Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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Due to a technical issue, we failed to send initial rate adjustment notices for some of our adjustable rate mortgage (ARM) loans. We are now sending the initial ARM notices and will not change the payment amount until the 210 day notification period has passed. Are we required to also delay the rate adjustment, even though the date of the rate adjustment was disclosed in our loan agreement?
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Yes, we recommend delaying the rate change as well as the payment adjustments. The initial ARM notice must be provided at least 210 days “before the first payment at the adjusted level is due” (or at the loan consummation, if the first adjustment is scheduled to occur within the first 210 days after consummation). The…
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Can we provide realtors with coupons to hand out in relation to our home loans (e.g., a coupon offering a free appraisal or a waived loan origination charge)? We know there may be some fair lending risks because the realtors can select who will receive the coupons, but could we alleviate that risk by making the coupons available in our lobby? In addition to fair lending issues, are there any RESPA Section 8 concerns?
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We recommend instituting safeguards addressing possible fair lending and UDAAP concerns, but we do not believe this practice would violate the RESPA prohibition of kickbacks for referrals of mortgage services. The coupon program you described does raise some fair lending concerns, particularly because disseminating the coupons has the potential to have a “disparate impact” on…
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Our FDIC examiners looked at our fee schedule, which includes a charge for overdrafts that are not resolved (“continuous overdrafts”). The examiners told us to add a disclosure to the fee schedule stating that we may assess a fee for a “continuous overdraft” caused by a bank fee. We were thinking about adding a line stating that continuous overdrafts would “include OD as a result from bank charges.” Does the FDIC have any guidance on how to phrase this disclosure?
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We are not aware of any rule or guidance that specifies how to disclose the fact that bank fees may cause continuous overdrafts which will incur separate overdraft fees. If your disclosure is clear and not misleading, we believe it should be sufficient as it relates to the wording of the disclosure. In our view,…
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We discovered an issue with some of our adjustable rate mortgages (ARMs). For some of our ARMs that closed in 2009 and earlier, we provided early disclosures that omitted a lifetime floor for the interest rate. But the promissory notes for the loans do include a floor, which we have enforced. Is this a UDAAP violation? Do we need to reimburse customers?
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We agree that having omitted the interest rate floor in your ARM disclosures creates a range of risks for your bank. Both the present version of Regulation Z and the version in effect in 2009 require lenders to disclose how the interest rate for a variable rate loan will be calculated, including “an explanation of…
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We charge a paper statement fee on deposit accounts that are not enrolled in e-statements, except for accounts held by individuals over age 65. Does the Illinois Consumer Deposit Account Act prohibit us from charging this fee, or can we start charging it to customers over age 65?
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We do not recommend charging a paper statement fee on Basic Checking Accounts (accounts for individuals over age 65 required by the Consumer Deposit Account Act). The Consumer Deposit Account Act limits minimum balance requirements and activity fees for Basic Checking Accounts without expressly prohibiting other fees, such as paper statement fees. However, charging a…
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We offer Christmas Club accounts to our customers where they determine how much they wish to deposit each week over 50 weeks. When the account reaches maturity, we require that the customer deposited 50 times their weekly amount in order to receive their accrued interest. For example, if they wish to deposit $10 a week, they must deposit $500 over 50 weeks. If they fall short of this amount at the time of maturity, then we do not pay them the accrued interest on the account. Is that permissible? What about withholding accrued interest when they close the account before maturity? Is that an acceptable penalty?
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We are not aware of any law that would directly prohibit a bank from establishing holiday club savings accounts for which customers forfeit their accrued interest if they take early withdrawals or close the account before maturity, provided this forfeiture penalty is clearly disclosed in the account agreement. In fact, Regulation DD appears to allow…
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Can we initiate Regulation E’s error dispute procedure when a customer notifies us of an unauthorized transaction that is still pending? What regulatory risk do we face if we wait until the transaction actually posts?
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Yes, you may begin investigating the error when a customer notifies you of an unauthorized transaction that is still pending. However, in our view, Regulation E’s 10-day deadline for completing the investigation (or 45-day deadline if you have provided provisional credit) does not start until the transaction actually posts. Regulation E’s error resolution requirements are…
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We plan to start offering a bill pay service through a third party vendor. When paying a customer’s bill, the vendor will pay the bill directly (by check) and separately initiate an ACH debit against the customer’s account for the bill amount. If the customer’s account has insufficient funds, we will reject the ACH debit and charge the customer an insufficient funds (NSF) fee. We will not charge any other fees and will not pass on the vendor’s fees to the customer. In the event of a rejected ACH payment, the vendor will attempt to collect the unpaid amount from the customer and will freeze the customer’s other bill payments made through its service for three days. If the bill pay vendor cannot collect from the customer within sixty days, it will collect the unpaid amount directly from our bank, and we will assume the collection efforts. Would this arrangement be considered an overdraft program requiring the customer’s opt-in under Regulation E?
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No, we do not believe this arrangement would be considered an overdraft program, nor does Regulation E require a customer to opt-in before charging an overdraft fee for an ACH transaction. Regulation E defines “overdraft service” as “a service under which a financial institution assesses a fee or charge . . . for paying a…
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We are hiring a third party vendor to print mailing labels for bank event flyer. Can we provide the list of names and addresses to the vendor for producing the labels, without violating our customers’ privacy? Our privacy policy states that we share customer information “for our marketing purposes — to offer our products and services to you.”
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Yes, you may share a list of customer names and addresses with your printer, provided that you enter into a written contract with the printer preventing it from misusing or losing your customers’ information. Regulation P permits a bank to share nonpublic personal information with a third party if the sharing is reflected in its…
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Currently, we reconcile all deposit discrepancies. Our consultants have recommended that we establish a $5 threshold for reconciling out-of-balance deposits. Is that an acceptable threshold? What if we apply the threshold only when the error is in the customer’s favor?
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We believe that you should resolve all deposit discrepancies that could harm a consumer, without applying a $5 threshold. We read the Interagency Guidance on Deposit Reconciliation Practices as recommending that banks resolve all deposit discrepancies that would harm consumers. The guidance does not sanction applying a threshold before reconciling a deposit discrepancy; in fact,…