TILA Flashcards
What transactions are exempt from Regulation Z? (6)
However, generally exempt credit is subject to the requirements that govern the issuance of credit cards and liability for their unauthorized use. (credit cards cannot be issued on an unsolicited basis and if one is lost or stolen, the cardholder must not be held liable for more than $50 for the unauthorized used of the card).
Business, Commercial or Agricultural Credit
Credit extended to a non-natural person (govt agencies)
Public utility credit
Credit extended by a broker-dealer registered with the SEC involving securities or commodities accounts
Home fuel budget plans not subject to a finance charge
Certain Student loan programs.
Does TILA apply to credit extended to a Trust?
What about to a successor in interest?
Yes, credit extended to trusts established for tax or estate planning purposes or to land trusts is considered to be extended to a natural person
Yes, confirmed successor in interests are considered consumers. (confirmed by the bank/servicer)
True or False:
A creditor can furnish TILA disclosures to the consumer regardless if the transaction is covered by Reg. Z?
True.
In any event, the financial institution may routinely furnish disclosures to the consumer. Disclosure under such circumstances does not control whether the transaction is covered but can assure protection to the financial institution and compliance with the law.
What are the 5 coverage considerations under Regulation Z?
Is the purpose of the credit for personal, family, or household use?
Is the consumer credit extended to a consumer?
Is the credit extended by a creditor?
Is the credit secured by real property, a coop unit, or a dwelling?
Is the amount financed or credit limit at or below the annual threshold limit?
What is the definition of a finance charge?
Measure of the cost of consumer credit in dollars and cents and includes:
Any charges or fees payable directly or indirectly by the consumer and imposed directly or indirectly by the financial institution either as an incident to or as a condition of an extension of consumer credit.
Does not include any charge payable in a comparable cash transaction.
ex: charges imposed by required third parties, charges by required settlement or closing agents.
Which credit transactions have finance charge legal accuracy tolerances?
If disclosed finance charges are legally accurate, it would not be subject to reimbursement.
Closed-end credit transactions permit various finance charge accuracy tolerances.
Open-end credit must be accurate since there is no tolerance for finance charge errors.
What is the disclosed finance charge accuracy tolerance for credit secured by real property or a dwelling?
The disclosed finance charge is considered accurate if its not understated by more than $100.
Overstatements are not violations.
What is the accuracy tolerance for Rescission rights after the 3 business day rescission period? (General rule, finance charge, and total of payments)
General rule: 1/2 of 1% Tolerance
Finance Charge: not understated by more than 1/2 of 1% of the credit extended or $100, whichever is greater.
Total of Payments for transactions: not understated by more than 1/2 of 1% of the face amount of the note or $100, whichever is greater.
Overstatements are not violations.
What is the accuracy tolerance for refinances on residential loans at a new bank? (General rule, finance charge, total of payments)
General rule: 1% tolerance, when new loan is made at new bank. excl: HCML
Finance Charge: not understated by more than 1% of the credit extended or $100, whichever is greater.
Total of Payments for transactions: not understated by more than 1% of the face amount of the note or $100, whichever is greater.
Overstatements are not violations.
Excludes HCMLs that are new advances or new consolidations.
Right to rescind. After the initiation of foreclosure on the consumer’s principal dwelling that secures the obligation, the consumer can rescind if?
A mortgage broker fee was not included as a finance charge or the creditor did not provide the properly completed model form from Appendix H, or a substantially similar notice or rescission.
What are the accuracy tolerances after the initiation of foreclosure on a consumer’s principal dwelling that secures the credit obligation?
Finance charge: not understated by more than $35
Total of Payments: not understated by more than $35
Overstatements are not violations.
What is a prepaid finance charge?
A prepaid finance charge is any finance charge paid separately to the financial institution or to a third party, in cash or by check before or at closing, settlement, or consummation of a transaction, or withheld from the proceeds of the credit at any time.
Ex: points, loan origination fees, inspection fees, odd days’ interest, FHA mortgage guarantee insurance fees, PMI, credit report fees (non-real estate transactions).
What is a precomputed finance charge?
A precomputed finance charge includes, for example, interest added to the note amount that is computed by the add-on, discount, or simple interest methods. If reflected in the face amount of the debt instrument as part of the consumer’s obligation, finance charges that are not viewed as prepaid finance charges are treated as precomputed finance charges that are earned over the life of the loan.
What charges are always included as as a finance charge? (8)
Interest
Transaction fees
Loan origination fees, consumer points
Credit guarantee, insurance premiums
Charges imposed on the creditor for purchasing the loan, which are passed to the consumer.
Discounts for inducing payment by means other than credit.
Mortgage broker fees
Other examples: Fee for preparing TILA disclosures, construction loan inspection fees, post-consummation tax, flood service policy, required credit life insurance charges.
What charges are never included as a finance charge? (8)
Charges payable in a comparable cash transaction.
Fees for unanticipated late payments.
Overdraft fees not agreed to in writing.
Sellers points.
Participation/membership fees.
Discounts offered by the seller to induce payment by cash or other means not involving the use of a credit card.
Interest forfeited from interest reduction by law.
Charges absorbed by the creditor as a cost of doing business.
What charges are not considered finance charges as long as they are a bona fide and reasonable amount? (6)
(loans secured by real estate)
Fees for title insurance, title examination, property survey.
fees for preparing loan documents, mortgages, and other settlement docs.
Amounts required to be paid into escrow, if not otherwise included in the finance charge.
Notary fees
pre-consummation flood and pest inspection fees
Appraisal and credit report fees.
What is APR?
How should it be disclosed for closed end credit?
APR is a measure of the cost of credit, expressed as a nominal yearly rate. It relates the amount and timing of value received by the consumer to the amount and timing of payments made.
Must be disclosed as a single rate only (regardless if the loan has a single interest rate, variable rate, or graduated payments) and it must appear with the segregated disclosures (grouped together and don’t contain any info not required under 1026.18).
APR is a function of what? (3)
The amount financed (which is not equivalent to loan amount)
the finance charge (which is not equivalent to the total interest amount)
and the payment schedule (which is not always equal to P+I payments)
True or False:
APR is not an interest rate.
True
An incorrectly disclosed APR or finance charge would NOT be considered a violation under what circumstances? (3)
if it was due to a calculation error from a tool used in good faith by the institution.
if the bank stops using the calculation tool after discovering the error.
if the bank notifies the CFPB in writing of the error in the calculation tool.
Which transactions are exempt from TRID? (3)
Which transactions have different timing requirements? (4)
HELOCs
Reverse Mortgages
Mortgages secured by a mobile home or a dwelling not attached to real property.
Only exempt from the timing requirements:
construction-only loans
vacant land loans
Credit extended to trusts for tax or estate planning
land loans secured by more than 25 acres.
Which transactions are covered by TRID?
TRID must be given for most closed-end transactions secured by real property or a cooperative unit.
When is a creditor required to mail or deliver the Loan estimate?
Must be mailed or delivered within 3 business days of receipt of the consumer’s loan application.
When is a creditor required to mail or deliver the closing disclosure?
Must be mailed or delivered no later than 3 business days before loan consummation.
What is the amount financed?
What is required to be disclosed for TRID?
Net amount of credit extended to a consumer.
Amount financed = total of payments - finance charge.
Disclosure: itemization of the amount financed.
What is the amount financed from the example below?
A consumer signs a note secured by real property in the amount of $5,435. The note amount includes $5,000 in proceeds disbursed to the consumer, $400 in precomputed interest, $25 paid to a credit reporting agency for a credit report, and a $10 service charge. Additionally, the consumer pays a $50 loan fee separately in cash at consummation.
$4,975
The amount financed may be calculated by first subtracting all finance charges included in the note amount ($5,435 - $400 - $10 = $5,025). The $25 credit report fee is not a finance charge because the loan is secured by real property. The $5,025 is further reduced by the amount of prepaid finance charges paid separately, for an amount financed of $5,025 - $50 = $4,975.
The answer is the same whether finance charges included in the obligation are considered prepaid or precomputed finance charges.
What is the payment schedule?
All payments scheduled to repay loan principal, interest, and post-consummation finance charges.
Any finance charges paid before or at consummation is not included in the payment schedule, but is considered a pre-paid finance charge.
Is life-of-loan monitoring considered a finance charge?
What about flood determination fees?
Yes, Life of loan fees are finance charges because fees for services that will be performed periodically during the loan term are finance charges.
Determination fees are not unless a portion of the fee includes life of loan monitoring and if the bank is uncertain how to break out the fee, in which case the entire fee may be treated as a finance charge.
How is reg Z formatted?
Subpart A,B,C,D,E,F,G
A: Open end and Closed end transactions, definitions and applicability, finance charges
B:Open-end, account opening disclosures, periodic statements, special day rules
C:Closed-end credit, disclosures, treatment of credit balances, APR calculation, rescission rights, advertising.
D: record retention, non English disclosures, exemptions, rate limitations.
E: Mortgage transactions, disclosures, periodic statements, small servicer exemption
F:Private education loans, disclosures, change in terms, right to cancel, marketing
G:Credit Card, disclosures, Ability to repay, finance charges, marketing.
Does TILA tell banks how much interest they may charge or whether they must grant a consumer a loan?
No
What is a successor in interest?
Person whom an ownership interest in a dwelling securing a closed-end credit is transferred from a consumer, provided the transfer is:
-by devise, descent, or operation of law on death of a joint tenant
-to a relative resulting from death of the consumer
-where spouse or or children become owner of the property
-from divorce, legal separation, settlement agreement, where spouse becomes the owner
-into an inter vivos trust where consumer becomes beneficiary and there are no transfer of rights of occupancy in the property.
When determining whether credit is for consumer purposes the creditor must evaluate all of the following? (5)
-purpose of credit (vacation)
-consumer’s primary occupation and how it relates to use of the credit (purchase dental supplies with dental occupation=business purpose)
-personal management of the assets purchased from the proceeds. (money borrowed to purchase stock in company but consumer does not work there=consumer purpose)
-size of the transaction. Larger more likely business purpose. ($5MM RE loan)
-amount of income derived from property acquired by the loan proceeds relative to borrowers total income. (annual salary $100k and $500 annual dividends from acquired property=consumer)
True or False: a checked box indicating the loan is for a business purpose is sufficient to determine the loan does not have a consumer purpose?
False. Absent of any documentation showing the intended use of the proceeds could be insufficient evidence that the loan did not have a consumer purpose. (could be mixed purpose)
Can a creditor furnish disclosures to an entity exempt from TILA?
Yes. Disclosures do not control if the transaction is covered but can assure protection to the financial institution and compliance with the law.
What must be met under the regulation in order for an entity to be considered a “Creditor”? (3)
-institution extends consumer credit regularly and the obligation is payable to the institution, and is in a written agreement with more than 4 installments or is subject to a finance charge.
-institution is a card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than 4 installments
-institution is not the card issuer, but imposes a finance charge at the time of honoring a credit card.
in what situation would regulation Z still apply if the dwelling credit has an amount financed or credit limit at or below the annual threshold limit?
It does not apply, but may apply later if the loan is refinanced for an amount at or below the annual threshold limit.
Also, if the principal dwelling is taken as collateral after consummation, rescission rights will apply, and in the case of open-end credit, billing disclosures and other provisions will apply.
What are the accuracy tolerances in a closed-end credit transaction other than a mortgage loan.
$5 if amount financed is less than or equal to $1,000.
$10 if amount financed exceeds $1,000.
How do prepaid finance charges impact the consumer?
They effectively reduce the amount of funds available for the consumer’s use, usually before or at the time the transaction is consummated.
What finance charges are included unless conditions are met? (8)
-Premiums for credit life, A&H, or loss of income insurance
–Unless: insurance is not required, disclosures are made, and consumer authorizes.
-Debt cancellation fees
–Unless: coverage is not required, disclosures are made, and consumer authorizes
-Premiums for property or liability insurance
–Unless: consumer selects insurance company and disclosures are made
-Premiums for Vendor’s single interest insurance (VSI)
–Unless: Insurer waives right of subrogation, consumer selects company, and disclosures are made
-Security interest charges (filing fees), insurance in lieu of filing fees, and certain notary fees
–Unless: the fee is for lien purposes, prescribed by law, payable to a third public official and is itemized and disclosed
-charges imposed by third parties
–unless: the use of the third party is not required and creditor does not retain the charge
-charges imposed by third party closing agents
–unless: creditor does not require and does not retain the fee for the particular service
-appraisal and credit report fees
–unless: charged to all applicants. Application fees may include appraisal and credit report fees, and if charges to all not a finance charge.
What are the finance charges in the below examples?
the APR is 12 percent on a loan with an amount financed of $5,000 and 36 equal monthly payments of
$166.07 each.
the APR is 13.26% on a loan with an amount financed of $4,500 and 35 equal monthly payments of $152.18 each and a final payment of $152.22.
The finance charge is $978.52 in both cases.
The APRs on these example loans are not the same because an APR does not only reflect the finance charge, it relates the amount and timing of value received by the consumer to the amount and timing of payments made.
When are periodic statements required to be mailed/delivered for credit card accounts?
For open-end consumer credit accounts with a grace period?
for non-credit card open-end consumer plans without a grace period?
At least 21 days prior to the payment due date disclosed on the periodic statement.
21 days prior to the date on which the grace period expires.
14 days prior to the date on which the required minimum periodic payment is due.
No finance charges or late fees can be charged if payment is received within the above time periods after mailing the periodic statements.
For open end credit which change in terms require 45 day advance written notice to consumers? (5)
Advanced notice is required for significant changes in terms including:
-penalty fees
-transaction fees
-fees imposed for the issuance or availability of the open-end plan.
-grace period
-balance computation method
For open end credit, which changes do not require advance notice to consumers?
-reductions of finance charges
-termination of account due to court proceedings
-increase of APR after period of time previously disclosed in writing
-increases in variable APRs according to an index not under the card issuers control
-rate increases from consumer’s failure/ completion of hardship agreement, which terms were disclosed prior to the arrangement.
Can a customer reject significant changes in terms from open ended credit?
yes, the creditor must provide customers the right to reject the change. And if they do the creditor may not apply the change to the account.
When a customer rejects the change a creditor must not:
-impose a fee or charge, or treat the account in default as a result of the rejection
-require a repayment of the balance on the account using a method that is less beneficial to the consumer than:
–the method of payment prior to the rejection
–amort period no less than 5 years from date of rejection
–minimum periodic payment including a percentage of the balance not more than 2x the percentage included prior to the date of rejection.
How are finance charges disclosed for open-end credit?
they must be itemized. the aggregate total amount of the finance charge does not need to be disclosed.
What are the three methods commonly used to determine the balance to which the periodic rate is applied to open-end credit?
-Previous balance method
-Daily balance method
-Average daily balance method
What is the previous balance method?
The balance on which the
periodic finance charge is computed is based on the balance outstanding at the start of the billing cycle. The periodic rate is multiplied by this balance to compute the finance charge.
What is the daily balance method?
A daily periodic rate is applied to either the balance on each day in the cycle or the sum of the balances on each of the days in the cycle. If a daily periodic rate is multiplied by the balance on each day in the billing cycle, the finance charge is the sum of the products. If the daily periodic rate is multiplied by the sum of all the daily balances, the result is the finance charge.
What is the average daily balance method?
The average daily balance is the sum of the daily balances (either including or excluding current transactions) divided by the number of days in the billing cycle. A periodic rate is then multiplied by the average daily balance to determine the finance charge. If the periodic rate is a daily one, the product of the rate multiplied by the average balance is multiplied by the number of days in the cycle.
For open end credit that uses 2 or more periodic rates in computing the finance charge. What must a bank disclose?
ex: one rate applies to balances up to a certain amount, another rate applied to balances above the first amount.
all rates and conditions
balances at which each rate applies.
Finance charge does not need to be broken into separate components based on different rates
Within what range would an APR need to be considered accurate for open-end credit disclosures?
If it is within 1/8th of one percentage point.
What is the basic method for determining the APR for open end credit transactions? and when can it be used?
What is the second method for calculating the APR? and when can it be used?
Multiplying each periodic rate by the number of periods in a year.
This method is used in all types of disclosures and is prospective as it does not involve any particular finance charge or periodic balance.
The other is the quotient method, which can be disclosed on periodic statements for HELOCs. It reflects the annualized rate that was actually applied during the cycle. It is also known as the effective APR and may include minimum, fixed, or transactional charges to the account.
What if a creditor does not disclose the effective APR on a HELOC periodic statement?
It must instead disclose the charges (fees and interest) imposed on the account.
What is the equation for the basic APR method on open-end credit?
Monthly rate x 12 =APR
What is the equation for the effective APR that may be disclosed on HELOC statements only when periodic rates are imposed?
Monthly rate x 12=APR
OR
(total finance charge/sum of balances) x 12=APR
What is the equation for effective APR when minimum or fixed charge, but not transaction charges are imposed?
(total finance charge/amount of applicable balance)x12=APR
the APR cannot be determined if the applicable
balance is zero.
Loan fees, points, or similar finance charges that relate to the opening of the
account must not be included in the calculation of the APR.
What is the equation for effective APR when the finance charge includes a charge related to a specific transaction (cash advance fee), even if the total finance charge also include other minimum or fixed charge not calculated using a periodic rate?
(Total finance charge / (all balances + other amounts on which a finance charge was imposed during the billing cycle without duplication) x 12 = APR
The sum of the balances may include the average daily balance, adjusted
balance, or previous balance method.
The APR Cannot be less than the highest periodic rate applied, expressed as an APR. Loan fees, points, or similar finance charges that relate to the opening of the
account must not be included in the calculation of the APR.
What is the equation for the effective APR when the finance charge imposed during the cycle includes a minimum or fixed charge that does not exceed 50cents for a monthly or longer billing cycle?
monthly rate x 12=APR
What is the equation for the effective APR when daily periodic rates are applicable if only the periodic rate is imposed or when a minimum or fixed charge but not transactional charges is imposed?
- (Total finance charge / average daily balance) x
12 = APR
Or
- (Total finance charge / sum of daily balances) x
365 = APR
If a bank changed any terms on a HELOC, when would they need to disclose/notify customers?
15 days advanced written notice of change in terms or when the minimum periodic payment increases.
But notice is not required if the change involves a reduction to any component of a finance charge or other charge or is the result of a court preceding.
If a creditor prohibits additional extensions of credit or reduces the credit limit on a HELOC, when must they notify the customer? and what must the notice contain?
3 business days after the action is taken and must include the specific reasons for the action. Also must include if the creditor requires the consumer to request reinstatement of credit privileges.
If the administrator of a trust request the amount of the balance on open-end credit, what is the creditor required to do and what are they prohibited from doing?
• The issuer is prohibited from imposing additional fees on the account;
• The issuer is required to disclose the amount of the balance to the administrator in a timely manner (safe harbor of 30 days); and
• If the balance is paid in full within 30 days after disclosure of the balance, the issuer must waive or rebate any trailing or residual interest charges that accrued on the balance
following the disclosure.
When must payments be credited to an account for open end credit?
As of the date of receipt, except when a delay in crediting will not result in a finance or other charge.
if they fail to credit in time to prevent a charge the creditor must adjust the customers account so charges are credited back to the consumer during the next billing cycle.
What if a credit card issuer changes the address for receiving payments or procedures for handling payments and such changes cause a material delay in the crediting of a payment to the consumers account?
the card issuer may not impose any late fees or charges for late payment during the 60 day period following the date the change took effect.
A billing error notice for open end credit is a written notice from a consumer that: (3)
• Is received by a creditor at the address disclosed under 12 CFR 1026.7(a)(9) or (b)(9), as applicable, no later than 60 days after the creditor transmitted the first periodic statement that reflects the alleged billing error;
• Enables the creditor to identify the consumer’s name and account number; and
• To the extent possible, indicates the consumer’s belief and the reasons for the belief that a billing error exists, and the type, date, and amount of the error.
What must a creditor do in response to a billing error notice for open end credit?
The creditor shall mail or deliver written acknowledgment to the
consumer within 30 days of receiving a billing error notice, unless the creditor has complied with the appropriate resolution
procedures within the 30 day period.
And must comply with the resolution procedures within two complete billing cycles but no later then 90 days after receiving the notice.
Until a billing error (open-end) is resolved, the following rules apply: (3)
-customer need not pay any portion any portion of payment related to the disputed portion of the bill. (creditor cannot try to collect the disputed portion, but can collect any undisputed portion, can reduce the credit limit for the disputed portion, can reflect the PENDING disputed portion and charges on a periodic statement)
-creditor is prohibited from making an adverse report on the consumer credit standing.
-creditor shall not accelerate any part of the consumers indebtedness or restrict or close the account because of the report.
If a creditor determines that a billing error occurred as asserted (open end), it must within the applicable time limits: (2)
• Correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable; and
• Mail or deliver notification of the correction to the
consumer.
If, after conducting a reasonable investigation, a creditor determines that no billing error occurred (open-end) or that a different billing error occurred from that asserted, the creditor must within the applicable time limits: (3)
• Mail or deliver to the consumer an explanation that sets forth the reasons for the creditor’s belief that the billing error alleged by the consumer is incorrect in whole or in part;
• Furnish copies of documentary evidence of the consumer’s indebtedness, if the consumer so requests; and
• If a different billing error occurred, correct the billing error and credit the consumer’s account with any disputed amount and related finance or other charges, as applicable.
What must be disclosed on periodic statements for credit card accounts regarding minimum payments? (3)
-estimate of amount of time and total cost (P&I) involved in paying the balance in fully by making the minimum payment
-estimate of the monthly payment amount required to pay off the balance in 36 months and total cost (P&I) of repaying in that time.
-disclose a minimum payment warning and estimate of total interest consumer would save if they repaid the balance in 36 months instead of making minimum payments.
If an advertisement for open end credit states specific credit terms, it must state only those terms that actually are or will be arranged or offered by the creditor. If any finance charges or other charges are set forth in an advertisement, the advertisement must also clearly and conspicuously state the following: (3)
-any minimum, fixed, transaction, activity or similar charge that is a finance charge
-any periodic rate that may be applied expressed as an APR. and if the rate is variable
-any membership or participation fee that could be imposed
True or false: it is deceptive to advertise that a credit card rate is fixed if the rate is actually variable?
True, this would be considered a deceptive or misleading practice and is banned.
In advertisements for HELOCs, if any finance charges or other charges or payment terms are included in the ad, then the ad must also include? (3)
-any loan fee that is the percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan (dollar amount or range)
-any periodic rate used to compute the finance charge expressed as an APR
-max APR that may be imposed in a variable rate plan.
If a loan subject to TRID is a purchase transaction, what must be provided within 3 business days of receipt of the consumers application?
The special information booklet, along with the standard requirement of the LE.
What are the timing requirements and what disclosures must be provided for reverse mortgages under TRID?
Disclosures must be mailed or delivered no later than the 3rd business day after receiving a written loan application.
Must provide the good faith estimate, HUD-1 settlement statement, and other TILA disclosures
What are the timing requirements and what disclosures must be provided for Chattel dwelling loans under TRID?
disclosures must be provided prior to consummation of the loan.
TIL disclosures (GFE and HUD 1 not required)
Can TRID disclosures contain estimates?
Yes if the information required is unknown, the creditor can provide a reasonable estimate, but the disclosure must clearly mark that this is an estimate.
What are the disclosure requirements for variable rate closed end loans subject to TRID? (4)
-disclosures must be provided for the full term of the loan and must be based on the terms in effect at the time of consummation.
- if the transaction includes a seller or consumer buy down, the disclosed APR should be a composite rate based on the lower rate for the buy down period and the rate that is for the remainder of the term.
-if the initial rate is not determined by the index/formula used for later rate adjustments, the disclosed APR must reflect a composite rate based on the initial rate for as long as its applied and the fully indexed rate for the remainder of the term.
-if the initial interest rate is set according to index/formula used for later adjustments but set before consummation, disclosures should be based on the initial interest rate, even though the index may have changed by consummation.
What are the primary disclosures required under TRID for dwelling secured loans? (4)
-finance charge
-amount financed
-payment schedule (total of payments)
-APR
If a consumer pays for a charge separately in cash (this charge is not in the note amount or finance charge) then should it be included in the amount financed for a TRID Loan?
No it should be subtracted out and is not required to be disclosed.
If a creditor includes amounts beyond the amount financed and finance charge (RE escrow taxes) in the payment schedule for a RE TRID loan, how should the APR be disclosed?
When calculating the APR, the creditor must disregard such amounts.
If the obligation is a renewable balloon payment instrument that unconditionally obligates the financial institution to renew the short-term loan at the consumer’s option or to renew the loan subject to conditions within the consumer’s control, the payment schedule must be disclosed how?
If the obligation is a renewable balloon payment instrument that unconditionally obligates the financial institution to renew the short-term loan at the consumer’s option or to renew the loan subject to conditions within the consumer’s control, the payment schedule must be disclosed using the longer term of the renewal period or periods. The loan must be disclosed with a variable rate feature.
The APR must be calculated using one of the following ways?(2)
-actuarial method
-U.S Rule (accrual method)
What is the accuracy tolerance for an APR on regular closed end transactions? (single advance transactions with equal payment periods or an irregular first or last payment)
If the disclosed APR is within 1/8th of 1 percentage point of the APR calculated
What is the accuracy tolerance for an APR on irregular closed end transactions? (multiple advance transactions)
If the disclosed APR is within 1/4 of 1 percentage point of the APR calculated.
What is the accuracy tolerance for an APR on mortgage transactions? (4)
-If the disclosed APR is within 1/8th of 1 percentage point of the APR calculated
-if the rate results from a disclosed finance charge that is considered accurate or accurate for purposes of rescission
-if the rate results from a disclosed finance charge that is understated and the disclosed APR is also understated but is closer to the actual APR
-If the rate results from a disclosed finance charge that is overstated and the APR is also overstated but is closer to the actual APR
Is the the disclosed APR considered accurate in the following example?
actual APR is 9%
disclosed APR is 8.65%
rate is considered accurate at 8.5% due to the omission of $75 from the finance charge. (special mortgage rules 1026.22(a)(4))
What if the disclosed APR was 8.4% or 9.3%?
Yes the disclosed APR is considered accurate as the rate is considered accurate at 8.5%. However a disclosed APR below 8.5% or above 9.25% would not be considered accurate.
The tolerance is 1/4th of 1 percentage point for irregular transactions.
For construction only and construction to permanent loans can the APR be estimated?
How should the advances be disclosed?
Yes based on information reasonably available at the time of disclosure.
the advance of funds can be disclosed either separately or together. if the loan is construction to perm and will be funded by the same creditor the construction phase and permanent phase can be treated as one or more transactions. (this choice impacts calculations)
What is an interest reserve?
is an interest reserve considered a prepaid finance charge?
in a multiple advance construction loan, a creditor may establish an “interest reserve” to ensure that interest is paid as it accrues by designating a portion of the loan amount for that interest payment purpose.
Not a prepaid finance charge.
What are the disclosure requirements for interest reserves in construction or construction to perm loans?
If a creditor requires the establishment of an interest reserve and automatically deducts interest payments from the reserve amount rather than allow the consumer to make interest payments as they become due, the fact that interest will accrue on those interest payments as well as the other loan proceeds must be reflected in the calculations and disclosures.
The creditor can use the formula in Appendix D
For a construction to perm loan, how should a creditor disclose fees and charges if they choose to disclose multiple transactions?
The construction loan must have allocated finance charges, points, and fees that would not be imposed on the other transactions. The amounts must be disclosed for the construction phase.
Points finance charges and fees for the permanent phase must be separate from the construction phase and vice versa. They should be allocated to the phase in which they are charged.
How should a creditor disclose this:
charges an origination fee for construction financing only, but charges a greater origination fee for construction-perm financing.
the difference between the two fees must be allocated to the permanent phase. All other finance charges, points, fees must be allocated to perm phase. Fees and charges not used to compute the finance charge, points, or fees may be allocated between the transactions in any manner the creditor chooses.
True or false: TILA requires the use of one method of interest computation.
False: The reg does not require you use 360 or 365 when calculating interest. I t does however allow creditors to disregard that months have different number of days when calculating and making disclosures.
Can creditors calculate disclosures based on a 360 day year with 30 day months even if they collect interest by applying a factor of 1/365 of the annual interest rate to the actual days?
Yes, creditors can base their disclosures on calculation tools that assume all months have an equal number of days even if the practice is different.
Can creditors apply daily interest factors to a loan based on a 360 day year to the actual number of days between payments. Without disclosing so?
No this would be a violation. if the creditor must disclose the higher values of the finance charge, the APR , and the payment schedule resulting from this practice.
Is this a violation?
APR disclosed at 12%
Finance charge disclosed is $1,200 (.12 x 10M)
Daily rate is .033333 (simple interest/360)
No charges imposed except interest
amount financed is the same as the loan amount, applying a daily rate on a daily basis for a 365 day year on a $10M one year single payment unsecured loan.
Yes
APR calculated is 12.17% (.033333 x 365 = .121667)
Finance charge calculated is $1,216.67 (.121667 x 10M=1216.67)
However, if there are no other charges except interest, the application of a 360-day year daily rate over 365 days on a regular loan would not result in an APR in excess of the one eighth of one percentage point APR tolerance unless the nominal interest rate is greater than 9 percent. For irregular loans, with one-quarter of 1 percentage point APR tolerance, the nominal interest rate would have to be greater than 18 percent to exceed the tolerance.
Is a required deposit as a condition of credit considered a finance charge?
does it need to be reflected in the APR?
The effect of a required deposit is not reflected in the APR. Also, a required deposit is not a finance charge since it is eventually released to the consumer. A deposit that earns at least
5 percent per year need not be considered a required deposit.
What loan types are exempt from TRID? (5)
What disclosures do they get instead?
-Reverse mortgages
-HELOCs
-Chattel dwelling loans
-Dwellings not attached to real property
-loans made by a creditor who makes 5 or fewer loans a year
They get the GFE, HUD-1, and Servicing disclosures under TILA or RESPA.
What loan types are exempt from the requirement to provide the GFE, HUD-1, and servicing disclosures?
-TRID subject loans (closed end loans secured by real property/cooperative units)
-Certain no-interest loans secured by subordinate liens for the purpose of down payment assistance, homebuyer assistance, rehabilitation assistance, energy efficiency assistance, or foreclosure prevention.
Can a creditor use the TRID disclosures in lieu of the GFE, HUD-1, and servicing disclosures for TRID exempt loans?
No the TIL and RESPA forms are required for those loans.
What loan types are subject to TRID?
Most closed-end mortgage loans including
-construction only loans
-loans secured by vacant land or by 25 or more acres.
What disclosures must be provided for TRID loans? (4)
-Loan Estimate
-Closing Disclosure
-Special information booklet
-CHARM booklet for ARM loans
When is the loan estimate required to be provided?
Within 3 business days after receiving the application and no later than 7 business days before consummation (placed in the mail date counts)
What is an application as defined by TRID? (6)
-consumers name
-consumers income
-SSN for credit report
-property address
-estimated value of property
-loan amount requested
When are the timing requirements triggered for providing the loan estimate?
As soon as the bank receives the 6 pieces of information to be considered an application.
This does not necessarily mean the applicant has to have completed the written application form for the bank.
What if the creditor determines within the 3 business day period that the consumers application will not be approved, or if the consumer withdrawals within that 3 day period? Do they still have to provide the LE?
No they do not. However, if it does not provide the LE and later consummates the transaction on the terms originally applied for, then they will be in violation.
if a consumer amends an application and is approved, the LE is required within 3 business days of the amended application.
What is a business day for purposes of the LE?
day on which the creditor’s offices are open to the public for carrying out substantially all of its business function.
What is a business day for the closing disclosure?
This applies to most other timing requirements under TRID.
Calendar days except Sundays and public holidays.
Is the LE still required in 3 business days if some information is not reasonably available at the time the LE is made?
Yes, because a creditor can use estimates even if more precise info will be available later.
Can a consumer waive the 7 bus day waiting period?
if so, When?
Yes, if the loan is needed to meet a bona fide personal financial emergency.
Consumer must proved a dated written statement describing the emergency, they they waive the waiting period, and is signed by all applicants.
ex: imminent sale of home due to foreclosure
What charges are considered Zero Tolerance? (2)
These charges cannot exceed the amount disclosed on the LE unless a revised LE was provided.
-Fees for required services
-Fees paid to an unaffiliated third party if they could not shop for a third party, settlement service, or transfer taxes.
What charges are considered 10% cumulative tolerance? (2)
The creditor may charge the consumer more than disclosed on the LE as long as the sum total of the charges does not exceed 10% of the sum disclosed.
-recording fees
-charges for third party services if:
–the charge is not paid to the creditor or affiliate, and
–the consumer is permitted to shop for the service
What charges have variances that are permitted without tolerance limits?
Can charge more than the amount disclosed on the LE, but only if the disclosed charge was based on the best information available at the time of disclosure.
-Prepaid interest
-Property insurance premiums
-amounts placed in escrow, impound, reserve or similar account
-charges paid to third party service providers for services required by the creditor if the consumer can shop and selects a provider not on the provider list
-Property taxes, other charges paid to third party service providers for services not required by the creditor.
When is a list of service providers required to be provided?
What is required to be on the list?
If a consumer is permitted to shop for a settlement service the creditor must provide this list no later than 3 business days after receiving the application.
The list must:
-identify at least one available settlement service provider for each service.
-state that the consumer may choose a different provider for the service.
Can a revised list of service providers be issued to consumers?
Yes a creditor may issue a revised list when a settlement service is added as a result of a reason provided under 1026.19(e)(3)(iv)
What if the amounts paid by the consumer at closing exceed the amounts disclosed on the LE beyond the tolerance allowed?
Then the excess must be refunded within 60 calendar days after consummation:
zero tolerance-any amount excess must be refunded
10% tolerance - the excess of the sum amount must be refunded.
