Questions and Answers

Let’s look at each of several requirements that might apply to your transaction and try to determine the character of the transaction for each regulation.

First, Regultaion Z (Truth-in-Lending). Section 3(a) says that credit is exempt from the Regulation if it is "primarily" for a business purpose. The Commentary provides some guidance in determining whether a business purpose is "primary."

2. Factors. In determining whether credit to finance an acquisition--such as securities, antiques, or art--is primarily for business or commercial purposes (as opposed to a consumer purpose), the following factors should be considered:

• The relationship of the borrower's primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
• The degree to which the borrower will personally manage the acquisition. The more personal involvement there is, the more likely it is to be business purpose.
• The ratio of income from the acquisition to the total income of the borrower. The higher the ratio, the more likely it is to be business purpose.
• The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
• The borrower's statement of purpose for the loan.

Examples of business-purpose credit include:

• A loan to expand a business, even if it is secured by the borrower's residence or personal property.
• A loan to improve a principal residence by putting in a business office.
• A business account used occasionally for consumer purposes.

Examples of consumer-purpose credit include:

• Credit extensions by a company to its employees or agents if the loans are used for personal purposes.
• A loan secured by a mechanic's tools to pay a child's tuition.
• A personal account used occasionally for business purposes.

Second, the Real Estate Settlement Procedures Act. (RESPA). RESPA exempts business purpose loans as well, and actually states that its exemption is identical to the one in Regulation Z. So if the loan is exempt from Regulation Z because it is primarily for a business purpose, the loan is also exempt from the requirements of RESPA.

Finally, the Home Mortgage Disclosure Act (HMDA). HMDA does not exempt business purpose loans. So whether HMDA applies or not depends on whether the loan fits the definition of "home purchase loan." That term is defined in HMDA as: "a loan secured by and made for the purpose of purchasing a dwelling." The term "dwelling" is defined as: "a residential structure (whether or not attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home." Since your loan is partially for the purpose of purchasing a dwelling, it seems like HMDA would apply.