Topic: Truth in Lending Act (TILA)
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Can we attach a HELOC to a customer’s pre-existing demand deposit account so that the customer can use their debit card to access the HELOC funds?
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Yes, we believe your bank may attach a home equity line of credit (HELOC) to a deposit account to enable your customers to access HELOC funds with a debit card. We are not aware of any Illinois or federal law that would prohibit this practice. For example, Regulation E recognizes that a home equity line…
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Is there anything restricting us from inserting a “due on demand” provision in a consumer loan agreement? We are looking into offering short-term, unsecured consumer lines of credit for furloughed federal employees as a payroll gap loan. We want to invoke the demand clause within a certain number of days after the furlough has concluded.
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We are not aware of any Illinois laws that would prohibit a bank from offering an unsecured consumer loan with a demand feature. Regulation Z prohibits the use of demand features in high-cost mortgage loans and home equity lines of credit, but we are not aware of any limitations on demand features in unsecured consumer…
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We currently offer agricultural operating lines of credit. We are considering offering a credit line check (similar to a HELOC check) on these lines. Can we offer checks for the customer to access the funds from these lines?
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We are not aware of any limitations on offering checks (sometimes known as “drafts”) drawn on a line of credit issued for agricultural purposes. Additionally, because the credit lines are issued for agricultural purposes, we do not believe that Regulation Z’s disclosure requirements will apply. For resources related to our guidance, please see: Regulation Z,…
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May we charge a fee or higher interest rate on a matured loan that is in between its maturity date and renewal date? We have many customers with matured loans who take quite some time to complete the steps needed to renew their loans.
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Yes, we believe you may charge a fee for renewing a matured loan if the customer agrees to it as part of a renewal or modification agreement. Likewise, we believe you may impose an increased interest rate (or default rate) on a matured loan if it is agreed to by your customers in your loan…
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I have a question about increasing the post maturity rate on a home equity line of credit (HELOC). I have seen the term “default rate” referenced in relation to increasing a HELOC’s rate when the loan is “terminated” or “accelerated.” When a HELOC is terminated or accelerated, does that mean it has matured? We would like to impose a post-maturity interest rate increase, but we will not impose a default rate during the loan term. Is that permissible?
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Yes, we believe that your bank may impose an increased post-maturity rate for HELOCs that have matured, provided that your customers have agreed to the increase in their loan agreements. The terms “default rate,” “terminated,” “accelerated,” and the imposition of interest rate increases all should be defined by your bank’s HELOC loan agreement. Typically, the…
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Does Illinois require interest to accrue on customers’ mortgage escrow accounts?
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Illinois law does not require interest to accrue on mortgage escrow accounts, but an Illinois law requires a bank to allow certain customers to open an interest-bearing time deposit account in lieu of an escrow account. For purchase-money loans secured by owner-occupied single-family homes, the Illinois Mortgage Escrow Account Act requires mortgage lenders to provide…
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Can you modify credit from open-end to closed-end without it being considered a refinance, which would trigger an ability-to-repay (ATR) analysis? When a HELOC has matured, we extend a one-year renewal and provide closed-end disclosures, after which we modify the HELOC into a closed-end balloon loan, without new disclosures. If the HELOC has not yet matured, we extend a renewal (either one year or multiple years with a balloon payment) and do not provide new disclosures. However, in either case, we do not perform an ATR analysis. Is this correct?
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No, we do not believe a HELOC can be converted after maturity into a closed-end loan as a modification; such a conversion would be considered a refinancing and require an ATR analysis. However, we do believe a HELOC can be converted to a closed-end loan prior to maturity as a modification, which would not trigger…
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I discovered a consumer-purpose loan that originally was structured as a commercial loan. The purpose of the loan was to construct a primary residence for two individual borrowers, but the members of an LLC also signed the note. What is our potential liability? Is there anything we can do to cure our violations?
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Your bank could be subject to potentially significant liability due to its failure to provide the required disclosures under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). For example, your bank could be liable for up to twice the amount of the total finance charge for the loan, or a…
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We made a residential mortgage loan to an unmarried woman, with her partner signing the mortgage only and not as an obligor on the note. Although the woman is the only party obligated on the note, the Closing Disclosure listed both her and her partner as “borrowers.” Does a non-borrowing co-mortgagor need to be listed as a borrower on the Closing Disclosure? If not, is this a problem? The loan already has closed.
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No, we do not believe that a non-borrower should be listed as a borrower on the Closing Disclosure; this would be a technical violation of the TRID requirements. Having said that, we are not aware of any provisions in the TRID rules for curing this type of technical violation when the loan already has closed.…
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We hired a third-party collection company to collect our charged off checking accounts, including unpaid overdrafts and fees. If a collection company enters into a repayment plan with the customer that has more than four installments, are we required to provide Truth in Lending Act disclosures? We do not receive payments directly from the customer. Under our agreement with the collection company, we receive a percentage of the amounts recovered.
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Yes, we believe you are required to provide Truth in Lending Act (TILA) disclosures when customers enter into written repayment plans of more than four installments with your debt collector. As noted in the Joint Guidance on Overdraft Protection Programs, Regulation Z requires your bank to provide TILA disclosures when offering customers an overdraft repayment…