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Truth in Lending: 2.6.5.2 Status and Liability of Assignees

The official interpretations take a strict position on the “initially payable” rule. Even if the obligation by its terms is simultaneously assigned to another person, the person to whom it is initially payable is still the creditor and the person to whom it is assigned is only the assignee.226

Truth in Lending: 2.6.5.3 Status and Liability of Servicers

TILA incorporates the Real Estate Settlement Procedures Act definition of servicer as “the person responsible for servicing of a loan (including the person who makes or holds a loan if such person also services the loan),” with exceptions for certain governmental agencies.243 A servicer can be a creditor under TILA if it meets the two-part definition of “creditor.”244 This situation arises when the creditor services its own loan, even if it subsequently assigns the loan to another party and reta

Truth in Lending: 2.6.5.4.1 Overview

Under current law, only persons extending credit may be creditors; persons who merely “arrange” for the extension of credit are not considered creditors. This was not always the case and, once amendments to TILA under the Dodd-Frank Act went into effect, it is no longer true for mortgage originators for certain purposes.254

Truth in Lending: 2.6.5.4.2 Peer-to-peer lending programs

Peer-to-peer lending programs—internet-based platforms that enable individuals to lend money to other individuals—have arisen in recent years. According to a 2011 GAO report, the two large for-profit peer-to-peer lending programs currently in operation are structured so that an industrial bank actually makes the loans.265 The lending program acts as an intermediary, screening borrowers and soliciting other individuals to invest in particular loans. The investors can purchase all or part of a particular loan obligation.

Truth in Lending: 2.6.5.5 Status and Liability of MERS

The analysis of who is a proper party in a rescission case merits special attention when the Mortgage Electronic Registration System (MERS) is involved. MERS is not, strictly speaking, a servicer, a creditor, or an assignee: it does not perform functions such as servicing loans, collecting payments, holding mortgage notes, or extending credit.274 It typically serves a placeholder function as the “nominee” for the holder.275

Truth in Lending: 2.6.6 HOEPA Mortgages: Special Definition of “Creditor”

Under the Home Ownership and Equity Protection Act of 1994 (HOEPA), a HOEPA loan is one which meets a precise statutory definition; broadly speaking, it is a home-secured loan that meets prescribed cost triggers.279 These high-cost mortgages may be referred to as HOEPA loans or “section 32 mortgages” for the section of Regulation Z that contains the HOEPA regulations.

Truth in Lending: 2.6.7 Credit Card Issuers: Special Definition of “Creditor”

Any “card issuer” of a “credit card” (including charge cards) is a creditor for purposes of TILA, regardless of whether the open-end credit is subject to a finance charge or is payable in more than four installments.286 In addition, the card issuer need not be the party to whom the obligation is initially payable to be a creditor.287 The details of this special definition of creditor are discussed at

Truth in Lending: 2.7.1 Overview

TILA exempts several classes of transactions from its scope, including credit primarily for business and agricultural purposes, credit to organizations, some credit transactions over a monetary limit, government-related student loans, public utility credit, and securities or commodities accounts.305 Regulation Z provides guidance on these statutory exemptions, and also exempts two additional categories of transactions: home fuel budget plans where no finance charge is imposed306 and loans from c

Truth in Lending: 2.7.2.2.4 Losing exemptions through refinancing

Business purpose credit refinanced for consumer purposes loses its exemption.367 Note that TILA has a special definition of refinancing368 for loans refinanced by the existing creditor. In these cases, TILA attempts to distinguish between modifications of the existing loan and true refinancings, characterizing the latter as a satisfaction and replacement of the original loan.

Truth in Lending: 2.7.2.3 Telephone Credit Cards and Credit Cards for Business Use Are Only Partially Exempt

TILA’s credit card issuance provisions and unauthorized use protections apply to all credit cards, even if the credit card is used primarily for business, commercial, or agricultural purposes.377

The 1984 Regulation Z amendments reinforced this point and extended the applicability of the issuance provisions and unauthorized use protections to credit cards issued by a regulated public utility for utility services and to extensions of credit larger than the $25,000 cap.378

Truth in Lending: 2.7.2.4 Agricultural Purpose

TILA was amended in 1980 to exempt any extension of credit primarily for agricultural purposes.383

The official interpretations give a broad definition of “agricultural.”384 The purpose need not be exclusively agricultural as long as that is the primary purpose, in accord with TILA’s general rule that the purpose of the loan governs characterization of the transaction.385

Truth in Lending: 2.7.4.1 Scope of the Exemption Until July 21, 2011

With two major exceptions, any extension of credit in which the amount financed, before July 21, 2011, exceeds $25,000 is exempt from TILA.398 The exemption also applies to an express written commitment to extend closed-end or open-end credit in excess of $25,000,399 even if the consumer draws amounts less than $25,000.400 The two exceptions are for private student loans401 and credit secured by eithe

Truth in Lending: 2.7.4.2 Scope of the Exemption After July 20, 2011

Credit (other than the two exceptions described above) is exempt from TILA if the amount financed exceeds $50,000. This change was effective on July 21, 2011 and is indexed annually for inflation.403 An open-end line of credit or account containing an express written commitment to extend more than $25,000 prior to July 21, 2011 remained exempt until December 31, 2011 unless the creditor took a security interest in real property or reduced the written commitment to $25,000 or less.404

Truth in Lending: 2.7.4.3 Transactions Excluded by Exemption

Transactions excluded from TILA coverage by the ceiling still may be covered under a state TILA-type statute. Maine’s Consumer Credit Code, for example, requires disclosures nearly identical to TILA. It has an exception for credit over $25,000 similar to TILA’s, but for unsecured finance company loans the ceiling is $50,000.405

Truth in Lending: 2.7.4.4 Credit Secured by Real Property or the Consumer’s Principal Dwelling Is Not Exempt

Any extension of credit secured either by real property or by personal property used or expected to be used as the consumer’s principal dwelling is not exempt, regardless of the amount financed.412 Thus, credit secured by a manufactured home (or trailer or cooperative unit) used as the consumer’s “principal dwelling” is covered, regardless of whether the manufactured home is treated as real estate under state law.413 Even a security interest in a motor home can bring credit over the ceiling with

Truth in Lending: 2.7.4.5 Loss of Exemption Through Refinancing

Closed-end loans may lose their exemption if they are rewritten for less than the ceiling or if a security interest in real property is added,419 provided the restructuring of the loan, if done by the same creditor, meets the Regulation Z definition of a refinancing.420 Even where the refinancing does not meet Regulation Z’s technical requirements, if a security interest in the borrower’s principal dwelling is added to a previously exempt closed-end transaction, the addition of the security inte

Truth in Lending: 2.7.5.1.1 General information

The Higher Education Opportunity Act added numerous new disclosure requirements to TILA that apply to private student loans.425 Regulation Z was amended in August 2009.426 The final rules became effective September 14, 2009, but compliance was mandatory for private education loans for which the creditor received an application on or after February 14, 2010.427 Sample notices are included in the Federal Register as well as online.

Truth in Lending: 2.7.5.1.2 Student loan exemptions for government loans

TILA does not apply to student loans made, insured or guaranteed by the United States or a state guaranty agency under the provisions of Title IV of the Higher Education Act.430 These Department of Education student loans are also exempted from all state disclosure laws.431 There are, however, disclosure provisions in the Higher Education Act that apply to these loans.432 Government loans not covered by Title IV of the Higher Education Act, such as