Pub. 6 2011-2012 Issue 4

www.nebankers.org 18 Extraordinary Service for Extraordinary Members. time. On July 1, the lender makes an initial extension of credit of $60,000. In this circumstance, no requirements of this Part apply to the account.” If an account exemption was based on an initial extension of credit that exceeded the applicable threshold at account opening, the account is and will remain exempt fromRegula- tion Z even if one or more of the following occur: • The applicable threshold increases at a later date, even if the value of the subsequent threshold is greater than the amount of the initial extension of credit. • There are no further extensions of credit. • Subsequent extensions of credit are below the original threshold amount. • The account balance is subsequently reduced (e.g., through loan payments) below the original threshold amount. • The account credit limit is subsequently reduced below the original applicable threshold limit. Any of these subsequent changes must be legitimate. For example, if the lendermakes an initial advance of credit at the time of account opening in excess of the threshold amount, and arranges for the borrower to pay down the account bal- ance below the threshold amount immediately or shortly thereafter, this will likely be regarded as a sham. As a result, the exemption will not apply and the account will be subject to Regulation Z from its inception. Effect of Certain Subsequent Security Interests An open-end account that meets the current thresholds and is exempt from Regulation Z ceases to be exempt if the lender subsequently takes a security interest in real or per- sonal property used or expected to be used as the consumer’s principal dwelling. 4 If an exempt account becomes a covered account, the lender must begin complying with all applicable provisions of Regulation Zwithin a reasonable period of time. Accounts Established Before July 21, 2011 Under the New Coverage Rule, the Federal Reserve adopted a special transition rule for certain accounts 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 remains exempt until Dec. 31, 2011. If the firm commitment is increased on or before Dec. 31, 2011, to an amount in excess of $50,000, the account remains exempt. Otherwise, the exemption ends on Jan. 1, 2012, and Regulation Z applies. III. Closed-End Credit Under the New Coverage Rule, a closed-end loan that is not (a) secured by real property, or (b) secured by personal property that serves as the consumer’s principal dwelling, or (c) a private education loan, is exempt from Regulation Z if: • the lender makes an extension of credit at consummation that exceeds the threshold amount in effect at the time of consummation or • the lendermakes a commitment at consummation to extend a total amount of credit in excess of the threshold amount in effect at the time of consummation (e.g., in connection with a multiple advance construction loan). Under Section 226.2(a)(13) of Regulation Z and Paragraph 226.2(a)(13)-1 of the Commentary, “consummation” occurs when the consumer becomes contractually obligated on the loan or contractually bound to the terms of the loan. As is the case for open-end loans, the closed-end loan remains exempt even if (a) the loan balance falls below the applicable threshold or the total amount of credit extended under the commitment fails to exceed the applicable thresh- old amount or (b) the Federal Reserve increases the threshold amount pursuant to a CPI-W adjustment. Refinancings A new loan that replaces an existing loan (e.g., a refinanc- ing) must be evaluated independently according to the New Coverage Rule. Although the existing loanmay be exempt, if the replacement new loan does not meet exemption require- ments, it is subject to Regulation Z. Q Regulation Z Reminder — continued experience guidance How will you get where you want to go? BKD National Financial Services Group can help you choose the right path with more than 180 professionals who have the expertise you need to help improve performance, reduce risk, lower costs and stay in compliance. Learn more at bkd.com . experience Lincoln 402.473.7600 Omaha 402.392.1040