Exam 3 Flashcards
What types of credit products are covered under Regulation Z? What types of credit products are excluded?
- Regulation Z applies to loans secured by real property, loans secured by personal property used as a member’s principal dwelling, and private education loans.
- Regulation Z does not apply to loans made for business, commercial, or agricultural purposes. It also does not apply to loans made to non-natural persons.
- In practice, most credit unions provide disclosures for all consumer loans.
Regulation Z covers both open-end and closed-end credit. What are the definitions of each?
a. Open-ended credit is a credit plan that meets the following criteria:
i. The credit union reasonably contemplates repeated transactions;
ii. The credit union imposes a finance charge on the outstanding balance; and
iii. The amount of available credit is replenished as the outstanding balance is repaid.
b. Closed-ended credit is any other credit plan that doesn’t meet the above criteria.
What is a “dwelling?
a. Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.
b. The staff commentary clarified that the determining factor in determining whether something is a dwelling or not is whether or not the property is used as a residence:
i. A dwelling need not be the consumer’s principal residence to fit the definition, and thus a vacation home or second home could be a dwelling.
ii. Mobile homes, boats, and trailers are dwellings if they are in fact used as residences. RVs and campers are not considered dwellings.
Are there differences in the account opening disclosures for HELOCs and other open-end credit? When must the disclosures be provided?
a. Regulation Z includes special disclosure requirements for HELOCs due to their nature as home-secured open-ended products.
i. Account Opening Disclosures – Must be provided to the member prior to the first transaction being conducted. Many of these are similar to the disclosures at application.
ii. These disclosures differ from the account opening disclosures for other open-end credit disclosures such as personal lines of credit or credit cards.
What disclosures are required when advertising a promotional APR?
a. If the promotional rate is related to the opening of a new account, the credit union must refer to the rate as “introductory” or “intro” and this reference must be included immediately next to each listing of the promotional rate. Additionally, for any promotional rate advertisement (including intro rates), the following disclosure must be stated in a prominent location in close proximity to the first listing of the promo rate:
i. When the promo rate will end; and
ii. The APR that will apply at the end of the promotional period.
b. If the APR at the end of the period will depend on a member’s creditworthiness, the advertisement must disclose the specific rates or the range of rates that might apply.
c. Disclosures included in a footnote are NOT considered “in a prominent location.”
What are the change-in-terms requirements for open-end credit? Are the rules the same for all open-end products? If not, what are the differences?
a. HELOCs:
i. Credit unions cannot unilaterally change the terms of a HELOC contract. While there are some exceptions, it is important to note that HELOC contracts are very difficult to change.
ii. Must provide a change in terms notice at least 15 days prior to the effective date of the change
iii. When the credit union prohibits additional advances, or reduces the credit limit on an existing HELOC, change in terms disclosure must be sent within three business days of the action being taken.
b. Not Home-Secured Open-Ended Credit:
i. Must provide 45 day advanced notice of a change in terms
ii. Must be provided whenever the credit union changes a term required to be in the account opening disclosures – such as late fees or APR
iii. Notice can be included on the member’s period statement or sent in a separate mailing.
iv. Must be provided in a tabular format and follow the specific content requirements
c. SPECIFIC CHANGE N TERMS NOTICE INFO:
i. APR Increases – If the credit union increases the APR on a credit card account, it must disclose on which balances the new higher APR will apply, and which balances the current APR will continue to apply. Also, the credit union must disclose a statement of up to four principal reasons for the APR increase (listed in order of importance)
ii. Right to Reject – This notice must include a statement about the member’s right to reject, the process for a member to reject the changes, and, if applicable, the member’s inability to make further transactions on the account if they reject the changes.
iii. Delinquency – If the terms on the account are being changed because the member was more than 60 days late, the credit union must disclose the member’s ability to cure the increased APR or fee by making on-time payments for the first six months after the APR is increased.
What are the periodic statement requirements for the different open-end credit products? What are the timing requirements for providing each statement?
a. All Open-Ended Credit:
i. Fees and interest charges must be grouped separately from other transactions
ii. Fees and interest must be totaled for the period (i.e., monthly) and YTD, and disclosed in a tabular format
iii. When a grace period applies, a statement must be sent at least 21 days prior to the expiration of the period
iv. When no grace period applies, a statement must be sent at least 14 days prior to the member’s due date
v. For credit card accounts, a statement must be mailed or delivered at least 21 days prior to the member’s due date, and must disclose additional information including a late payment warning, a minimum payment warning, and a repayment disclosure example
b. HELOCS:
i. Credit unions may follow the specific periodic statement requirements for HELOCs or the periodic statement requirements for other open-ended credit
c. Not Home-Secured Open-Ended Credit:
i. Periodic statements are required to be sent each billing cycle
When are additional disclosures required for open-end credit advertising? Are there any exceptions?
a. When a “trigger term” (“APR,” “transaction fees,” “annual fee,” “certain other charges”) is mentioned in an advertisement of open-ended credit, additional disclosure requirements apply:
i. Any minimum, fixed, transaction, activity, or similar charge that is a finance charge that could be imposed;
ii. The APR and if the plan provides for a variable APR, that fact shall be disclosed; and
iii. Any membership or participation fee that could be imposed
b. For television and radio advertisements, these disclosure do not have to be included. Credit unions can provide the APR (and a statement if the account has a variable rate) as well as a toll-free phone number for members to call for the additional disclosure information.
What are the special rules applicable to HELOCs?
a. Trigger terms also apply for HELOCs (references to payment terms, draw period, repayment period, length of the plan, how minimum payments are determined, the timing of payments; also phrases like “we waive closing costs” or “no points” are considered trigger terms) and require additional disclosures if mentioned:
i. Any minimum, fixed, transaction, activity, or similar charge that is a finance charge that could be imposed;
ii. Any membership or participation fee that could be imposed;
iii. Any loan fee that is a percentage of the credit limit under the plan and any estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range;
iv. The APR and if the plan provides for a variable APR, that fact shall be disclosed; and
v. The maximum APR that may be imposed in a variable-rate plan
b. There are also special HELOC advertising requirements If the credit union’s advertisement includes any of the following:
i. Discount or Premium Initial Rates – Where an advertised initial APR is not based on the same index and margin used for later rate adjustments under the plan
ii. Balloon Payments – Where the advertisement states any minimum payments and a balloon payment may result if a member makes only minimum payments
iii. Tax Implications – Where the advertisement mentions the potential availability of a tax deduction for interest expenses under a HELOC plan
iv. Promotional Rates and Payments – Where the advertisement includes a promotional APR or a promotional payment amount
Do all open-end credit products have application disclosure requirements? If not, which ones do?
- Yes, Regulation Z requires account opening disclosures for open-ended credit prior to the first transaction occurring.
What are the disclosure requirements for private education loans? When can a member cancel the loan?
- Application Disclosures – Need to be included on or with the private education loan application
- Approval Disclosures – Need to be given to the member at the time approval is communicated to the member
- Final Disclosures – Need to be given when a member accepts the loan (member must be given up to 30 days after the loan has been approved to accept the loan). After final disclosures are provided, the member has three business days to cancel the loan.
What are the special advertising rules applicable to HELOCs?
There are also special HELOC advertising requirements If the credit union’s advertisement includes any of the following:
i. Discount or Premium Initial Rates – Where an advertised initial APR is not based on the same index and margin used for later rate adjustments under the plan
ii. Balloon Payments – Where the advertisement states any minimum payments and a balloon payment may result if a member makes only minimum payments
iii. Tax Implications – Where the advertisement mentions the potential availability of a tax deduction for interest expenses under a HELOC plan
iv. Promotional Rates and Payments – Where the advertisement includes a promotional APR or a promotional payment amount
What are the post consummation disclosure requirements for modifications and refinances of closed-end credit?
- Refinances – The credit union must provide new closed-ended disclosures to the member
- Modifications – The credit union is not required to provide new closed-ended disclosures to the member
What are the exceptions that allow a credit union to increase the APR and fees on a credit card account?
a. Advance Notice Exception – A credit union uses the 45-day change in terms process
i. 45 day notice prior to the effective date of the change
ii. The increased APR may not be applied to existing balance or to transactions conducted within 14 days of the notice (i.e., only on future transactions)
iii. Cannot be used in the first year after a member open an account
b. Variable Rate Exception – If there is an increase in the underlying variable rate index, a credit union can increase a member’s APR
i. This exception can only be used if the underlying index is outside of the credit union’s control
1. Control is exercised if the variable-rate credit card contains a floor rate
c. Temporary Rate Exception – If the credit union has properly disclosed a temporary rate applicable to the credit card account, a credit union can increase a member’s APR
i. Temporary rate period must be at least six months long
ii. Can be either an introductory APR at account opening or a temporary rate applicable to an existing account
d. Other Exceptions
i. In certain delinquency situations
ii. At the end of a workout or temporary hardship period (whether completed successfully or not)
1. At the end of a workout, the credit union may only restore the APR to the prior contractual level, but no higher
iii. When a member leaves military service (SCRA requires credit unions to reduce the interest rate on loans entered into prior to military service – including credit card accounts)
1. Credit unions may increase the APR back to the contractual rate after giving 45 day advanced notice of the change
What are the trigger terms for closed-end credit advertising? What are the disclosure requirements when stating a trigger term?
- Trigger Terms:
i. The amount or percentage of any down payment
ii. The number of payments or period of repayment
iii. The amount of any payment
iv. The amount of any finance charges - When stating a trigger term, the following disclosure are required to be included in the advertisement:
i. The amount or percentage of the down payment
ii. The terms of repayment, which reflect the repayment obligations over the full term of the loan, including any balloon payment
iii. The annual percentage rate (APR), and, if applicable, if the rate may be increased after consummation, that fact
When must a credit union reevaluate a credit card APR that has been increased? When does the obligation to reevaluate terminate?
- The credit union is required to reevaluate an increased APR every six months
- The reevaluation obligation terminates when the rate has been reduced to the previous level or lower.
Describe the de minimis exception to the rules for submitting credit card agreements to the CFPB. When is the measuring date?
The de minimis exception applies to credit unions that have fewer than 10,000 open credit card accounts as of the last business day of the calendar quarter.
What are the fee limitations during the first year after a credit card account is opened? Which exception to the limitation on increasing the APR cannot be used during the first year?
a. During the first year a credit card is open, credit unions may not charge fees in excess of 25% of the member’s credit limit.
i. An increase in the credit limit in the first year does not allow the credit union to charge additional fees.
ii. If a credit union decreases the credit limit during the first year, it is only allowed to charge fees up to 25% of the lowered credit limit and must refund any fees already charged that exceed this amount.
b. The advanced notice exception cannot be used to increase a member’s APR in the first year after an account’s opening.
What are the limitations on penalty fees?
a. For 2023, safe harbor levels allow the credit union to charge up to $30 for a penalty fee for the first violation and up to $41 for a subsequent violation of the same type within the next six month period.
i. The credit union CAN use lower thresholds
b. Reasonable and Proportional Fees – This rule trumps the safe harbor levels mentioned above.
i. The credit union is prevented from charging a fee in excess of the amount of the transaction that resulted in a violation (i.e., a $29 fee cannot be charged if the transaction that caused the violation was for $15)
ii. The credit union may not charge fees for transactions without a cost involved (i.e., fees for declining a transaction, inactivity fees, or account closure fees)
iii. The credit union may not charge more than one penalty fee based on a single event or transaction.
When must a credit union consider a member’s ability to pay? How is the analysis different for members under 21?
- A member’s ability to pay must be considered by the credit union prior to opening a new credit card, or increasing a credit limit on an existing account.
- Members under the age of 21 must demonstrate an ability to pay based on their own independent income, or have a joint member or guarantor who is at least 21.
i. If the member is under 21 with a joint owner or guarantor, the joint owner or guarantor must agree to any future credit limit increases (in writing) before they are granted.
What loans are subject to RESPA?
- Federally related mortgage loans
i. To be federally related, the loan must have a relationship with the federal government
1. Loan is made by a lender that is regulated or insured by an agency of the federal government, or under a federal government agency program
2. Loan is to be sold to the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), or the Government National Mortgage Association (Ginnie Mae)
Which loans are generally subject to RESPA, but not the disclosure requirements?
Loans subject to Regulation Z
When can Regulation Z application disclosures be used instead of the GFE?
For open-ended credit
How is “application” defined? How does having a completed application impact the delivery requirements for the Loan Estimate?
- Application is defined as the submission of a consumer’s financial information for purposes of obtaining the extension of credit. The following six pieces of info must be obtained:
i. The consumer’s name
ii. The consumer’s income
iii. The consumer’s SSN to obtain a credit report
iv. The property address
v. An estimate of the value of the property
vi. The mortgage loan amount sought - The requirement to provide consumers with a Loan Estimate is triggered by the receipt of an application as defined above.
What is RESPA’s kickbacks rule?
- RESPA prohibits parties giving one another “kickbacks” in connection with a mortgage loan
i. Giving or receiving a fee or a thing of value in exchange for the referral of settlement business may be a kickback under RESPA
1. This could apply to any person other than the consumer involved in the settlement, including a title company, a lender, a real estate agent, or an attorney
2. A “thing of value” is defined broadly and could include payments, commissions, fees, gifts, or special privileges.
“Business day” is defined in two different ways. What are the two definitions?
- A day on which the credit union’s offices are open to the public for carrying on substantially all of its business functions
- All calendar days except Sunday and legal public holidays
What are the timing requirements for delivering the Loan Estimate? When does the credit union need to send it? When is the disclosure considered received?
- Loan Estimates must be delivered to the consumer or placed in the mail no later than the third business day after the credit union receives the information
- If not provided to the consumer in person, it is considered received three business days after it is delivered or placed in the mail.
- Additionally the Loan Estimate must be provided at least seven days prior to consummation, unless the consumer waives the waiting period