Topic: Truth in Lending Act (TILA)
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When I am reviewing denied, withdrawn and incomplete loan files for compliance with Regulation B, Regulation C, and Regulation Z, the Uniform Residential Loan Application often is missing the application date. This makes it very difficult to review a loan file for compliance with these regulations. Would it be acceptable to use the Loan Estimate date as the application date in these files?
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We believe that it is possible, but very unlikely, that the Loan Estimate date is an appropriate substitute for the application date under Regulation B, Regulation C, or Regulation Z. Each of the three regulations has its own definition of application, the receipt of which triggers separate, unique obligations. In order to ensure compliance with…
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If we do not identify the date on which a loan application is “completed” under Regulation B, what date should we use as the application date on an adverse action notice? Would it be acceptable to use the application date under either HMDA or the TRID rule?
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We believe that either the HMDA or the TRID application date may serve as an acceptable substitute for the purpose of sending adverse action notices under Regulation B, depending on what your internal policies require for an application to be considered “complete.” Regulation B requires you to send out adverse action notices within 30 days…
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Do we need to check a borrower’s credit report when we extend their existing loan? Or is this a requirement only for new loans and refinancings?
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We are not aware of any express requirement to review a consumer’s credit report when modifying an existing loan to extend its terms, but whether reviewing a credit report would be appropriate for a specific loan can depend on many factors, ranging from safety and soundness considerations to consumer protection considerations (the latter is discussed…
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Is there any difference in the fees that must be included in Regulation Z’s APR calculation for in-house loans?
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No, there is no difference in the fees that you include in calculating the APR for in-house loans. Neither Regulation Z nor its appendices (which explain how to calculate a loan’s APR) distinguish between in-house and outside loans. For resources related to our guidance, please see: Regulation Z, 12 CFR 1026.14(a) (“The annual percentage rate…
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An examiner recently told us that we should not pay more than a 10% bonus to an employee who holds a NMLS license. Does that apply to our bonuses? We set aside a pool at the beginning of the year for all employee bonuses, and the amount of the bonus pool is not based on the bank’s profits.
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If your bank’s bonus pool is not based in any way on the bank’s profitability, then bonuses paid out of that pool may qualify for an exemption from the 10% limitation on loan originator bonuses. Regulation Z does limit bonuses paid to individuals who qualify as “loan originators” when the bonuses are “based in whole…
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We made an error in disclosing the initial interest rate for an adjustable rate mortgage (ARM) on the Closing Disclosure. This was a simple, one-time clerical error, but it does exceed tolerances (we think the error resulted in understating the finance charge by several thousand dollars). We know we owe the customer restitution and a new closing disclosure. Is it defensible to leave it at that? Also, if we provide restitution, do we have to pay it as a lump sum?
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It may be possible to argue that the disclosure issue was an isolated incident, requiring only restitution and new disclosures, but that depends on the circumstances, and we do recommend consulting with bank counsel about the error and the best response for your bank. The Truth in Lending Act (TILA) generally requires examiners to order…
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If a loan originator (LO) receives a referral for a consumer mortgage loan from another bank employee, can we reduce the LO’s commission for the resulting mortgage loan? Also, if we make a pricing exception to offer a lower interest rate on a mortgage loan, can we reduce the LO’s commission to offset the lower interest rate? Currently, our commissions are based on loan volume only.
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Yes, we believe that you may reduce a loan originator’s compensation for loans that result from referrals from other bank employees, provided that those referred loans have similar loan terms as loans that come in from other referral sources or leads. However, we do not recommend reducing a loan originator’s compensation based on a loan’s…
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A father and son co-signed on a HELOC two months ago. The father signed a right of rescission (ROR) notice but we failed to provide one to the son. We plan to send the son an ROR notice now. Is his rescission period three business days or three years?
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In our view, the son’s right of rescission now extends for three years. Under Regulation Z, if “the required notice and material disclosures are not delivered,” the borrower gets a three-year rescission period. Neither the rule nor its official interpretations identify a specific time for delivering notice of the right to rescind. However, the rule…
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Our bank has a deposit and loan rate sheet that is labeled “for internal use only” and is not to be given to customers. On occasion, a teller or the receptionist will give the sheet to a customer upon request. The sheet has the names of the products, the interest rate, and the APY/APR as applicable, but no disclosures. Would this qualify as advertising? If so, what other information would be required? Is there any chance we are covered because it indicates “for internal use only” and isn’t meant to be distributed to the public?
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In our view, an internal rate sheet does constitute an advertisement if it is provided to customers, even if it indicates that it is “for internal use only.” An advertisement is “a commercial message, appearing in any medium that directly or indirectly promotes” an account or credit transaction. Providing information to customers about your account…
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We have a mortgage borrower who is in the process of divorcing her husband. The wife is purchasing a residence, and she is signing the note and title alone. Does her husband need to sign the Closing Disclosure?
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No, Regulation Z does not require a non-borrowing spouse to sign a Closing Disclosure. In fact, Regulation Z does not require any signatures on the Closing Disclosure — obtaining signatures on the Closing Disclosure form is optional. In addition, because the spouse is not entitled to the right of rescission, both because the transaction is…