The question of whether a second transaction was a “refinance” depends on an examination of the loan documents. The laws and regulations that would apply are as follows:

• Regulation Z and the RESPA regulations state that a refinancing occurs only when an existing obligation is “satisfied and replaced by a new obligation undertaken by the same consumer” (Regulation Z) (or “by the same borrower” under RESPA). 12 CFR 1026.20(a)12 CFR 1024.2(b).

• The Regulation Z staff commentary states that the determination of whether an existing obligation has been satisfied and replaced is “based on the parties’ contract and applicable law.” 12 CFR 1026.20(a), Comment 1.

• The regulations also specifically exempt the following transactions from the definition of a “refinancing” (12 CFR 1026.20(a)12 CFR 1024.2(b)):

(1)  A renewal of a single payment obligation with no change in the original terms;

(2)  A reduction in the annual percentage rate as computed under the Truth in Lending Act with a corresponding change in the payment schedule;

(3)  An agreement involving a court proceeding;

(4)  A workout agreement, in which a change in the payment schedule or change in collateral requirements is agreed to as a result of the consumer’s default or delinquency, unless the rate is increased or the new amount financed exceeds the unpaid balance plus earned finance charges and premiums for continuation of allowable insurance; and

(5)  The renewal of optional insurance purchased by the consumer that is added to an existing transaction, if disclosures relating to the initial purchase were provided.

• Two more exceptions can be found in the Official Staff Commentary: Comment 1, 12 CFR 1026.20(a):

i. Changes in the terms of an existing obligation, such as the deferral of individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation.

ii. A substitution of agreements that meets the refinancing definition will require new disclosures, even if the substitution does not substantially alter the prior credit terms.

• The current definition of a “refinance” encompasses far fewer transactions than the old version of the definition, which classified many more transactions as refinances. As stated in the previous version of the commentary, which discussed the 1981 change: “While the previous regulation treated virtually any change in terms as a refinancing requiring new disclosures, this regulation limits refinancings to transactions in which the entire original obligation is extinguished and replaced by a new one. Redisclosure is no longer required for deferrals or extensions.” Official Staff Commentary, 12 CFR 1026.20.

• Also note that even if a transaction is not considered a refinancing, the right to rescind will apply “to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge on the existing debt, and amounts attributed solely to the costs of the refinancing or consolidation.” 12 CFR 1026.23(f)(2). Therefore, a consumer should receive notice of the right to rescind, even if a loan is only being renewed. 12 CFR 1026.23(b)(1).

Therefore, whether the transaction can be considered a refinance will depend on the way the old note and the new note are written and structured. For example, courts have held that loan modifications were not refinances. See Rodriguez v. Chase Home Finance, LLC, No. 10 C 05876 (N.D. Ill. Sept. 23, 2011); In re Sheppard, 299 BR 753, 764 (Bankr. E.D.Penn. 2003). In the Illinois Rodriguez case, the court was interpreting a modification that stated that it would “amend and supplement” the original note and mortgage. The modification also had an express disclaimer that “nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the obligations contained in the Loan Documents.” Based on those provisions in the modification, the court found that the modification was not a refinance.

Also, note that an extension of a loan beyond the original due date is not, automatically, a refinance. In a federal 7^th District case, the court found that the extension of a payday loan was not a refinance. Under the original loan, the borrower was required to repay the loan in one lump sum. The lender agreed to extend the due date for the repayment, charged a fee, and entered into a new contract for the “extension fee” (which would be considered a finance charge under Regulation Z). The borrower argued that the loan, which was to be paid in a single lump sum, was not a refinance, even though the lender charged a fee for the extension in a new document. “To say, as plaintiffs do, that a loan ‘expires by its terms’ on the original due date is fanciful. All of the loan’s terms, including the repayment obligation, persist.” Jackson v. American Loan Co., Inc., 202 F.3d 911, 913 (7th Cir. 2000). “The statutory disclosures are required, and the Act’s terminology governs, only before credit is extended . . . Deferral is equivalent to a different original loan with a longer term, but this is true of any change in the timing or conditions of repayment. Treating economic equivalence as ‘refinancing’ would destroy the distinction between the initial extension of credit (to which the Act applies) and subsequent arrangements (to which it does not).” Id. at 912.