Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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Are there any age restrictions on issuing debit cards to minors? We have received a request to open two separate joint accounts with debit cards for minors aged ten and twelve, for which their parent would be a joint owner. Currently, we offer student checking accounts for individuals aged fifteen to twenty-one, and for those under eighteen, we require a parent or guardian to be a joint owner on the account. If we grant an exception to our usual policy and open these accounts, what legal issues should we be concerned about? Would the parent assume liability for overdrafts, and are there any concerns about unauthorized activity if the minor allows a friend to use the debit card and the parent claims the use was unauthorized?
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We are not aware of any age restrictions on issuing debit cards in Illinois or federal law, but we recommend contacting your debit card issuer and reviewing any agreements for age limitations. Additionally, we caution you against making individual exceptions to your policies and procedures. If you decide to open these accounts, you may wish…
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Are there any legal issues associated with increasing a certificate of deposit (CD)’s early withdrawal penalty rate at the time of renewal and on any new CDs? Could this be an unfair, deceptive, or abusive act or practice?
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As a general matter, we do not believe that there are specific legal problems with increasing the early withdrawal penalty rate for new CD agreements (including renewals of existing CDs and new CDs), provided that the increased early withdrawal penalty is properly disclosed under Regulation DD. To properly disclose an increased penalty, it must be…
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Is it a violation of UDAAP for a financial institution to not offer interest bearing deposit products to a non-resident alien?
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While are not aware of any federal or Illinois laws that would expressly prohibit a policy to not open deposit accounts based on the non-resident alien status of a person (provided the denial is based specifically on citizenship or residency status and not on national origin), some courts or regulators still could consider such a…
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One of our board members would like us to offer a discounted interest rate on loans to essential workers. Would such a discount cause UDAAP, Regulation B, and Fair Lending concerns?
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Yes, we believe that a promotion offering a discounted interest rate on loans to essential workers could present some potential fair lending risk, particularly if the program is found to have a disparate impact on a protected class. While it is possible to mitigate some of the fair lending and related risks with careful documentation…
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We would like to discontinue using a P.O. box where we have been accepting mailed mortgage payments. Our notes, welcome letter, and periodic statements list the P.O. box address. Must we send notice to all customers that the P.O. box will be closed and payments must be sent to a new address? Or, can we post a statement on our website or only reach out only to those customers currently using the P.O. box?
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We are not aware of any state or federal laws that specifically require you to formally notify customers that you will no longer be accepting payments at a P.O. box address, but we recommend providing ample notice to all of your customers and modifying your promissory notes to remove the P.O. box address. In the…
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Does Illinois law require us to use the phrase “subject to credit approval” in our advertisements for loan pre-approvals?
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No, we are not aware of any Illinois law that would require your bank to use the phrase “subject to credit approval” in an advertisement for loan pre-approvals, but it may be prudent to use this phrase (or similar language) to avoid potential claims that your advertisement is deceptive. Under the Illinois Consumer Fraud and…
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Our customer signed an unsecured consumer loan agreement last year. Payments were to be made in the amount of $100 per week. In a separate agreement, we agreed to automatically debit the payments from the customer’s account. However, we entered the automatic payments into our system incorrectly as $100 per month, instead of $100 per week. The customer noticed the discrepancy about a year later and owes approximately $3,000 more on the loan than they would have owed at this time had the loan been paid according to the agreement. The customer also has paid approximately $100 more in interest than they would have paid if the loan had been serviced correctly. We believe we likely need to reimburse the customer for the excess interest and provide a new amortization schedule with an explanation of our calculation. We also will re-write the note with an extended maturity date if the customer does not make up the missed weekly payments. Are there any regulations or guidance specific to this situation? We believe this error could be considered a UDAAP violation.
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No, we are not aware of any regulations or guidance specific to the situation described. Although the Truth in Lending Act requires restitution to be paid when a lender fails to make accurate disclosures, it does not appear that your bank made any inaccurate disclosures about the loan’s terms. In other words, this was an…
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When we force-place an escrow account to pay property taxes, are there any rules governing when we may change the payment amount to include the additional amount covering property taxes? For example, should we send notice no less than thirty days prior to the next payment date?
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No, we are not aware of any rules governing how long a lender must wait before imposing a change in a loan payment amount after establishing an escrow account for property taxes without the borrower’s consent. Consequently, we recommend establishing a reasonable period for providing notice of the payment amount change, after reviewing the terms…
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Our bank offers 30- and 90-day variable rate CDs that automatically renew. Our account agreement states that we may change any term of the agreement and that the interest rate is provided on the CD. On the face of the CDs, we state that the interest rate will be based on the 91-Day U.S. Treasury Rate. We want to change the account terms for all CD customers to provide that we will set the CD rate at our discretion, subject to change at any time with notice to the customer. Can we make this change by sending out thirty days’ advance written notice under Regulation DD? Under the new account terms, would we have to send out a thirty-day notice before decreasing the interest rate?
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Generally, we recommend waiting until any existing CDs renew before changing their interest rates or the methods for calculating them, rather than imposing such changes midstream. In addition, we note the following: 30-Day CDs For consumer savings accounts, Regulation DD generally requires depository institutions to provide at least thirty days’ notice of a change in…
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We would like to create an account that provides customers with a special rate on a certificate of deposit (CD) when they open a new checking account and a CD. Customers with existing checking accounts would not be eligible to open a CD with the special rate. Does offering this type of product pose any problems?
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We believe that offering a special rate on a CD to customers who simultaneously open a checking account and a CD presents a relatively low risk of being considered an unfair, deceptive or abusive act or practice (UDAAP). However, the characterization of an act or practice as a UDAAP violation is highly subjective and sometimes…