Are we required to issue delinquency notices for commercial, residential real estate, and consumer non-real estate loans? If there are multiple borrowers on these accounts, must each borrower receive a delinquency notice?

Yes, we believe that there are federal delinquency notice requirements for residential real estate and consumer non-real estate loans that your bank must comply with, but we do not believe that there are similar requirements under Illinois law or for commercial loans. We do recommend reviewing your loan agreements for each type of loan to confirm that there are no contractual delinquency notice requirements.

Additionally, some, but not all, of the regulations specify who needs to receive notice when multiple borrowers are involved.

Residential Loans

The mortgage servicing requirements in Regulation Z and Regulation X require large servicers to provide certain delinquency information to residential real estate borrowers. These mortgage servicing requirements do not apply to small servicers — institutions that, together with their affiliates, service 5,000 or fewer mortgage loans as of January 1st of the current year, provided that the institution or an affiliate owns or originated all of the mortgage loans it services.

For residential home mortgages, Regulation Z requires that periodic statements contain specific delinquency information if a consumer is more than forty-five days delinquent. If two consumers are joint obligors on the loan, the periodic statement may be sent to either one. Small servicers are exempt from this requirement.

Similarly, under Regulation X’s mortgage servicing requirements, mortgage servicers must provide written delinquency notices containing specific information to borrowers no later than forty-five days after the borrower’s delinquency and no later than forty-five days after each payment due date for as long as the borrower remains delinquent. The regulation does not address who notice needs to be sent to when there are multiple borrowers. Again, small servicers are similarly exempt from this requirement.

Consumer Loans

On the consumer loan side, for open-end credit (not home-secured) plans, Regulation Z requires creditors to provide written notice when a rate is increased due to delinquency or when a rate is increased as a penalty for events specified in the account agreement, such as making a late payment. Such notice must contain specific information and be provided at least forty-five days prior to the effective date of the increase. This required notice may be delivered to any consumer who is primarily liable on an open-end credit plan.

For closed-end credit accounts, new disclosures are required when delinquency or default results in a rate increase along with either a change in the payment schedule or a change in collateral requirements. These disclosures may be made to any consumer who is primarily liable on the obligation.

Non-Consumer Loans

Neither Regulation Z nor Regulation X applies to extensions of credit primarily for business or commercial purposes, and we are not aware of other delinquency notice requirements that would apply to such loans. As noted above, you should confirm that your commercial loan agreements do not impose any delinquency notice requirements.

For resources related to our guidance, please see:

Regulation Z, Subpart E – Special Rules for Certain Home Mortgage Transactions, 12 CFR 1026.41(d)(8) (“The periodic statement required by this section shall include: . . . (8) Delinquency information. If the consumer is more than 45 days delinquent, the following items, grouped together in close proximity to each other and located on the first page of the statement or, alternatively, on a separate page enclosed with the periodic statement or in a separate letter:

(i) The length of the consumer’s delinquency;

(ii) A notification of possible risks, such as foreclosure, and expenses, that may be incurred if the delinquency is not cured;

(iii) An account history showing, for the previous six months or the period since the last time the account was current, whichever is shorter, the amount remaining past due from each billing cycle or, if any such payment was fully paid, the date on which it was credited as fully paid;

(iv) A notice indicating any loss mitigation program to which the consumer has agreed, if applicable;

(v) A notice of whether the servicer has made the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process, if applicable;

(vi) The total payment amount needed to bring the account current; and

(vii) A reference to the homeownership counselor information disclosed pursuant to paragraph (d)(7)(v) of this section.”)

Regulation Z, Subpart E – Special Rules for Certain Home Mortgage Transactions, Official Interpretations, Paragraph 41(a), Comment 1 (“When two consumers are joint obligors with primary liability on a closed-end consumer credit transaction secured by a dwelling subject to § 1026.41, the periodic statement may be sent to either one of them. For example, if spouses jointly own a home, the servicer need not send statements to both spouses; a single statement may be sent.”)
Regulation Z, Subpart E – Special Rules for Certain Home Mortgage Transactions, 12 CFR 1026.41(e)(4)(i) (“A creditor, assignee, or servicer is exempt from the requirements of this section for mortgage loans serviced by a small servicer.”)
Regulation Z, Subpart E – Special Rules for Certain Home Mortgage Transactions, 12 CFR 1026.41(e)(4)(ii) (“A small servicer is a servicer that: (A) Services, together with any affiliates, 5,000 or fewer mortgage loans, for all of which the servicer (or an affiliate) is the creditor or assignee . . . .”)
Regulation X, Subpart C – Mortgage Servicing, 12 CFR 1024.30(a) (“Except as provided in paragraphs (b) and (c) of this section, this subpart applies to any mortgage loan, as that term is defined in § 1024.31.”)
Regulation X, Subpart C – Mortgage Servicing, 12 CFR 1024.31(a) (“Mortgage loan means any federally related mortgage loan, as that term is defined in § 1024.2 subject to the exemptions in § 1024.5(b), but does not include open-end lines of credit (home equity plans).”)
Regulation X, Subpart A – General Provisions, 12 CFR 1024.2(b) (“Federally related mortgage loan means:

(1) Any loan (other than temporary financing, such as a construction loan):

(i) That is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property, upon which there is either:

(A) Located or, following settlement, will be constructed using proceeds of the loan, a structure or structures designed principally for occupancy of from one to four families (including individual units of condominiums and cooperatives and including any related interests, such as a share in the cooperative or right to occupancy of the unit); or

(B) Located or, following settlement, will be placed using proceeds of the loan, a manufactured home; and

(ii) For which one of the following paragraphs applies. The loan:

(A) Is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government;

(B) Is made in whole or in part, or is insured, guaranteed, supplemented, or assisted in any way:

(1) By the Secretary of the Department of Housing and Urban Development (HUD) or any other officer or agency of the Federal Government; or

(2) Under or in connection with a housing or urban development program administered by the Secretary of HUD or a housing or related program administered by any other officer or agency of the Federal Government;

(C) Is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation (or its successors), or a financial institution from which the loan is to be purchased by the Federal Home Loan Mortgage Corporation (or its successors);

(D) Is made in whole or in part by a “creditor,” as defined in section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. For purposes of this definition, the term “creditor” does not include any agency or instrumentality of any State, and the term “residential real estate loan” means any loan secured by residential real property, including single-family and multifamily residential property;

(E) Is originated either by a dealer or, if the obligation is to be assigned to any maker of mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this definition, by a mortgage broker; or

(F) Is the subject of a home equity conversion mortgage, also frequently called a “reverse mortgage,” issued by any maker of mortgage loans specified in paragraphs (1)(ii)(A) through (D) of this definition.

(2) Any installment sales contract, land contract, or contract for deed on otherwise qualifying residential property is a federally related mortgage loan if the contract is funded in whole or in part by proceeds of a loan made by any maker of mortgage loans specified in paragraphs (1)(ii) (A) through (D) of this definition.

(3) If the residential real property securing a mortgage loan is not located in a State, the loan is not a federally related mortgage loan.”)

Regulation X, Subpart C – Mortgage Servicing, 12 CFR 1024.39(b)(1) (“A servicer shall provide to a delinquent borrower a written notice with the information set forth in paragraph (b)(2) of this section no later than the 45th day of the borrower’s delinquency and again no later than 45 days after each payment due date so long as the borrower remains delinquent. A servicer is not required to provide the written notice, however, more than once during any 180-day period. If a borrower is 45 days or more delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 180 days after the provision of the prior written notice. If a borrower is less than 45 days delinquent at the end of any 180-day period after the servicer has provided the written notice, a servicer must provide the written notice again no later than 45 days after the payment due date for which the borrower remains delinquent.”)
Regulation X, Subpart C – Mortgage Servicing, 12 CFR 1024.39(b)(2) (“The notice required by paragraph (b)(1) of this section shall include:

(i) A statement encouraging the borrower to contact the servicer;

(ii) The telephone number to access servicer personnel assigned pursuant to § 1024.40(a) and the servicer’s mailing address;

(iii) If applicable, a statement providing a brief description of examples of loss mitigation options that may be available from the servicer;

(iv) If applicable, either application instructions or a statement informing the borrower how to obtain more information about loss mitigation options from the servicer; and

(v) The Web site to access either the Bureau list or the HUD list of homeownership counselors or counseling organizations, and the HUD toll-free telephone number to access homeownership counselors or counseling organizations.”)

Regulation X, Subpart C – Mortgage Servicing, 12 CFR 1024.30(b) (“Except as otherwise provided in § 1024.41(j), §§ 1024.38 through 1024.41 of this subpart shall not apply to the following: (1) A servicer that qualifies as a small servicer pursuant to 12 CFR 1026.41(e)(4) . . . .”)
Regulation Z, Subpart A – General, 12 CFR 1026.2(a)(20) (“Open-end credit means consumer credit extended by a creditor under a plan in which:

(i) The creditor reasonably contemplates repeated transactions;

(ii) The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and

(iii) The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.”)

Regulation Z, Subpart B – Open End Credit, Regulation Z, 12 CFR 1026.9(c)(2) (“Rules affecting open-end (not home-secured) plans. (i) Changes where written advance notice is required . . . Increases in the rate applicable to a consumer’s account due to delinquency, default or as a penalty described in paragraph (g) of this section that are not due to a change in the contractual terms of the consumer’s account must be disclosed pursuant to paragraph (g) of this section.”)
Regulation Z, Subpart B – Open End Credit, Regulation Z, 12 CFR 1026.9(g)(1) (“For plans other than home-equity plans . . . a creditor must provide a written notice to each consumer who may be affected when:

(i) A rate is increased due to the consumer’s delinquency or default; or

(ii) A rate is increased as a penalty for one or more events specified in the account agreement, such as making a late payment or obtaining an extension of credit that exceeds the credit limit.”)

Regulation Z, Subpart B – Open End Credit, 12 CFR 1026.9(g)(2) (“Whenever any notice is required to be given pursuant to paragraph (g)(1) of this section, the creditor shall provide written notice of the increase in rates at least 45 days prior to the effective date of the increase. The notice must be provided after the occurrence of the events described in paragraphs (g)(1)(i) and (g)(1)(ii) of this section that trigger the imposition of the rate increase.”)
Regulation Z, Subpart B – Open End Credit, 12 CFR 1026.9(g)(3)(i)(A) (“If a creditor is increasing the rate due to delinquency or default or as a penalty, the creditor must provide the following information on the notice sent pursuant to paragraph (g)(1) of this section:

(1) A statement that the delinquency or default rate or penalty rate, as applicable, has been triggered;

(2) The date on which the delinquency or default rate or penalty rate will apply;

(3) The circumstances under which the delinquency or default rate or penalty rate, as applicable, will cease to apply to the consumer’s account, or that the delinquency or default rate or penalty rate will remain in effect for a potentially indefinite time period;

(4) A statement indicating to which balances the delinquency or default rate or penalty rate will be applied;

(5) If applicable, a description of any balances to which the current rate will continue to apply as of the effective date of the rate increase, unless a consumer fails to make a minimum periodic payment within 60 days from the due date for that payment; and

(6) For a credit card account under an open-end (not home-secured) consumer credit plan, a statement of no more than four principal reasons for the rate increase, listed in their order of importance.”)

Regulation Z, Subpart B – Open End Credit, 12 CFR 1026.9(g)(3)(i)(B) (“For a credit card account under an open-end (not home-secured) consumer credit plan, if the rate increase required to be disclosed pursuant to paragraph (g)(1) of this section is an increase pursuant to § 1026.55(b)(4) based on the consumer’s failure to make a minimum periodic payment within 60 days from the due date for that payment, the notice provided pursuant to paragraph (g)(1) of this section must also state that the increase will cease to apply to transactions that occurred prior to or within 14 days of provision of the notice, if the creditor receives six consecutive required minimum periodic payments on or before the payment due date, beginning with the first payment due following the effective date of the increase.”)
Regulation Z, Subpart B – Open End Credit, Official Interpretations, Paragraph 9(g), Comment 2 (“If a single credit account involves multiple consumers that may be affected by the change, the creditor should refer to § 1026.5(d) to determine the number of notices that must be given.”)
Regulation Z, Subpart B – Open End Credit, 12 CFR 1026.5(d) (“If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the account.”)
Regulation Z, Subpart A – General, 12 CFR 1026.2(a)(10) (“Closed-end credit means consumer credit other than “open-end credit” as defined in this section.”)
Regulation Z, Subpart C – Closed End Credit, 12 CFR 1026.20 (“A refinancing is a new transaction requiring new disclosures to the consumer . . . . The following shall not be treated as a refinancing: . . . A change in the payment schedule or a change in collateral requirements 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 charge and premiums for continuation of insurance of the types described in § 1026.4(d).” See also Regulation Z, Subpart C – Closed End Credit, 12 CFR 1026.17 & 1026.18 for Disclosure Requirements.)
Regulation Z, Closed End Credit, 12 CFR 1026.17(d) (“If there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the obligation.”)
Regulation Z, Subpart A – General, 12 CFR 1026.3(a)(1) (“The following transactions are not subject to this part . . . An extension of credit primarily for a business, commercial or agricultural purpose.”)
Regulation X, Subpart A – General, 12 CFR 1024.5(a) (“Regulation X and this part apply to federally related mortgage loans, except . . . (b)(2) An extension of credit primarily for a business, commercial, or agricultural purpose.”)