The CFTC is issuing an interpretation that certain consumer and commercial transactions that have not previously been considered “swaps” do not fall within the statutory definitions of those terms.
Transactions entered into by consumers (natural persons) as principals (or by their agents) primarily for personal, family or household purposes that would not be considered swaps under the interpretation include:
- Agreements, contracts, or transactions to acquire or lease real or personal property, to obtain a mortgage, to provide personal services, or to sell or assign rights owned by such consumer (such as intellectual property rights);
- Agreements, contracts, or transactions to purchase products or services for personal, family or household purposes at a fixed price or a capped or collared price, at a future date or over a certain time period (such as agreements to purchase for personal use or consumption nonfinancial energy commodities, including agreements to purchase home heating fuel or agreements involving residential fuel storage, in either case, where the consumer takes delivery of and uses the fuel, and the counterparty is a merchant that delivers in the service area where the consumer resides);
- Agreements, contracts, or transactions that provide for an interest rate cap or lock on a consumer loan or mortgage, where the benefit of the rate cap or lock is realized only if the loan or mortgage is made to the consumer;
- Consumer loans or mortgages with variable rates of interest or embedded interest rate options, including such loans with provisions for the rates to change upon certain events related to the consumer, such as a higher rate of interest following a default;
- Service agreements, contracts, or transactions that are consumer product warranties, extended service plans, or buyer protection plans, such as those purchased with major appliances and electronics;
- Consumer options to acquire, lease, or sell real or personal property, such as options to lease apartments or purchase rugs and paintings, and purchases made through consumer layaway plans;
- Consumer agreements, contracts, or transactions where, by law or regulation, the consumer may cancel the transaction without legal cause; and
- Consumer guarantees of credit card debt, automobile loans, and mortgages of a friend or relative.
The types of commercial transactions that involve customary business arrangements (whether or not involving a for-profit entity) that would not be considered swaps or security-based swaps under the interpretation include:
- Employment contracts and retirement benefit arrangements;
- Sales, servicing, or distribution arrangements;
- Agreements, contracts, or transactions for the purpose of effecting a business combination transaction;
- The purchase, sale, lease, or transfer of real property, intellectual property, equipment, or inventory;
- Warehouse lending arrangements in connection with building an inventory of assets in anticipation of a securitization of such assets (such as in a securitization of mortgages, student loans, or receivables);
- Mortgage or mortgage purchase commitments, or sales of installment loan agreements or contracts or receivables;
- Fixed or variable interest rate commercial loans or mortgages entered into by banks and non-banks, including the following:
- Fixed or variable interest rate commercial loans or mortgages entered into by the Farm Credit System institutions and Federal Home Loan Banks;
- Fixed or variable interest rate commercial loans or mortgages with embedded interest rate locks, caps, or floors, provided that such embedded interest rate locks, caps, or floors are included for the sole purpose of providing a lock, cap, or floor on the interest rate on such loan or mortgage and do not include additional provisions that would provide exposure to enhanced or inverse performance, or other risks unrelated to the interest rate risk being addressed;
- Fixed or variable interest rate commercial loans or mortgages with embedded interest rate options, including such loans or mortgages that contain provisions causing the interest rate to change upon certain events related to the borrower, such as a higher rate of interest following a default, provided that such embedded interest rate options do not include additional provisions that would provide exposure to enhanced or inverse performance, or other risks unrelated to the primary reason the embedded interest rate option is included; and
- Commercial agreements, contracts, and transactions (including, but not limited to, leases, service contracts, and employment agreements) containing escalation clauses linked to an underlying commodity such as an interest rate or consumer price index.
The interpretation includes factors that the CFTC will consider in determining whether other consumer and commercial transactions that are not specifically listed should be considered swaps.
Loan participations are not swaps or security-based swaps if the purchaser is acquiring a current or future direct or indirect ownership interest in the related loan or commitment and if certain other conditions are met.
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