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§ 1041.2 Definitions*

On June 6, 2016, the CFPB announced a final rule delaying the compliance date for the mandatory underwriting provisions of this regulation and making correcting amendments. It will be effective August 16, 2019. This section of the regulation is affected by those amendments, which are in THIS COLOR RED on this page.

The compliance date for this section is August 19, 2019.


(a) Definitions
(1) Account
(2) Affiliate
(3) Closed-end credit
(4) Consumer
(5) Consummation
(6) Cost of credit
(7) Covered longer-term balloon-payment loan
(8) Covered longer-term loan
(9) Covered person
[Removed and reserved.]
(10) Covered short-term loan
(11) Credit
(12) Electronic fund transfer
(13) Lender
(14) Loan sequence or sequence
(15) Motor vehicle
(16) Open-end credit
(17) Outstanding loan
(18) Service provider
(19) Vehicle security
(b) Rule of construction


(a) Definitions. For the purposes of this part, the following definitions apply:

(1) Account has the same meaning as in Regulation E, 12 CFR 1005.2(b).

(2) Affiliate has the same meaning as in 12 U.S.C. 5481(1).

(3) Closed-end credit means an extension of credit to a consumer that is not open-end credit under paragraph (a)(16) of this section.

Official Interpretation

2(a)(3) Closed-End Credit

1. In general. Institutions may rely on 12 CFR 1026.2(a)(10) and its related commentary in determining the meaning of closed-end credit, but without regard to whether the credit is consumer credit, as that term is defined in 12 CFR 1026.2(a)(12), or is extended to a consumer, as that term is defined in 12 CFR 1026.2(a)(11).

(4) Consumer has the same meaning as in 12 U.S.C. 5481(4).

(5) Consummation means the time that a consumer becomes contractually obligated on a new loan or a modification that increases the amount of an existing loan.

Official Interpretation

2(a)(5) Consummation

1. New loan. When a contractual obligation on the consumer's part is created is a matter to be determined under applicable law. A contractual commitment agreement, for example, that under applicable law binds the consumer to the loan terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a non-refundable fee) unless applicable law holds otherwise.

1. New loan. When a contractual obligation on the consumer's part is created is a matter to be determined under applicable law. A contractual commitment agreement, for example, that under applicable law binds the consumer to the loan terms would be consummation. Consummation, however, does not occur merely because the consumer has made some financial investment in the transaction (for example, by paying a non-refundable fee) unless applicable law holds otherwise.

2. Modification of existing loan that triggers underwriting requirements. A modification of an existing loan that increases the amount of an existing loan triggers underwriting requirements under §1041.5 in certain circumstances. If the outstanding amount of an existing loan is increased, or if the total amount available under an open-end credit plan is increased, the modification is consummated as of the time that the consumer becomes contractually obligated on such a modification or increase. In those cases, the modification must comply with the requirements of §1041.5(b). A loan modification does not trigger underwriting requirements under §1041.5 if the modification reduces the outstanding amount or the total amount available under an open-end credit plan, or if the modification results only in the consumer receiving additional time in which to repay the loan. For example, providing a cost-free “off-ramp” or repayment plan to a consumer who cannot repay a loan during the allotted term of the loan is a modification of an existing loan—not a new loan—that results only in the consumer receiving additional time in which to repay the loan. Thus, providing a no-cost repayment plan does not constitute a modification that increases the amount of an existing loan.

(6) Cost of credit means the cost of consumer credit as expressed as a per annum rate and is determined as follows:

(i) Charges included in the cost of credit. The cost of credit includes all finance charges as set forth by Regulation Z, 12 CFR 1026.4, but without regard to whether the credit is consumer credit, as that term is defined in 12 CFR 1026.2(a)(12), or is extended to a consumer, as that term is defined in 12 CFR 1026.2(a)(11).

(ii) Calculation of the cost of credit—(A) Closed-end credit. For closed-end credit, the cost of credit must be calculated according to the requirements of Regulation Z, 12 CFR 1026.22.

(B) Open-end credit. For open-end credit, the cost of credit must be calculated according to the rules for calculating the effective annual percentage rate for a billing cycle as set forth in Regulation Z, 12 CFR 1026.14(c) and (d).

(7) Covered longer-term balloon-payment loan means a loan described in § 1041.3(b)(2).

(8) Covered longer-term loan means a loan described in § 1041.3(b)(3).

(9) Covered person has the same meaning as in the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 5481(6).

Editor's Note: Effective 8/16/2019, paragraph (a)(9) is removed and reserved.

(9) [Removed and reserved.]

(10) Covered short-term loan means a loan described in § 1041.3(b)(1).

(11) Credit has the same meaning as in Regulation Z, 12 CFR 1026.2(a)(14).

Official Interpretation

2(a)(11) Credit

1. In general. Institutions may rely on 12 CFR 1026.2(a)(14) and its related commentary in determining the meaning of credit.

(12) Electronic fund transfer has the same meaning as in Regulation E, 12 CFR 1005.3(b).

Official Interpretation

2(a)(12) Electronic Fund Transfer

1. In general. Institutions may rely on 12 CFR 1005.3(b) and its related commentary in determining the meaning of electronic fund transfer.

(13) Lender means a person who regularly extends credit to a consumer primarily for personal, family, or household purposes.

Official Interpretation

2(a)(13) Lender

1. Regularly extends credit. The test for determining whether a person regularly extends credit for personal, family, or household purposes is explained in Regulation Z, 12 CFR 1026.2(a)(17)(v). Any loan to a consumer primarily for personal, family, or household purposes, whether or not the loan is a covered loan under this part, counts toward the numeric threshold for determining whether a person regularly extends credit.

(14) Loan sequence or sequence means a series of consecutive or concurrent covered short-term loans or covered longer-term balloon-payment loans, or a combination thereof, in which each of the loans (other than the first loan) is made during the period in which the consumer has a covered short-term loan or covered longer-term balloon-payment loan outstanding and for 30 days thereafter. For the purpose of determining where a loan is located within a loan sequence:

(i) A covered short-term loan or covered longer-term balloon-payment loan is the first loan in a sequence if the loan is extended to a consumer who had no covered short-term loan or covered longer-term balloon-payment loan outstanding within the immediately preceding 30 days;

(ii) A covered short-term or covered longer-term balloon-payment loan is the second loan in the sequence if the consumer has a currently outstanding covered short-term loan or covered longer-term balloon-payment loan that is the first loan in a sequence, or if the consummation date of the second loan is within 30 days following the last day on which the consumer's first loan in the sequence was outstanding;

(iii) A covered short-term or covered longer-term balloon-payment loan is the third loan in the sequence if the consumer has a currently outstanding covered short-term loan or covered longer-term balloon-payment loan that is the second loan in the sequence, or if the consummation date of the third loan is within 30 days following the last day on which the consumer's second loan in the sequence was outstanding; and

(iv) A covered short-term or covered longer-term balloon-payment loan would be the fourth loan in the sequence if the consumer has a currently outstanding covered short-term loan or covered longer-term balloon-payment loan that is the third loan in the sequence, or if the consummation date of the fourth loan would be within 30 days following the last day on which the consumer's third loan in the sequence was outstanding.

(15) Motor vehicle means any self-propelled vehicle primarily used for on-road transportation. The term does not include motor homes, recreational vehicles, golf carts, and motor scooters.

(16) Open-end credit means an extension of credit to a consumer that is an open-end credit plan as defined in Regulation Z, 12 CFR 1026.2(a)(20), but without regard to whether the credit is consumer credit, as defined in 12 CFR 1026.2(a)(12), is extended by a creditor, as defined in 12 CFR 1026.2(a)(17), is extended to a consumer, as defined in 12 CFR 1026.2(a)(11), or permits a finance charge to be imposed from time to time on an outstanding balance as defined in 12 CFR 1026.4.

Official Interpretation

2(a)(16) Open-End Credit

1. In general. Institutions may rely on 12 CFR 1026.2(a)(20) and its related commentary in determining the meaning of open-end credit, but without regard to whether the credit permits a finance charge to be imposed from time to time on an outstanding balance as defined in 12 CFR 1026.4. Also, for the purposes of defining open-end credit under this part, the term credit, as defined in §1041.2(a)(11), is substituted for the term consumer credit, as defined in 12 CFR 1026.2(a)(12); the term lender, as defined in §1041.2(a)(13), is substituted for the term creditor, as defined in 12 CFR 1026.2(a)(17); and the term consumer, as defined in §1041.2(a)(4), is substituted for the term consumer, as defined in 12 CFR 1026.2(a)(11). See generally §1041.2(b).

(17) Outstanding loan means a loan that the consumer is legally obligated to repay, regardless of whether the loan is delinquent or is subject to a repayment plan or other workout arrangement, except that a loan ceases to be an outstanding loan if the consumer has not made at least one payment on the loan within the previous 180 days.

Official Interpretation

2(a)(17) Outstanding Loan

1. Payments owed to third parties. A loan is an outstanding loan if it meets all the criteria set forth in §1041.2(a)(17), regardless of whether the consumer is required to pay the lender, an affiliate of the lender, or a service provider. A lender selling the loan or the loan servicing rights to a third party does not affect whether a loan is an outstanding loan under §1041.2(a)(17).

2. Stale loans. A loan is generally an outstanding loan if the consumer has a legal obligation to repay the loan, even if the consumer is delinquent or if the consumer is in a repayment plan or workout arrangement. However, a loan that the consumer otherwise has a legal obligation to repay is not an outstanding loan for purposes of this part if the consumer has not made any payment on the loan within the previous 180-day period. A loan ceases to be an outstanding loan as of: The earliest of the date the consumer repays the loan in full, the date the consumer is released from the legal obligation to repay, the date the loan is otherwise legally discharged, or the date that is 180 days following the last payment that the consumer has made on the loan, even if the payment is not a regularly scheduled payment in a scheduled amount. If the consumer does not make any payments on a loan and none of these other events occur, the loan ceases to be outstanding 180 days after consummation. A loan cannot become an outstanding loan due to any events that occur after the consumer repays the loan in full, the consumer is released from the legal obligation to repay, the loan is otherwise legally discharged, 180 days following the last payment that the consumer has made on the loan, or 180 days after consummation of a loan on which the consumer makes no payments.

(18) Service provider has the same meaning as in the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 5481(26).

Official Interpretation

2(a)(18) Service Provider

1. Credit access businesses and credit services organizations. Persons who provide a material service to lenders in connection with the lenders' offering or provision of covered loans are service providers, subject to the specific limitations in section 1002(26) of the Dodd-Frank Act. Accordingly, credit access businesses and credit service organizations that provide a material service to lenders during the course of obtaining for consumers, or assisting consumers in obtaining, loans from lenders, are service providers, subject to the specific limitations in section 1002(26) of the Dodd-Frank Act.

(19) Vehicle security means an interest in a consumer's motor vehicle obtained by the lender or service provider as a condition of the credit, regardless of how the transaction is characterized by State law, including:

(i) Any security interest in the motor vehicle, motor vehicle title, or motor vehicle registration whether or not the security interest is perfected or recorded; or

(ii) A pawn transaction in which the consumer's motor vehicle is the pledged good and the consumer retains use of the motor vehicle during the period of the pawn agreement.

Official Interpretation

2(a)(19) Vehicle Security

1. An interest in a consumer's motor vehicle as a condition of credit. Subject to the exclusion described in §1041.3(d)(1), a lender's or service provider's interest in a consumer's motor vehicle constitutes vehicle security only to the extent that the security interest is obtained in connection with the credit. If a party obtains such a security interest in a consumer's motor vehicle for a reason that is unrelated to an extension of credit, the security interest does not constitute vehicle security. For example, if a mechanic performs work on a consumer's motor vehicle and a mechanic's lien attaches to the consumer's motor vehicle by operation of law because the consumer did not timely pay the mechanic's bill, the mechanic does not obtain vehicle security for the purposes of §1041.2(a)(19).

(b) Rule of construction. For purposes of this part, where definitions are incorporated from other statutes or regulations, the terms have the meaning and incorporate the embedded definitions, appendices, and commentary from those other laws except to the extent that this part provides a different definition for a parallel term.

Official Interpretation

2(b) Rule of Construction

1. Incorporation of terms from underlying statutes and regulations. For purposes of this part, where definitions are incorporated from other statutes or regulations, users may as applicable rely on embedded definitions, appendices, and commentary for those other laws. For example, 12 CFR 1005.2(b) and its related commentary determine the meaning of account under §1041.2(a)(1). However, where this part defines the same term or a parallel term in a way that creates a substantive distinction, the definition in this part shall control. See, for example, the definition of open-end credit in §1041.2(a)(16), which is generally determined according to 12 CFR 1026.2(a)(20) and its related commentary but without regard to whether the credit is consumer credit, as that term is defined in 12 CFR 1026.2(a)(12), or is extended to a consumer, as that term is defined in 12 CFR 1026.2(a)(11), because this part provides a different and arguably broader definition of consumer in §1041.2(a)(4).

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