Regulation Z is the common name for a complex set of rules that implement the Truth in Lending Act passed by Congress in 1968. The purpose of the act was to standardize the disclosure of information about the terms and costs of a loan in a consumer credit transaction. The act has been amended several times to include additional requirements regarding consumer credit, with new rules added to Regulation Z to implement the amendments. Creditors offering consumer credit must comply with Regulation Z rules.
Regulation Z Basics
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among other things, it established the Consumer Financial Protection Bureau, or CFPB. The act also gave the CFPB most rule-making authority for Regulation Z. The CFPB website provides information to assist the general public and affected creditors about Regulation Z. For example, a Nov. 20, 2012, announcement stated that the dollar threshold for transactions subject to Regulation Z was adjusted. Beginning in January 2013, Regulation Z applies to consumer credit transactions of $53,000 or less.
Format of Regulation Z
Regulation Z is organized into eight subparts, designated A through G, which contain rules applying to different types of consumer credit transactions. For example, Subpart B applies to open-end credit transactions, such as home-equity lines of credit and credit card accounts. Subpart C applies to closed-end credit transactions, such as mortgages and car loans. Also included in Regulation Z are appendices and a supplement that contain information to assist creditors with Regulation Z compliance by providing model documents, loan calculation formulas and official CFPB staff interpretations of the rules.
Regulation Z Coverage
Regulation Z generally covers all creditors who regularly extend credit to consumers in two types of transactions -- when a finance charge applies to the credit or the credit is repaid in four or more installments, not counting the down payment. These types of transactions must fully comply with the disclosure rules of Regulation Z so the consumer knows the total cost of the credit. Certain credit transactions are specifically exempt from Regulation Z, such as those involving the use of credit primarily for business, commercial or agriculture purposes. Also exempt are transactions extending credit to business entities, such as corporations or limited liability companies, and to government agencies.
Regulation Z includes a wide variety of rules intended for consumer protection. Following the housing crisis of 2007, many new rules were adopted to implement protections for homeowners involved in mortgage transactions. For example, in January 2013 the CFPB released new mortgage servicing rules that will take effect on Jan. 10, 2014. Among these new rules is a requirement that mortgage servicers give consumers a written monthly billing statement with specific information about their mortgage. Mortgage servicers must also notify consumers at least two months in advance of a change in mortgage payments under an adjustable rate mortgage.
- Government Printing Office: Title 12 Code of Federal Regulations Part 226 -- Truth in Lending (Regulation Z)
- Consumer Financial Protection Bureau: Increases in Dollar Thresholds in Regulation Z and M for Exempt Consumer Credit and Lease Transactions
- Consumer Financial Protection Bureau: Guidance Documents
- Federal Register: A Rule by the Consumer Financial Protection Bureau on 03/28/2013
- Pacific Union Financial: HOEPA Loans and HPML Loans
- Consumer Financial Protection Bureau: What the New Mortgage Servicing Rules Mean for Consumers