firm commitment exemption must review their accounts and either increase their firm commitments to more than $50,000 by December 31, 2011 or begin to comply with Regulation Z. Although this requirement will impose a one-time burden on creditors, the Board believes that, because Section 1100E of the Dodd-Frank Act was intended to expand TILA’s coverage to transactions involving higher dollar amounts, it would be inconsistent with that intent to allow existing accounts to remain exempt based on firm commitments of less than $50,000.”

But then later in the same paragraph it says:

“…Accordingly, the Board has revised comment 3(b)–2.iv.A to clarify that if a creditor makes a firm commitment at account opening to extend a total amount of credit that exceeds the threshold amount in effect at that time, the open-end account remains exempt under § 226.3(b) regardless of a subsequent increase in the threshold amount as a result of an increase in the CPI–W. For example, if the applicable threshold amount is $50,000 and an account is exempt at account opening based on a firm commitment of $55,000, the account remains exempt even if the threshold amount subsequently increases…”

Also, in the 3rd QTR 2011 Consumer Compliance Outlook article, it says:

“As long as the credit limit at account opening exceeds the threshold and is not secured by real or personal property used or expected to be used as the consumer's principal dwelling, the account is exempt from Regulation Z, even if the threshold is later increased because of changes in the CPI-W.”

And later on, the article reads:

“Special Transition Rule for Accounts Exempt Before July 21, 2011

To facilitate the transition to the new threshold, the Board adopted a special transition rule for certain account that are currently exempt. If, on July 20, 2011, an open-end account is exempt from Regulation Z because of a firm commitment to extend more than $25,000 in credit, the account will remain exempt until December 31, 2011. If that firm commitment is increased to at least $50,000 by December 31, the account will continue to be exempt. Otherwise, the exemption ends on January 1, 2012, and Regulation Z applies.”

So, the way I am reading this now is that if the bank made a LOC with a limit between $25,000 and $50,000, it is exempt from Reg Z and would remain exempt even if there are changes in the threshold.

So, why then would banks have to do anything with lines b/w $25,000 & $50,000 before 12/31/11?

No. What is it saying is that any account made prior to July 21, 2011 between $25,000 and the $50,000 threshold, you had until December 31, 2011 to bring them into compliance.

Any loan made after July 21, 2011 that is over the threshold at the time the loan closed will remain exempt regardless of future changes in the threshold.

The $50,000 threshold was effective on July 21, 2011.

Thanks for the help on this.

Would anyone be willing to share the language they used in their letter to the borrower whenever they were sent a new disclosure - to explain why they are getting the disclosure and why they will begin receiving statements that may be different than what they were used to?

How about:

Dear customer,
The nanny-stateists you elected and sent to Washington have concluded that you are too stupid to continue using your credit account wisely without government intervention. Drawing on their successes overseeing Fannie, Freddie, and federal spending, they now require us to provide you the same disclosures we must give 18-year-olds with a $300 credit line and no borrowing experience.
Love and kisses,
Your Bank.

Sounds reasonable. (Richard it is a classic and I actually think it is very appropriate and not patronizing.)

Should the letter also include a $ dollar off coupon for the customer to turn in if they actually read and understand the letter?