We do not believe that a loan automatically is considered consumer credit under Regulation Z if the borrower intends to rent out the property but also live there for more than fourteen days in the coming year.

The official commentary to Regulation Z establishes a special rule for non-owner-occupied rental property, providing that “[c]redit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes.” The rule explains that “if the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply.”

However, this does not mean that a loan automatically is considered consumer credit if the owner does intend to occupy the property for more than fourteen days in the coming year. In other words, you should still consider the five factors outlined in Regulation Z’s Official Interpretations to determine whether the credit is exempt from coverage due to being primarily for a business or commercial purpose.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.2(a)(12) (“Consumer credit means credit offered or extended to a consumer primarily for personal, family, or household purposes.”)

• Regulation Z, 12 CFR 1026.3 (“The following transactions are not subject to this part or, if the exemption is limited to specified provisions of this part, are not subject to those provisions:

(a) Business, commercial, agricultural, or organizational credit.

• (1) An extension of credit primarily for a business, commercial or agricultural purpose.”)

Regulation Z, Official Interpretations, Paragraph 3(a), Comment 4 (“Non-owner-occupied rental property. Credit extended to acquire, improve, or maintain rental property (regardless of the number of housing units) that is not owner-occupied is deemed to be for business purposes. This includes, for example, the acquisition of a warehouse that will be leased or a single-family house that will be rented to another person to live in. If the owner expects to occupy the property for more than 14 days during the coming year, the property cannot be considered non-owner-occupied and this special rule will not apply. For example, a beach house that the owner will occupy for a month in the coming summer and rent out the rest of the year is owner occupied and is not governed by this special rule. (See comment 3(a)-5, however, for rules relating to owner-occupied rental property.)”)

• Regulation Z, Official Interpretations, Paragraph 3(a), Comment 3 (“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:

i. General.

• A. The relationship of the borrower’s primary occupation to the acquisition. The more closely related, the more likely it is to be business purpose.
   
• B. 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.
   
• C. 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.
   
• D. The size of the transaction. The larger the transaction, the more likely it is to be business purpose.
   
• E. The borrower’s statement of purpose for the loan.”)