Topic: Unfair, Deceptive, and Abusive Acts and Practices (UDAAP)
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We offer customers a zero interest loan to pay back the amount of their deposit account overdrafts. The loans are payable in more than four installments. Is it a UDAAP violation, or would it violate any regulation, to require customers to make the first periodic payment when they sign the loan documents?
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No, we are not aware of any rule that would prohibit you from requiring the first month’s payment at the time of the loan closing. However, this practice could raise the possibility of being viewed by regulators or by customers as abusive. Because the loans are payable in more than four installments, Regulation Z applies,…
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Can we change the way we calculate our interest rate for our CDs by sending out change-in-terms notices? We are switching from compound interest to a simple interest calculation. Our CD agreements are silent on our interest calculation method, and our initial disclosures stated that we compound interest daily.
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We believe it would be highly problematic to change from a compound to a simple interest calculation without obtaining your customers’ consent. We recommend waiting until any CD matures before unilaterally changing the interest calculation method. We note that as part of your CD account-opening disclosures, Regulation DD requires the disclosure of “the frequency with…
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For our consumer deposit account customers, can we assess a flat fee when charging off accounts with negative balances (which may include overdraft/NSF fees), and then add the fee to the account balance? Currently, our deposit account agreements and disclosures do not mention a charge-off fee. Also, are there UDAAP issues?
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We recommend extreme caution before imposing a “charge-off fee” on a delinquent account, irrespective of whether such a fee is disclosed in your loan agreement. Such a fee, unrelated to any costs incurred for servicing the loan, would be ripe for attack under the principles of the federal and state UDAAP laws. It is not…
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We want to implement three new fees for all of our loan customers: an NSF fee, an expedited payoff fee (for sending payoff statements via fax or courier), and a check-by-phone payment fee. How should we disclose these new fees? We are considering doing this for all of the types of consumer loans that we make.
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In general, if you charge any new types of fees, your customers must agree to them. First, you should check your controlling loan agreements for provisions that might apply to the unilateral imposition of these new fees, as well as for any terms regarding the disclosure of new fees. It may be that there are…
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We would like to make online banking available for certain commercial credit customers. What kind of disclosures do we need to provide? Is it an issue if we do not make online banking available to all other customers?
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We are not aware of any laws or rules that would require you to provide additional disclosures related to online banking beyond the disclosures that you ordinarily provide for your commercial customers. For example, Regulation E disclosure requirements may apply when online banking is added to a consumer account, but that regulation does not apply…
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We charge our consumer deposit customers two fees when we have to return a check deposited by the customer for NSF: a reclear fee, and, if the check is returned for a second time, a chargeback fee. We send a notice after charging either fee. Do you see any UDAAP issues with this practice?
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A reclearing fee assessed in combination with a chargeback fee does raise the possibility of some UDAAP concerns, but under the appropriate circumstances it arguably would be defensible. To clarify the terminology for these fees, which is not consistent across financial institutions, your institution charges a fee (which you call a “chargeback fee”) when a…