Topic: Truth in Lending Act (TILA)
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Is the $3.00 fee that Illinois requires title companies to remit to the state for each title policy issued by its agents considered a Finance Charge?
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No, in our view this $3 fee should not be included in the finance charge when it is passed on to the borrower. Regulation Z exempts certain real-estate related fees from the scope of finance charges, including fees for title insurance “and similar purposes.” We believe this fee is excluded from the finance charge because…
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An external auditor told us that the Illinois Interest Act prohibits us from charging loan release fees for home equity lines of credit (HELOCs), citing 815 ILCS 205/4.1. Is that true?
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We believe that Illinois law permits banks to charge HELOC lien release fees, provided that your customer has agreed to pay such fees on the HELOC agreement. Section 4.1 of the Interest Act appears to prohibit lenders from charging borrowers for “expenses, including recording fees and otherwise” when releasing a mortgage lien. However, the Illinois…
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We offer a Christmas loan payment deferral program to our closed-end consumer loan customers of good standing. Our loan agreements do not include the option of skipping a payment. Do any special regulations or disclosure requirements apply? Do we have to charge the borrower for the accrued interest? Can we charge a fee?
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Your bank’s holiday deferred payment program should not trigger disclosure requirements under Regulation Z. For closed-end consumer loans, Regulation Z permits lenders to informally defer payments without triggering a change in terms or other disclosure requirements. It is important that your bank not cancel the original loan and substitute it with a new loan, because…
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Do we have the authority to place holds on checking or savings accounts held by borrowers who are delinquent on loans held by our bank? Or do we have to remove funds from these accounts to exercise our setoff rights?
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Your bank likely has a valid right of setoff with respect to the deposit account, in which case the bank could place a hold on the account’s funds in the amount of the setoff. In our view, a valid right to setoff account funds encompasses the right to impose a temporary hold on the setoff…
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If we are the lender on a mortgage loan subject to the TILA-RESPA Integrated Disclosure (TRID) rules, can we also act as the settlement agent? If so, should we list the bank’s name on the Closing Disclosure as the lender and as the settlement agent? Can we also leave the other “Settlement Agent” fields blank, including the File #?
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Yes, a lender may act as its own settlement agent. We are not aware of any federal or Illinois law that would prevent a financial institution from conducting its own mortgage loan closings, and in fact, this is a common practice at many institutions when closing second lien loans. We do not believe that a…
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Our promissory notes for HELOCs and consumer installment loans indicate that payments made after 2:00 p.m. will be processed on the next day. Our residential mortgage notes do not have a cut-off time. Do we need to specify a cut-off time? If so, what would be a reasonable time? Should the cut-off time be included in the note, monthly statements, or somewhere else?
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No, you are not required to establish a cut-off time for processing consumer loan payments. However, if you do establish a cut-off time for when payments are received for HELOCs or closed-end residential mortgages, the time must be “reasonable.” By rule this means that for HELOCs your cut-off time cannot be before 5:00 p.m., and…
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We obtain credit reports from a third party vendor. On the Loan Estimate for consumer mortgage loans, do we have to disclose and charge the exact fees expected to be charged by the vendor, or are we permitted to round up this fee?
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Regulation Z requires lenders to round credit report fees to the nearest whole dollar on the Loan Estimate. Amounts ending in $0.49 or under must be rounded down, and amounts ending in $0.50 or up must be rounded up. Under both Regulation X and Regulation Z, the general rule is that a lender must charge…
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Do the TILA-RESPA Integrated Disclosure (TRID) rules require disclosures for a consumer-purpose, construction-only loan to build a home from the ground up, where the borrower will obtain permanent financing at a later date? What if we extend the maturity date for this loan without extending new money or changing any other terms? Also, would this loan be reportable under the Home Mortgage Disclosure Act (HMDA)? Would the extension be HMDA reportable?
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TILA-RESPA Integrated Disclosure (TRID) Requirements Yes, the TRID disclosures are required for closed-end, consumer-purpose construction loans secured by real property. However, whether they would be required when you extend the term of an existing loan depends on the language you use in the extension agreement. TRID disclosures are required for existing loans only when they…
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A customer came to us with an outstanding federal student loan. Our loan department refinanced his student loan, but structured it as a commercial loan product (with the terms and conditions of a commercial loan). The refinancing was made to him and his wife as co-borrowers, and the proceeds were used to pay off his original federal student loan. Were the Higher Education Opportunity Act (HEOA) disclosures required? What if we had made the refinancing to the customer’s business, with him and his wife as individual guarantors? Would that transaction have been subject to HEOA disclosures?
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We do not believe that the Higher Education Opportunity Act (HEOA) disclosures were required in this case, because the loan did not fit the definition of a “private education loan.” The HEOA disclosures are required only for “private education loans,” which are loans made to a consumer for post-secondary educational expenses (in addition to having…
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We have a commercial customer that has an outstanding student loan with us. The customer would like to refinance this loan, with the new borrowers being a husband and wife, as individuals. The loan proceeds will be paid to the commercial customer to pay off the existing loan. Is this considered a commercial loan, or are the Higher Education Opportunity Act disclosures required? What if we make the new loan to the business with the husband and wife as guarantors?
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We do not believe that the Higher Education Opportunity Act (HEOA) disclosures are required in this case, because this loan does not fit the definition of a “private education loan.” The HEOA disclosures are required only for “private education loans,” which are loans made to a consumer for post-secondary educational expenses (in addition to having…