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Federal Register / Vol. 86, No. 30 / Wednesday, February 17, 2021 / Rules and Regulations
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proposed exemption would have used the same type of grace periods as in the existing escrow exemption at 1026.35b2iii.
Three commenters supported the proposed grace periods, citing compliance uncertainty and volume and asset fluctuations. Two of these commenters discussed the general use of grace periods for the different thresholds in the rule, and one discussed the use of a grace period with the 1,000-loan threshold specifically. No commenters opposed the use of grace periods. As explained further below in the section-by-section analysis of 1026.35b2viA, the Bureau is now adopting the grace periods as proposed.
In addition to the three-month grace periods, the proposed exemption had other important provisions in common with the existing escrow exemption, including the rural or underserved test, the definition of affiliates, and the application of the non-escrowing time period requirement. Thus, the Bureau proposed to add new comment 35b2vi1, which cross-references the commentary to 1026.35b2iii.
Specifically, proposed comment 35b2vi1 explained that for guidance on applying the grace periods for determining asset size or transaction thresholds under 1026.35b2viA
or B, the rural or underserved requirement, or other aspects of the exemption in 1026.35b2vi not specifically discussed in the commentary to 1026.35b2vi, an insured depository institution or insured credit union may, where appropriate, refer to the commentary to 1026.35b2iii.
No commenters discussed proposed comment 35b2vi1 and its cross reference to the commentary to 1026.35b2iii. For the reasons discussed above, the Bureau now adopts the comment as proposed.
35b2viA
EGRRCPA section 1081D amends TILA section 129Dc2A to provide that the new escrow exemption is available only for transactions by an insured depository or credit union that has assets of $10,000,000,000 or less.
The Bureau proposed to implement this provision in new 1026.35b2viA
by: 1 Using an institutions assets during the previous calendar year to qualify for the exemption, but allowing for a three-month grace period at the beginning of a new year if the institution loses the exemption it previously qualified for; and 2
adjusting the $10 billion threshold annually for inflation using the Consumer Price Index for Urban Wage
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Earners and Clerical Workers CPIW, not seasonally adjusted, for each 12month period ending in November, with rounding to the nearest million dollars.
Two commenters opposed the $10
billion asset threshold, arguing that larger financial institutions should have access to the exemption. One of these commenters suggested that the Bureau make the exemption available to financial institutions with assets of $4
billion dollars or more that originate 100
or more mortgages per year. However, section 108 of the EGRRCPA specifically sets a threshold of $10 billion as a maximum. The comment provided no basis for the Bureau to ignore the express language of the statute in its implementing regulations.
The existing escrow exemption at 1026.35b2iii includes three-month grace periods for determination of asset size, loan volume, and rural or underserved status. As explained above in the section-by-section analysis of 1026.35b2vi, those grace periods allow exempt creditors to continue using the exemption for three months after they exceed a threshold in the previous year, so that there will be a transition period to facilitate compliance when they no longer qualify for the exemption.48 The use of grace periods therefore addresses potential concerns regarding the impact of asset size and origination volume fluctuations from year to year.49 As with the grace periods in the existing escrow exemption, the new proposed grace period in 1026.35b2viA would cover applications received before April 1 of the year following the year that the asset threshold is exceeded, and allow institutions to continue to use their asset size from the year before the previous year.
The Bureau has determined that, although new TILA section 129Dc2A does not expressly provide for a grace period, the Bureau is justified in using the same type of grace period in the new exemption as provided for in the existing regulatory exemption. EGRRCPA section 108
specifically cites to and relies on aspects of the existing regulatory exemption, which uses grace periods for certain factors. In fact, section 108 incorporates one requirement from the existing escrow exemption, the rural or underserved requirement at 1026.35b2iiiA, that uses a grace period. The Bureau believes that grace periods are authorized under its TILA
section 105a authority.50 The Bureau 48 80

FR 59944, 5994849, 59951, 59954.
80 FR 7770, 7781 Feb. 11, 2015.
50 15 U.S.C. 1604a.
49 See
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concludes that the proposed grace periods for the asset threshold, and the loan origination limit in 1026.35b2viB,51 would facilitate compliance with TILA for institutions that formerly qualified for the exemption but then exceeded the threshold in the previous year. Those institutions would have three months to adjust their compliance management systems to come into compliance and provide the required escrow accounts.
The grace periods would reduce uncertainties caused by yearly fluctuations in assets or originations and make the timing of the new and existing exemptions consistent. They would also ease the aggregate compliance burden of the escrow provisions, consistent with the overall purpose of the statutory amendments.
As explained in the section-by-section analysis of 1026.35b2vi, all comments received that referred to grace periods supported their use. For the reasons discussed in that section-bysection analysis and immediately above, the Bureau now finalizes as proposed the three-month grace period for the asset threshold provision in 1026.35b2viA.
Congress restricted the EGRRCPA
section 108 exemption to insured depositories and credit unions with assets of $10 billion or less. Although section 108 does not expressly state that this figure should be adjusted for inflation, the Bureau proposed this adjustment to effectuate the purposes of TILA and facilitate compliance with TILA. EGRRCPA section 108
specifically cites to and relies on criteria in the existing escrow exemption, whose asset threshold is adjusted for inflation. Furthermore, monetary threshold amounts are adjusted for inflation in numerous places in Regulation Z.52 In addition, inflation adjustment keeps the threshold value at the same level in real terms as when adopted, thereby ensuring the same effect over time as provided for initially in the statute. Therefore, adjusting the threshold value to account for inflation is necessary or proper under TILA
section 105a to effectuate the purposes 51 The Bureau also believes that the use of a grace period with the rural or underserved requirement is appropriate and the Bureau is proposing to include one by citing to existing 1026.35b2iiiA. However, because the regulation already provides for that grace period, the discussion of the use of exception and adjustment authority does not list it.
52 See, e.g., 1026.3b1ii Regulation Z
exemption for credit over applicable threshold, 1026.35c2ii appraisal exemption threshold;
1026.6b2iii CARD Act minimum interest charge threshold; 1026.43e3iipoints and fees thresholds for qualified mortgage status.

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