We have a consumer 6-year loan with the intent that the customer renews annually, so we essentially have a fixed rate for the first year then they renew. Does this follow the ATR guidelines?

You either have a one-year loan or a six-year loan. Which is it? You cannot have both. You mean you have a six-year consumer loan with a call provision every 12 months?

Yes! That is what I was trying to state.

We do this a lot with commercial but have never done it on a consumer loan.

Yes, I have never seen this on a consumer loan either. I suggest talking to your legal counsel to make sure it is allowed in your State. I would be worried about UDAP and fair lending also if this is a one-off idea and not a normal consumer product at your bank.

In addition to the very valid concerns Randy has raised, I'll add my ATR opinion: Does the borrower have the ability to repay the loan in full if it not renewed? No? Then it does not meet the ATR standard. The "renewal required" callable aspect of the loan creates a de-facto balloon loan, and the rules of 1026.43(c)(5)(ii) apply.

Comment 43(c)(5)(ii) is helpful. You didn't say if the renewal was unconditional (I'm assuming it isn't), but even if it was, you'd still have to compute the max payment (the whole loan balance) at the time of renewal.

"3. Renewable balloon-payment mortgage; loan term.

A balloon-payment mortgage that is not a higher-priced covered transaction could provide that a creditor is unconditionally obligated to renew a balloon-payment mortgage at the consumer's option (or is obligated to renew subject to conditions within the consumer's control). See comment 17(c)(1)-11 discussing renewable balloon-payment mortgages. For purposes of this section, the loan term does not include any period of time that could result from a renewal provision.

To illustrate, assume a three-year balloon-payment mortgage that is not a higher-priced covered transaction contains an unconditional obligation to renew for another three years at the consumer's option. In this example, the loan term for the balloon-payment mortgage is three years, and not the potential six years that could result if the consumer chooses to renew the loan. Accordingly, the creditor must underwrite the loan using the maximum payment scheduled in the first five years after consummation, which includes the balloon payment due at the end of the three-year loan term. See comment 43(c)(5)(ii)(A)-4.ii, which provides an example of how to determine the consumer's repayment ability for a three-year renewable balloon-payment mortgage that is not a higher-priced covered transaction."