NAFCU Compliance Blog

The Regulation Z Open End Proposal Drops; Additional 21-Day Guidance

Posted by Anthony Demangone

Yesterday, the Federal Reserve released a proposal to amend the open end rules to Regulation Z.  Specifically, the Fed's proposal is designed to implement the sections of the Credit CARD Act that will take affect February 22, 2010. 

First things first.

1. The RESPA section-by-section analysis is going to be put on hold.  Perhaps for a good while.  

2. We're going to discuss this proposal quite a bit.  There may be others (inside or outside your credit union) who would benefit from the discussions we lead on this blog.  Feel free to forward this email to them.  They can sign up to receive daily blog emails via this link. They'll have to enter their email address and later click on a confirmation email.  There's no cost, and this blog is open to all credit unions - not just NAFCU members.  And they can unsubscribe at any time.

Now, on to the proposal.  It is 841-pages in length.  That page number, however, includes the preamble, model forms, official staff commentary, etc.  What I want to do today is to "shrink" the proposal into a series of usable tools.

1. Here's a link to the proposal.  Stop right now and save the document to your computer.  Personally, I'd have it on my desktop.  You'll be referring to this proposal quite a bit, so this will save you some time.
2. Within the 841-page document, there is a 7-page summary of the major changes.  I'd read that next.   View the overview here.
3. Some sections apply just to credit cards.  Some to all open-end credit.  The Fed created a 2-page chart to clarify which sections apply to what.  View the chart here.
4. Perhaps you just want to look at the regulatory text without the charts, commentary, preamble, etc.  The actual regulatory language is roughly 127 pages.  Not short, but far better than 841-pages  Read just the regulatory language here.
5. If you must print out this document, consider printing it on both sides (duplex).  Even better, when printing it, consider printing two pages on each side.  In other words, each piece of paper will have 4 pages of the proposal.  That way, you can print out all 841-pages of the proposal on roughly 210 sheets of paper.

Here are some general thoughts and observations:

• There's new guidance on the 21-day issue.  The Fed issued a proposed change to the commentary to indicate that the prohibition against treating a payment as late for any reason only applies during the 21 days after a statement is mailed.  Here's the language, which can be found on page 592.

2. Treating a payment as late for any purpose and collecting any finance or other charges. Treating a payment as late for any purpose includes increasing the annual percentage rate as a penalty, reporting the consumer as delinquent to a credit reporting agency, or assessing a late fee or any other fee based on the consumer’s failure to make a payment within a specified amount of time or by a specified date. The prohibition in § 226.5(b)(2)(ii) on treating a payment as late for any purpose or collecting finance or other charges applies only during the 21-day period following mailing or delivery of the periodic statement. When an account is not eligible for a grace period, imposing a finance charge due to a periodic interest rate does not constitute treating a payment as late or collecting finance or other charges as a result of a failure to comply with § 226.5(b)(2)(ii).

And the Fed discussed it on pp. 30-31 in the preamble as well.

The Board is proposing to amend comment 5(b)(2)(ii)-2 in several respects in order to clarify the consequences of a failure to comply with the requirement in § 226.5(b)(2)(ii) that creditors adopt reasonable procedures designed to ensure that periodic statements for open-end credit plans are mailed or delivered at least 21 days before the payment due date and the date on which any grace period expires. First, the title of the comment would be amended to cover both treating a payment as late for any purpose and collecting any finance or other charge. Second, because § 226.5(b)(2)(ii) only prohibits the creditor from treating a payment as late for any purpose or collecting any finance or other charge as a result of a failure to comply with the general 21-day requirement, the comment would be amended to clarify that the prohibition in § 226.5(b)(2)(ii) on treating a payment as late for any purpose or collecting finance or other charges applies only during the 21-day period following mailing or delivery of the periodic statement. Thus, if a creditor does not receive a payment within 21 days of mailing or delivery of the periodic statement, the prohibition does not apply and the creditor may, for example, impose a late payment fee.

Here are a few thoughts on this issue.  First, this is a proposed amendment to the staff commentary.  It isn't final yet.  Second, it isn't clear exactly what this means.  There's still a requirement to have reasonable procedures that ensure that statements are mailed or delivered at least 21 days before the due date.  Is the only consequence of not meeting the 21-day requirement (assuming the proposed commentary becomes final) that credit unions must wait 21 days to charge a late fee, etc.?  Or could a credit union that fails to meet the 21-day requirement also be exposed to an administrative action for a violation of Regulation Z?  We are seeking to clarify this issue.

• The comment period is only 30 days from when this is published in the Federal  Register.  Ugh.
• The Fed indicates that it intends to make the effective date for this rule February 22, 2010.  That makes sense, as that is the requirement under the Credit CARD Act.  But the Fed is considering whether it wants to also make the provisions of its open-end final rule that were to take effect July 1, 2010 effective on February 22, 2010 as well, as many of those provisions are closely related to the CARD Act.  If the Fed does that, those effective dates will be moved up more than 4 months. 
• The minimum payment warning language will only apply to credit card accounts under an open-end plan.  See p. 367 et seq. Whew.
• Since the Fed has issued 4 proposed or final rules that affect open end lending in 2009, they decided to republish all sections of Regulation Z from the 4 proposals or final rules that affect open-end (non-home secured) credit. They are also including the UDAP provisions, with proposed amendments to make them jibe with the Credit CARD Act.

Federal Reserve Issues Proposed Rules on Credit Card Provisions

Posted by Steve Van Beek

Earlier this morning, the Federal Reserve issued its proposed rules to implement the Credit Card Act provisions effective on February 22, 2010.  The proposed rules amend Regulation Z and are contained in a PDF at the bottom of the press release.  The proposed rules are 842 pages long (including background, preamble, the regulations, official staff commentary, and model forms).  I'd save the large PDF to your desktop as a starting point.    

Tomorrow morning we will discuss a game plan for reviewing this proposed rule.  One thing to note is the short notice-and-comment rulemaking phase:  "Comments on the proposal must be submitted within 30 days after publication in the Federal Register, which is expected shortly."

 

RESPA: 3500.7(g) and (i); HUD Happenings

Posted by Anthony Demangone

Let's wrap up the GFE portion of the new RESPA rules today.  There's not much more to 3500.7.  However, stay focused, as the last two sections are very important.

3500.7(g)

This section reminds us that the GFE is not a loan commitment.  Specifically, HUD states "(t)he loan originator is not required to provide a GFE if the loan originator does not have available a loan for which the borrower is eligible."

There is a HUD FAQ Q and A that might confuse you. Here's GFE General FAQs, #1.

Q: What happens if a GFE is not provided to a borrower?

A: In a transaction involving a federally related mortgage, the loan originator is required to provide a GFE to the borrower. Failure to provide a GFE as required is a violation of Section 5 of RESPA.

Hmmm.  The reg says no GFE is required if the borrower is not eligible for a loan.  This FAQ says you always need to provide it.  Here's my take.  I think HUD's Q and A simply means that when you are required to provide a GFE, failure to provide it is a violation.  But if the applicant isn't eligible for any of your loan products, there's no requirement.  And just in case you were unclear, even the issuance of a GFE is not a loan commitment.

Q: Is a GFE a loan commitment?

A: No, the GFE is not a loan commitment. A GFE is an estimate of settlement charges a borrower is likely to incur to obtain a specific loan.   GFE General FAQs, #9.

3500.7(i)

Cure, baby, cure.  A violation of section 3500.7 is deemed to have violated section 5 of RESPA.  There is hope, though.  If any charges at settlement exceed the charges listed on the GFE by more than any allowed tolerances, can can cure the mistake!  Simply reimburse the borrower the amount by which the tolerance was exceeded.  You can do this at settlement of within 30 calendar days after settlement.  You'll be OK if you deliver or place the payment in the mail within 30 calendar days after settlement.

There are a number of "cure" Q and A's within HUD's FAQ document.  Here's one that caught my eye:

Q: Does the settlement agent have to stop the closing if a tolerance would be violated?

A: No, the settlement agent does not need to stop the closing. While HUD recommends that the lender cure the tolerance violation at closing, the lender has 30 calendar days to cure.   HUD RESPA FAQ, Right to Cure and Tolerance Violations #3.

***

HUD has been busy lately.

• HUD issued a number of mortgagee letters. Letters 09-28,29 and 30 address appraisal standards for FHA mortgages.  If your credit union does those, I'd familiarize yourself with the guidance documents.
• HUD also issued Letter 09-35 to discuss loan mitigation issues surrounding FHA loans.
• Also, you may want to keep the mortgagee letter link handy if you are responsible for HUD issues at your credit union.  From it, you can access any mortgagee letter dating back to 1976.

RESPA: Section 3500.7(e) and (f).

Posted by Anthony Demangone

Let us continue the march through RESPA.  I apologize in advance for the length and density of this post.  But what could I do?  This is RESPA, after all.

3500.7(e)  Tolerances

There are three types of fees under the new RESPA rules.  First, the actual charges at closing may not exceed the amounts listed on the GFE for the following charges: origination charges, charges related to the locking of interest rates and transfer taxes. The rationale for these makes sense.  The credit union should know what it's own fees are, and transfer taxes should be known at the time the GFE is provided.  But there is some flexibility, in that creditors can issue revised GFEs  if changed circumstances result in higher costs for the creditor.  In addition, if information that was not know or was not relied upon becomes available, that too can form the basis for a revised GFE.  We'll discuss this a bit more later.

The second category of charges at settlement may not be greater than 10 percent above the sum of the amounts included on the GFE.  These are lender-required settlement services where the lender selects the third party settlement service provide.  Also included are lender-required services, title services and required title insurance and owners title insurance when the borrower uses a settlement service provided identified by the loan originator, and government recording charges.

The third category?  Everything else on your GFE.  Those fees may change at settlement.

3500.7(f) Binding GFE

This section clarifies that the lender is bound (within the applicable tolerances) to the GFE, unless a new GFE is given before settlement according to RESPA's requirements.  When creditors issue revised GFEs, they must document the reason and maintain this record for no less than 3 years after settlement.  The following situations permit a revised GFE.

• Changed circumstances affecting settlement costs.  If such changes increase costs beyond the tolerances, the originator may provide a revised GFE within 3 days of receiving information to establish the changed circumstances. Here's some interesting guidance found within the Preamble:

None of the information collected by the originator prior to issuing the GFE may later become the basis for a ‘‘changed circumstance’’ upon which a loan originator may offer a revised GFE, unless the loan originator can demonstrate that there was a change in the particular information or that it was inaccurate, or that the loan originator did not rely on that particular information in issuing the GFE.A loan originator would have the burden of demonstrating nonreliance on the collected information, but may do so by various means, including through, for example, a documented record in the underwriting file or an established policy of relying on a more limited set of information in providing GFEs. If a loan originator issues a revised GFE based on information previously collected in issuing the original GFE and ‘‘changed circumstances,’’ it must document the reasons for issuing the revised GFE, including, for example, its nonreliance on that information or the inaccuracy of the information, and retain that documentation for at least 3 years. (Emphasis added.) 73 Fed. Reg. 68212.

• Changed circumstances affecting the loan.  These would be changes that affect the borrower's eligibility for the specific loan terms identified in the GFE.

• If the borrower requests changes to the loan that changes settlement charges or the terms of the loan.

• Expiration of the GFE.  If the borrower doesn't express an intent to continue within 10 days after the GFE is issued, or longer if you provide it, you are no longer bound by the GFE.

• Interest rate dependent charges and terms.  If the rate was not locked by the borrower, or a locked interest rate expired, the associated charges and terms may change.  If the borrower later locks the rate, a new GFE must be provided showing the revised rate charges and terms.  All other charges and terms must remain the same, except as otherwise possible under this section.

• New home purchases. In transactions involving new home purchases where settlement is expected to occur more than 60 calendar days from the time a GFE is provided, the originator may provide the GFE to the borrower with a clear and conspicuous disclosure stating that at any time up until 60 calendar days before closing, the originator may issue a revised GFE.  If no such separate disclosure is provided, the loan originate cannot issue a revised GFE, except as otherwise possible under this section.

Again - I aplogize for the length and density of this post.  Perhaps I was just cranky as I wrote this, as PSU was trounced by Iowa this weekend.  Grrrr.

CARD Act Deadlines to Move Up?!?; RESPA: Section 3500.7(c) and (d)

Posted by Anthony Demangone

Yesterday, Reps. Barney Frank (D-MA) and Carolyn Maloney (D-NY) introduced legislation that would move up the compliance deadline for the remaining provisions of the Credit CARD Act to December 1, 2009.

Read the Financial Services Committee press release here.
Download the legislation here.
Here's a link to the original Credit CARD Act.

The legislation is deceptively short.  It basically says this: Anything that was effective 9 months after the Credit CARD Act was enacted is now effective December 1, 2009.  And it added additional provisions to move up the effective dates concerning gift cards, reasonable fees and the "look-back provision" concerning increased APRs to December 1, 2009 as well.

OK, you can pick up your jaw now.  Before we hit the panic button, this legislation must pass numerous hurdles before it could become law.  NAFCU's lobbyists are actively communicating with all the necessary parties to let them know the enormous compliance burdens this would cause.  Not to mention the fact that it would pretty much ruin my birthday and Thanksgiving, which fall on the same day this year.

Personally, I see this as Reps. Frank and Maloney voicing their displeasure (loudly) with the financial institution industry.  This comes from the press release.

“Pew Charitable Trust reports that interest rates have spiked by an average of 20% on credit cards representing more than 91% of the $864 billion in outstanding credit card balances. It’s clear that credit card companies are taking advantage of this period between the signing of my bill and the current effective date,” Rep. Maloney said. “The breadth and depth of the rate hikes happening now point to the need for faster consumer protections. Americans need relief now.”

Stay tuned, but don't panic yet.

***

Let's move on to our RESPA overview.  Let's continue with the GFE requirements, shall we?

Section 3500.7(c).

GFE Expiration. A credit union's estimates of the charges and terms on the GFE must be available for at least 10 business days.  But you can extend that time period if you wish.  This requirement does not apply to everything, thank goodness.  It doesn't apply to the interest rate, charges and terms related to the interest rate, and per diem interest.

It could have been worse.  Consumer groups wanted 30 days.

I again underscore the fact that the 10-day period doesn't apply to interest rates.  If you don't believe me, here's HUD's take on this issue from the preamble to the final rule:

Accordingly, the final rule provides that the interest rate stated on the GFE will be available until a date set by the loan originator for the loan. HUD is not requiring the interest rate to be available for any specific length of time.The final rule provides that the loan originator indicate on the GFE the period during which the interest rate is available. After that time period, the interest rate, the interest rate related charges, and loan terms, including some of the loan originator charges, the per diem interest, and the monthly payment estimate for the loan could change until the interest rate is locked.  (Emphasis added.) 73 Fed. Reg. 68,216.

There was only one question and answer on HUD's FAQ document that addressed this:

Q: When does a GFE expire?

A: If a borrower does not express an intent to continue with an application within ten business days after the GFE is provided (or such longer time period specified by the loan originator), the loan originator is no longer bound by the GFE.

Section 3500.7(d).

This section gets to content and form of the GFE.  Rather than go through all f that here, I think you'd be best served to review this post, where I highlight the fact that Appendix C of the final rule will answer most questions concerning how to complete the GFE.

***

Have a great weekend, everyone.  Even you Hawkeye fans.

Updated Overview of Credit CARD Act

Posted by Steve Van Beek

NAFCU has updated its Overview of the Credit CARD Act (NAFCU-member only).  This update goes into further detail for the provisions which will be effective February 22, 2010.  Obviously, we are all waiting to see how the Federal Reserve regulates these provisions in its proposed (and then final) regulations.  

Each updated section includes a topic list, effective date, sumamry, analysis, and related notes to help explain some of the upcoming requirements.  Below is an example of one of the updated sections.  Here is a sample:

"Sec. 203. Renewal Disclosures.

Topics: Renewal Disclosures for Annual Fees

Effective Date: February 22, 2010. Blog Posting Here

Applies to: Credit Cards with Annual Fees

Summary: This section amends Section 127(d) of TILA which details the process by which card issuers charge annual fees on existing accounts. The section removes the prior paragraph (2) which was a special rule that allowed card issuers the ability to provide a renewal disclosure on the periodic statement where the annual fee was imposed – if the card issuer also allowed 30 days for the consumer to reject the annual fee and close the account. This option has been removed from TILA.

Analysis: If your credit union relied on the “special rule” [or “delayed notice” as it is called in Regulation Z – 12 C.F.R. 226.9(e)(1)] for providing the renewal disclosure for a credit card with an annual fee, you will need to change your procedures due to the removal of the “special rule.”

After February 22, 2010, Section 127(d) of TILA will appear as follows:

“(d) DISCLOSURE PRIOR TO RENEWAL.—

(1) IN GENERAL. -- A card issuer that has changed or amended any term of the account since the renewal that has not been previously disclosed or imposes any fee described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i) shall transmit to a consumer at least 30 days prior to the scheduled renewal date of the consumer's credit or charge card account a clear and conspicuous disclosure of—
(A) the date by which, the month by which, or the billing period at the close of which, the account will expire if not renewed;
(B) the information described in subsection (c)(1)(A) or (c)(4)(A) that would apply if the account were renewed, subject to subsection (e); and
(C) the method by which the consumer may terminate continued credit availability under the account.
(2) SHORT-TERM RENEWALS.--The Board may by regulation provide for fewer disclosures than are required by paragraph (1) in the case of an account which is renewable for a period of less than 6 months.”

Therefore, the credit union would have to provide information about the annual fee or other periodic fee at least 30 days before the annual fee [or another of the fees described in subsection (c)(1)(A)(ii)(I) or (c)(4)(A)(i)] is assessed and the card is renewed. The notice must also include information on how the member can cancel the account before the imposition of the annual fee.

Note: Regulation Z, 12 C.F.R. 226.9(e)(3) does allow this 30-day advance notice of the credit card renewal to be disclosed upon the periodic statement. However, if the notices are on the back of the periodic statement – the credit union would need to make a reference to the disclosures on the front of the periodic statement.

Amendments Needed: The Federal Reserve will need to amend Regulation Z – Part 12 C.F.R. § 226.9(e) – to reflect the removal of the “Delayed Notice.” Existing language of Reg Z – 12 C.F.R. § 226.9(e) is here."

***

We will continue our RESPA discussions tomorrow.  

RESPA: Section 3500.7(a)

Posted by Anthony Demangone

Section 3500.7 of RESPA discusses Good Faith Estimates (GFEs), so we're going to walk our way slowly through the material. Very slowly.  In fact, today, we're just going to hammer 3500.7(a).  This little subsection is more than enough for a Wednesday.  Believe me.

Section 3500.7(a)

GFE timing. Credit unions making loans subject to RESPA must provide the borrower a GFE no later than three business days after it receives an application, or information sufficient to complete an application.  Note that I bolded "terms of art."  Both "application" and "business days" are defined terms.  As I noted in an earlier post, an application must contain at least six required pieces of data.  And business day?  You won't find that in the final rule, as HUD didn't change the definition.  It continues to mean any "day on which the offices of the business entity are open to the public for carrying on substantially all of the entity’s business functions."  If you mail the GFE, the borrower is considered to have received it three calendar days after it was mailed, not including Sundays and legal holidays.

Exceptions. You are not required to provide the applicant a GFE before the end of the 3-day period if you: deny the application or the application is withdrawn.  There's another exception, which has not changed, although it has been renumbered.  The GFE requirement does not apply to HELOCs, assuming that you provide the disclosures required by Regulation Z.  This will now be found within section 3500.7(h).

Fees.  You are not permitted to charge as a condition of receiving a GFE any fee for an appraisal, inspection or other similar settlement service.  You can charge a fee for the cost of a credit report.  No other fees can be charged until the member has received the GFE.  But note: HUD's frequently asked questions guidance document adds another layer to this.  

 Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report?

A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services.

Supplemental information.  You can collect any information that you require in addition to the required application information.  But you are not permitted to require, as a condition for providing a GFE, that an applicant submit additional information to verify information provided on an application.

Editor's note: HUD's RESPA FAQ document has been updated again.  This time on September 18, 2009. 

RESPA - Sections 3500.1 and .2

Posted by Anthony Demangone

First things first.  Here's a link again to the final RESPA rule.  "Ugh," you may say.  "It is 86 pages long.  And not just 86 pages - 86 "Federal Register" pages!  Who has the time!?"

Ah, but most of the 86 pages will be useless fluff when it comes to your specific questions.  So, don't worry about the forest.  Focus on the trees you care about.  If you were to cut out the pages that contain the new regulatory text, those 86 pages turn into five pages.  That's right.  There are five pages of new regulation, and 81 pages of explanation, model forms, new appendixes, etc.

Here are those five pages. 

So, if you have a question, you may want to see if the new changes address it.  You may need to look at the existing regs for a while as well, as the new RESPA that take affect January 1, 2010 do not completely replace the existing regs. So here's a link to the existing RESPA rule.

Let's begin, shall we?

24 C.F.R. 5300.1: Designation and Applicability

There's not too much here.  This is the section that created the two different compliance deadlines within the new RESPA rules.  Some requirements took affect January 16, 2009.  Those were sections addressing "required use," the use of actual charges on settlement statements, escrow accounts, the servicing disclosure statement, and E-SIGN applicability, and a "severability" section.  Remember that HUD withdrew the "required use" provision after an avalanche of criticism crashed into the Agency.  Those changes were not earth-shattering, and they went into affect a long time ago.

24 C.F.R 5300.2: Definitions

HUD tweaked or created 12 new definitions in its new RESPA rule.  One of those was "required use," so perhaps a more accurate count is 11.  Regulatory definitions are like...well, potatoes.  You take the potato for granted.  But take away the potato, and you have problems.  No french fries.  No mashed potatoes.  No Mr. Potato Head.  You get the idea.  Definition sections are like that.  They are in every regulation, but many fail to consult them.   You might think you know what terms such as prepayment penalty, balloon payment, changed circumstances, or application mean.  But do you know what they mean in the context of RESPA?  When you are doing research, always look for defined terms.    For example, can one of your employees be viewed as a mortgage broker?  No.  The definition of "mortgage broker" specifically excludes employees of the lender.

Of note, the term "application" is interesting.  What constitutes an application?  It has to have at least 6 pieces of information.  (Name, monthly income, SSN, property address, estimate of property's value, and the mortgage amount sought."  Here's what HUD had to say:

The final rule now defines ‘‘application’’ to include at least these six items of information. Therefore, under this single application process, a loan originator may ask for, or a borrower may choose to submit, more information than the loan originator intends to use to process the GFE, for example the information on a standard 1003 mortgage loan application form, but beyond the six items of information, the loan originator will determine what it needs to issue a GFE. HUD strongly urges loan originators to develop consistent policies or procedures concerning what information it will require to minimize delays in issuing GFEs.

Can you issue a GFE without the property's address?  HUD's RESPA FAQ guidance says yes.  But it clarifies that the subsequent submission of an address does not allow the lender to establish a "changed circumstance" pursuant to section 3500.7.  (We'll get to that later.)

RESPA - Let's Get It Started

Posted by Anthony Demangone

You asked for it, so here it is.  Our section-by-section overview of the RESPA final rule.  Today, however, we'll just provide a general posting to give you some useful tools.

First, here's a link to the guidance documents that will provide all the answers.

• The RESPA final rule.

• HUD's FAQ document, concerning the final rule. (Updated 09/09/09.  HUD seems to be updating this document a lot.  So it may make sense to keep checking back from time to time.)

And here's another document that I think you'll find useful.   I've cut 16 pages out from the RESPA rule.  Within the 16 pages, you'll find Appendix A and C, as well as the model GFE and HUD-1 forms.  Appendix A provides the instructions for the HUD-1, and Appendix C provides the instructions for the GFE.  Here's the Golden Guidance.  If you have a question on how to complete one of the forms, I think these 16 pages will answer most of your questions.

So, when looking for answers, here's how I would attack RESPA issues.

1. Look at the actual final rule.
2. If the answer isn't clear, look to the preamble to the final rule.  This is the part of the final rule where HUD discusses new parts of the guidance to explain what it was thinking and what it expects.
3. If it the answer still isn't clear, look at the FAQ document.
4. If the answer still isn't clear, and the issue involves the GFE or HUD-1, look at Appendix A or C.

5. If you still are not sure, flip a coin.  Just kidding.  But if you've done all this work and you still do not have an answer, you could ask for a legal opinion from an attorney (expensive), contact HUD directly (you may not get the answer you want) or make the best business decision you can and then document your research.  If an exam or lawsuit questions your decision, you'll have to defend yourself.

We Need Your Help

Posted by Sarah Loats

It's Friday, so I'm going to take it easy and not post anything substantive today. Today, I'm going to beg. As you may know, we are trying to revamp the Policy Exchange Library. With some help from some of you we've worked on a new format. But the most important part is new policies. So, if any of you out there have any policies you'd be willing to share (they can be posted anonymously) with others, we'd love to have them. If everyone provided just one policy, just think how many we'd have! Please send any and all to me at [email protected].

***

Last week Anthony mentioned we might get moody if our teams lost last weekend. Well, both my Buckeyes and Bengals faltered, but I think I took it rather well. That could have something to do with the fact that I was in Chicago watching baseball and didn't actually see the 87-yard touchdown fluke. I think both of the guys were happy with their respective teams.

Have a good weekend everybody!

IAT Compliance Deadline is Tomorrow; Charleston; Compliance Survey

Posted by Anthony Demangone

The delay of the original compliance date for NACHA’s IAT rule is nearing an end as the revised compliance date, September 18, 2009, is around the corner. Actually, it is tomorrow!  The rule requires that an international ACH transaction entry contain a list of required information as well as BSA’s "Travel Rule" data.

An International ACH Transaction is defined as an ACH entry that is part of a payment transaction involving a financial agency’s office that is not located in the territorial jurisdiction of the United States. Financial agency means an entity that is authorized by applicable law to accept deposits or is in the business of issuing money orders or transferring funds.

An office of a financial agency is involved in the payment transaction if it:

1. holds an account that is credited or debited as part of a payment transaction; or

2. receives funds directly from a Person or makes payment directly to a Person as part of a payment transaction; or

3. serves as an intermediary in the settlement of any part of a payment transaction.

Fortunately, NACHA does provide a wealth of information on its website on the rule, including FAQs, which you can access by clicking IAT Rule Helpful Materials.

***

For those of you attending our Regulatory Compliance Conference next month in Charleston, SC, you may want to take a look at TripAdvisor's Charleston page.  On the left-hand side, you'll see links for restaurants and "things to do."  Both list the top attractions in each category.   I can't wait!  But no internet surfing at work!  I don't want you getting fired before the conference.

***

Yesterday, NAFCU sent a compliance-related survey to member CEOs and to everyone in our database who has a job title related to compliance.   We're seeking feedback on our performance.  If you are a NAFCU member who didn't receive an email and you'd like to take part, email Lindsay Hunter at [email protected]. She'll email you a copy of the survey, which you can then fax back.

Switching to Variable-Rate Credit Cards?

Posted by Steve Van Beek

Due to some of the Credit CARD Act restrictions, quite a few credit unions are discussing whether to switch from traditional fixed-rate credit cards to variable-rate credit cards.  More have already made the switch.  And, as this Wall Street Journal article notes, big banks have been migrating their accounts as well.    

This discussion comes with plenty of risks to analyze and decisions to make.  I will try to pull them apart and analyze them separately below.  

Use of "Fixed" to Describe a Credit Card

Section 103 of the Credit CARD Act places restrictions on the use of "fixed" to describe a credit card account.  After February 22, 2010, the credit union will only be able to use "fixed" to describe cards that will never increase - or indicate a period of time where the rate will be fixed (i.e. "fixed rate for two years").  

If you do not want to change to variable-rate cards - and you want to retain the ability to increase rates in the future (via 45-day advance notice subject to the right to cancel) - you will want to refer to your credit cards as "non-variable."  Thus, you would have a "non-variable 9.99% APR" or just "9.99% APR" rather than a "Fixed 9.99% APR."  Remember, after February 22, 2010, if you continue to refer to your non-variable rate credit card accounts as "fixed" and advertise them as "fixed" - you will lose the ability to raise the APR on those accounts (unless you clearly disclose the period of time the card will be fixed).  Work with your marketing folks to make sure everyone is on the same page.

Making the Switch - 45-days Advance Notice & Right to Cancel

If the credit union decides to switch from a fixed/non-variable rate to a variable-rate, it must give 45-days advance notice and the right to cancel to the member.  What if the change results in a lower APR?  Is the change-in-terms notice and right to cancel still applicable?  Yes, as the Federal Reserve indicates in the official staff commentary:

"4. Changing from a non-variable rate to a variable rate. If a creditor is changing a rate applicable to a consumer's account from a non-variable rate to a variable rate, the creditor must provide a notice as otherwise required under §226.9(c) even if the non-variable rate is higher than the variable rate at the time of the change." Comment 4 from the Official Staff Commentary to 12 C.F.R. 226.9(c)(2)(v).

This makes sense.  Even though the variable rate may be lower, a major term of the account has been changed.  The account's APR will now fluctuate in accordance with an established index, outside of the FCU's control, which allows the APR on the account to increase if the index increases - without advanced notice.

Impact on Outstanding Balances

The Credit CARD Act also includes restrictions on raising the APR on outstanding balances.  That restriction becomes effective February 22, 2010.  If the credit union were to switch to variable rates prior to February 22, 2010, that change could apply to the member's outstanding balance on the account.  If the credit union made the switch after February 22, 2010 - only new transactions would have the new variable rate and the outstanding balance would remain at the prior, non-variable APR.

Further, variable-rate accounts have an exception to restriction on raising the APR on outstanding balances.  For example, assume your accounts have a variable 9.99% APR consisting of the WSJ prime rate (ex: 4.99%) and a 5% margin.  If the WSJ prime rate, an index outside of the FCU's control, raises to 5.49% - the FCU's credit card APRs could rise to 10.49% without a requirement for the advance notice and the right to cancel.  The increased APR would apply to the outstanding balance as well as future transactions.

In contrast, if the credit union needs to increase a non-variable rate to address the same interest rate risk - the procedure is not as easy.  The credit union would need to send a 45-day advance notice of the increase in APR - along with the right to cancel - to its members.  If a member does not cancel the change, the change could only apply to future transactions and not the member's outstanding balance.  This is because the exception only applies to variable-rate accounts where the APR increase is outside the FCU's control.  In the non-variable context, the credit union has made the decision to increase the APR.

Making the Switch After February 22, 2010

If the credit union decides to make the switch until after February 22, 2010, the outstanding balances on the accounts will remain at the prior, non-variable APR.  The restriction on raising the APRs on outstanding balances goes into effect on February 22, 2010.  What if the credit union switches to a lower variable-rate APR?  It is unclear how the Federal Reserve's forthcoming proposed regulations will address this situation.  We will know by February 22, 2010 how the Fed answers this question.  

Forty-Five Days Advance Notice & Right to Cancel

Remember, if the credit union decides to switch from "fixed" or non-variable rates to variable rate for its existing credit card accounts - the 45-day advance notice and right to cancel under 12 C.F.R. 226.9 apply.  Those requirements became effective August 20, 2009.  

Wild-Card - The 6-month "Look-back Provision"

As discussed in this blog posting, Section 101 of the Credit CARD Act requires that financial institutions must do a "6-month review" of credit card accounts where the APR has been increased since January 1, 2009 to determine if the same conditions apply.  Senator Dodd has sent letters to the regulators pressing them to examine closely on this issue.  Unfortunately, we do not know how the Federal Reserve will interpret this section.  This subsection will be effective August 22, 2010 - but will apply to increases in APRs since January 1, 2009.  If the credit union is raising APRs (regardless of whether it involves a switch to variable rates), be sure to document the reasons for the increased APRs.  This documentation will come in handy for performing the 6-month reviews and for showing examiners your due diligence.

1 + 1 = 2; Uh-oh, they did it again

Posted by Anthony Demangone

Sometimes, an issue can be as easy as a math equation.

The GAO issues a report critical of NCUA in the area of fair lending. (Here's an earlier post about the GAO report.)

+

NCUA issues NCUA Regulatory Alert 09-RA-09 to highlight new interagency fair lending examination procedures.

=

A greater emphasis by NCUA on fair lending in general.  You've been warned. 

What is stressed in the new procedures? According to NCUA:

The FFIEC updated the procedures previously in effect since 2000 to expand upon the general guidance for identifying areas of potential risk. In addition, the procedures also address important contemporary issues such as:

1. The risks and potential fair lending implications associated with using brokers or other third party entities for various aspects of lending operations;
2. Management’s practices relative to loan pricing and procedures for detecting potential disparities; and
3. Management’s practices for ensuring policies and procedures do not result in the inappropriate steering of borrowers to higher priced loan products.

***

I think HUD updated their FAQ document.  Again.   This is the third version of the FAQ.  And the new versions of the FAQ are issued with little fanfare.  We'll have to keep a close eye on this.

Escrow for Flood Insurance; Dividends on Escrow Accounts?

Posted by Steve Van Beek

The new higher-priced mortgage requirements under HOEPA require the escrowing of taxes and mortgage insurance for loans secured by a first lien on a principal dwelling.  This blog post discusses this requirement.  Reminder: the deadline is April 1, 2010 (or October 1, 2010 for manufactured homes).  

So what does this have to do with flood insurance?  NCUA's regulations require credit unions that escrow for taxes and mortgage insurance to also escrow for flood insurance:

"§ 760.5 Escrow requirement.
If a credit union requires the escrow of taxes, insurance premiums, fees, or any other charges for a loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after November 1, 1996, the credit union shall also require the escrow of all premiums and fees for any flood insurance required under § 760.3. The credit union, or a servicer acting on behalf of the credit union, shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609) (RESPA), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and requires escrow account statements for those accounts, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the credit union, or a servicer acting on behalf of the credit union, shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due."

Note that the section says "if a credit union requires the escrow."  Could you argue that it is not the credit union requiring escrow but, rather, HOEPA which requires the credit union to escrow?  I'm not so sure.  In practice, the credit union would require escrowing of taxes and mortgage insurance to comply with HOEPA and, therefore, would need to escrow for flood insurance as well.

Thanks to Katey from Chevron FCU for bringing this to our attention.  

***

The new HOEPA requirements will result in some credit unions escrowing for the first time which will bring some new challenges.  One of them is state law that attempts to require escrow accounts to pay interest (or dividends).  

Do federal credit unions have to pay dividends on escrow accounts?  NCUA says that these state laws are preempted as they attempt to regulate the setting of dividends (an explicit power granted to the FCU Board under the Federal Credit Union Act).  Here is another NCUA opinion from 1991 on a Wisconsin state law.

Dispute Fees; Foreclosure and Evictions

Posted by Anthony Demangone

Credit card and debit card disputes can be a drag.  Especially if the dispute seems to be nothing more than an attempt to weasel out of a legitimate transaction.  Can you fee members if the dispute resolution shows that the member actually conducted the transaction?

It doesn't look like it.

Regulation Z or Regulation E governs plastic disputes, depending on the situation.  But both regulations indicate that financial institutions should not do things to "chill" good faith assertions of errors.

Regulation Z (Official Staff Interpretation to 226.13)

2. Charges for error resolution. If a billing error occurred, whether as alleged or in a different amount or manner, the creditor may not impose a charge related to any aspect of the error resolution process (including charges for documentation or investigation) and must credit the consumer's account if such a charge was assessed pending resolution. Since the Act grants the consumer error resolution rights, the creditor should avoid any chilling effect on the good faith assertion of errors that might result if charges are assessed when no billing error has occurred. (Emphasis added.)

Regulation E (Official Staff Interpretation to 205.11(c)

3. Charges for error resolution. If a billing error occurred, whether as alleged or in a different amount or manner, the financial institution may not impose a charge related to any aspect of the error-resolution process (including charges for documentation or investigation). Since the act grants the consumer error-resolution rights, the institution should avoid any chilling effect on the good-faith assertion of errors that might result if charges are assessed when no billing error has occurred. (Emphasis added.)

Both sections do use the word "should."  But I think the Fed is very clear on this issue.  And from a member service/reputation risk point of view, I know how I would come down on this issue.

***

NCUA has issued NCUA Regulatory Alert 09-RA-08 to remind credit unions of their responsibilities under "The Protecting Tenants at Foreclosure Act of 2009."   Here's a thumbnail sketch:

When a credit union takes title to a rental property after foreclosure, it must:

1. Provide bona fide tenants with 90 days notice prior to eviction; and
2. Allow bona fide tenants with leases to occupy property until the end of the lease term, with the exception that the lease can be terminated on 90 days notice if the unit is sold to a purchaser.

If your credit union does mortgage lending and has or will foreclose on properties, be sure to understand this guidance.

***

NAFCU's Regulatory Compliance team is in a good mood.  We're a collective 3-0, as Michigan, Ohio State and Penn State were victorious last weekend.  Should one or more of our teams falter this Saturday, please take that into account when contacting us.   Just in case we're a bit moody.

Have a great weekend, everyone.  Even you Syracuse Orangemen. And yes, I know they are now called the Orange.  It is just that I am becoming an old fuddy-duddy who hates change of any kind.

A Little of This; A Little of That

Posted by Anthony Demangone

Here are a few things that have been kicking around my in box.  Enjoy.

• Here's a link to my testimony before the House Small Business Committee. (Note: it opens up a YouTube video.)

• OFAC has made a few headlines recently.  First, an Australian bank was hammered with a $5.75 million dollar fine by OFAC.  OFAC rarely issues such fines, and this dollar amount does show that OFAC has sharp teeth when it needs to use them.  OFAC also issued this fact sheet to highlight the loosening of Cuba-related restrictions.  Some of the eased restrictions address remittances.

• Regarding flood insurance, financial regulators have issued revisions to their flood insurance questions and answers, and they've proposed some new ones.  OK, this had been kicking around my inbox for a while.  But if you work with flood insurance at your credit union, you should take a look at this document.

More CARD Act; Can I Have a Witness?

Posted by Anthony Demangone

The OCC issued a very interesting bulletin recently.

The bulletin describes a strange quirk found within the Regulation Z interim final rule, specifically concerning the 45-day change in terms requirements. As we are all aware, we now must give 45-days notice when we increase the APR or change significant terms on a credit card.  And now members have the right to reject those changes.

However, here's what most consumers don't realize: under the rules, the new rates or terms can be applied to any transaction that occurs more than 14 days after the notice is provided – even if the consumer ultimately rejects the changes. The changes to Regulation Z do not require us to tell members about this fact.

Step in the OCC.  Via the bulletin that is linked above, the OCC is directing national banks to include an additional disclosure to notify consumers of this consequence. The OCC hopes that it will minimize confusion.

Here's the relevant language from the bulletin:

To avoid unnecessary consumer confusion, national banks should include the following (or similar) additional information in 45-day advance notices to alert the consumer, if applicable, to the imposition of the new terms on transactions that occur more than 14 days after the notice is provided, regardless of whether the consumer rejects the changes:

NOTE: Even if you reject this change in terms, the new terms will be applied to any transactions on your account that occur on or after [INSERT DATE].

Now, this is an OCC bulletin, so did does not apply to federal credit unions.  Time will tell whether NCUA moves in this direction.  But you may see compliance article drafted about this, and I wanted to bring it to your attention.  Oh, and nothing would prevent you from voluntarily following the OCC guidance.

***

Today, I have the honor of testifying before the House Small Business Committee on the issue of pandemic preparedness.  I will do my best to show how hard the financial services industry, including federal credit unions, has been working on this issue.   With that in mind, here's some good pandemic resources:

• NCUA Letter to Credit Unions 09-CU-13. The letter focuses on hurricanes and the swine flu development.

• NCUA Letter to Credit Unions 08-CU-01. This letter really is the backbone of NCUA's guidance on pandemic issues. 

• NCUA Letter to Credit Unions 06-CU-06.  This was the first piece of pandemic guidance issued from NCUA.
• Part 749, Appendix B.   Don't forget about this new appendix to NCUA's recordkeeping rule.  It touches upon business continuity planning issues.

Frequently-Asked-Questions

Posted by Steve Van Beek

Welcome back, we hope everyone had a peaceful, long weekend.

It seems appropriate to ease back into the week with a softer blog posting.  One of the great aspects about this blog is the ability to store research documents online in one place.  Often times, we are able to point NAFCU-members to information that we have already written on the blog.  Regulators do the same with frequently-asked-questions (FAQs) documents.  

Here is one of my favorites from the FFIEC website on HMDA FAQs - which covers both regulatory and technical questions.  Also, this blog has a category of "FAQs" that you can look through.  Also, this post has numerous FAQ documents organized by topic.  Sometimes the first place to look is if the regulators have specifically addressed your question before.  

RESPA; Cleveland Rocks; Let's Go Buffalo

Posted by Anthony Demangone

The OTS has issued a "CEO's Letter" on the upcoming changes to RESPA.  Access it here.  The letter does a great job of providing a 20,000 foot overview of the changes.  Perfect for, say...a CEO.  Hence the name.  But the letter also notes that the OTS is furiously typing away on revisions to its RESPA examination procedures.  But it is doing so on an "interagency basis."  In other words, NCUA probably is working on the same project.  The OTS has updated a portion of the procedures already - the portion that addresses the parts of RESPA that took effect back in January.  The rest will follow later.  So keep an eye out for that document.  Exam procedures are like getting the grading key before the test.  In a word: useful.  In two words: very useful. 

***

The Fed has issued additional guidance concerning its check processing centralization process.  Yesterday, the Fed announced that the Federal Reserve Bank of Cleveland will handle all paper check adjustments, effective October 1, 2009.  That's in less than 30 days. (Thanks for the heads up, guys.) Read all about it here.

I've stated this before, and I'll say it again.  The Fed at some point will have to re-tool Regulation CC.  All checks eventually are going to be local, as the plan is to have 1 check processing center. The local/non-local distinction is getting blurry.

***

Have a great weekend, everyone.  I am on my way to Buffalo, NY today to attend the wedding of a very good friend.  And guess what just happens to be taking place this weekend in Buffalo?  The Buffalo Chicken Wing Festival.   Vegas has the over-under weight gain for me around 7.5 lbs.  I'm taking the "over." NAFCU is closed on Monday, so the blog will check back with you on Tuesday.

 

Another 45-day Issue - Timing of the First Loan Payment

Posted by Sarah Loats

Does the first scheduled loan payment have to be within 45 days of the loan disbursement date?

This question has come up a bit lately. In short, there are no federal regulations that require a loan payment be made within 45 days. But there still seems to be a lot of confusion surrounding this question.

Under Regulation Z, for closed-end loans, under certain circumstances you may ignore an irregularity in the initial payment period for the purposes of disclosures. Section 226.17(c)(4) states that you may ignore any payment schedule irregularity that results from the irregular first period:

(i) For transactions in which the term is less than 1 year, a first period not more than 6 days shorter or 13 days longer than a regular period;
(ii) For transactions in which the term is at least 1 year and less than 10 years, a first period not more than 11 days shorter or 21 days longer than a regular period; and
(iii) For transactions in which the term is at least 10 years, a first period shorter than or not more than 32 days longer than a regular period.

All this really means, though, is that if the initial first payment period is outside of these tolerances, you can't ignore it in your disclosures. It doesn't mean you can't have an initial payment period outside these tolerances. A 1991 NCUA legal opinion letter touches upon this question.

Note at the end of the letter NCUA mentions state law. Aha, state law. Yes, there may be some state laws out there that speak to this so it probably isn't a bad idea to check that out.

Decreasing Credit Limits; Mention the Blog

Posted by Steve Van Beek

The Federal Reserve's Interim Final Rules cover more than just the 21-day issue.  For example, they address whether advance notice is required to decrease a member's credit limit on a credit card.  Forty-five days advance notice is not required and the right to cancel does not need to be given if a card issuer determines it necessary to reduce a member's credit limit.  However, the issue is more complex than it first appears.

The official staff commentary to 12 C.F.R. §226.9(c)(2)(v) states:

"9(c)(2)(v) Notice not required.
1. Changes not requiring notice. The following are examples of changes that do not require a change-in-terms notice:
i. A change in the consumer's credit limit except as otherwise required by §226.9(c)(2)(vi)......"

The referenced section, 12 C.F.R. §226.9(c)(2)(vi) reads as follows:

"(vi) Reduction of the credit limit. For credit card accounts under an open-end (not home-secured) consumer credit plan, if a creditor decreases the credit limit on an account, advance notice of the decrease must be provided before an over-the-limit fee or a penalty rate can be imposed solely as a result of the consumer exceeding the newly decreased credit limit. Notice shall be provided in writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate and shall state that the credit limit on the account has been or will be decreased."  (emphasis added).

The Federal Reserve explained its rationale in the preamble to the Interim Final Rules.  In essence, the rules are designed so that a card issuer can not reduce a consumer's credit limit - without notice - and then assess over-the-limit fees and penalty rates on the consumer for exceeding the reduced credit limit.

"Section 226.9(c)(2)(vi) requires an issuer to provide a consumer with 45 days' advance notice that a credit limit is being decreased or will be decreased prior to the imposition of any over-the-limit fee or penalty rate imposed solely as the result of the balance exceeding the newly decreased credit limit. The Board is not including a decrease in a consumer's credit limit itself as a significant change in a term that requires 45 days' advance notice, for several reasons. First, the Board recognizes that creditors have a legitimate interest in mitigating the risk of a loss when a consumer's creditworthiness deteriorates, and believes there would be safety and soundness concerns with requiring creditors to wait 45 days to reduce a credit limit. Second, the consumer's credit limit is not a term generally required to be disclosed under Regulation Z or TILA. Finally, the Board believes that Sec.  226.9(c)(2)(vi), as adopted, adequately protects consumers against the two most costly surprises potentially associated with a reduction in the credit limit, namely, fees and rate increases, while giving a consumer adequate time to mitigate the effect of the credit line reduction."  

There is another wrinkle to this situation as well.  Section 226.9(g) requires 45-days advance notice and the right to cancel prior to imposing the penalty APR to a member's account.  However, one of the exceptions is if the credit union has provided notice of the credit limit decrease and indicates to the member that the penalty APR will apply if the member's balance exceeds the reduced credit limit after 45-days expire from the date of the notice.  Here are the details:

"(4) Exceptions —
.............
(ii) Decrease in credit limit. A creditor is not required to provide, prior to increasing the rate for obtaining an extension of credit that exceeds the credit limit, a notice pursuant to paragraph (g)(1) of this section, provided that:
(A) The creditor provides at least 45 days in advance of imposing the penalty rate a notice, in writing, that includes:
( 1 ) A statement that the credit limit on the account has been or will be decreased;
( 2 ) A statement indicating the date on which the penalty rate will apply, if the outstanding balance exceeds the credit limit as of that date;
( 3 ) A statement that the penalty rate will not be imposed on the date specified in paragraph (g)(4)(ii)(A)(2) of this section, if the outstanding balance does not exceed the credit limit as of that date;
( 4 ) The circumstances under which the penalty rate, if applied, will cease to apply to the account, or that the penalty rate, if applied, will remain in effect for a potentially indefinite time period; and
(B) The creditor does not increase the rate applicable to the consumer's account to the penalty rate if the outstanding balance does not exceed the credit limit on the date set forth in the notice and described in paragraph (g)(4)(ii)(A)(2) of this section."

Thus, the credit union is not required to give 45-days advance notice before reducing the credit limit on a member's credit card account.  However, the credit union does need to give notice 45 days prior to imposing an over-the-limit fee or penalty rate because the member is above the reduced credit limit.  And, if the credit union follows the exception in §226.9(g)(4)(ii) - this 45 day notice could replace the normal 45-day notice required under §226.9(g)(1) before imposing the penalty APR on the credit card account.  Importantly, the notice under §226.9(g)(1) requires the right to cancel.  However, the exception in §226.9(g)(4)(ii) does not require the right to cancel.

The official staff commentary to 12 C.F.R. §226.9(g)(4)(ii) provides a detailed example which explains this situation:

"9(g)(4)(ii) Decrease in credit limit.
1. The following illustrates the requirements of §226.9(g)(4)(ii). Assume that a creditor decreased the credit limit applicable to a consumer's account and sent a notice pursuant to §226.9(g)(4)(ii) on January 1, stating among other things that the penalty rate would apply if the consumer's balance exceeded the new credit limit as of February 16. If the consumer's balance exceeded the credit limit on February 16, the creditor could impose the penalty rate on that date. However, a creditor could not apply the penalty rate if the consumer's balance did not exceed the new credit limit on February 16, even if the consumer's balance had exceeded the new credit limit on several dates between January 1 and February 15. If the consumer's balance did not exceed the new credit limit on February 16 but the consumer conducted a transaction on February 17 that caused the balance to exceed the new credit limit, the general rule in §226.9(g)(1)(ii) would apply and the creditor would be required to give an additional 45 days' notice prior to imposition of the penalty rate (but under these circumstances the consumer would have no ability to cure the over-the-limit balance in order to avoid penalty pricing)."

Therefore, if your credit union is considering reducing some credit limits in order to mitigate risk - be sure to realize that even though advance notice is not required for the actual decrease in the credit limit - advance notice is required before charging an over-the-limit fee or imposing the penalty APR for increasing the new credit limit.

***

As I mentioned last week, NAFCU has extended the early-bird pricing for Compliance Seminar for blog readers who use the promo code "THEBLOG" when registering.  The promo code ensures blog readers will save $200 off the regular pricing when registering for the full compliance program before September 4.  Seminar is October 19-22 in Charleston, South Carolina.     

HUD Revises their RESPA FAQ Document; I Always Feel Like...

Posted by Anthony Demangone

September.  Can someone tell me where the Summer went?  Oh, I almost forgot.  Reg Z stole it.  But I digress.

On Friday, HUD issued a revised version of its RESPA FAQ document.  Unfortunately, the document doesn't highlight the new or changed material.  You can access the FAQ here.

For those tracking or responsible for implementing the changes found in the RESPA amendments, this is a must read.  For example, these questions and answers can clear up areas that were very murky.  For example, just when can you charge fees on a RESPA-governed loan, other than for the cost of obtaining a credit report?  Voila!

Q: At what point can a loan originator charge a loan applicant fees for services other than the cost of obtaining a credit report?

A: After a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE, the loan originator may collect fees beyond the cost of a credit report for origination-related services. (Emphasis added.)

Now, this is interesting, because this requirement is nowhere to be found within the new RESPA regulation.  But it does make sense from a consumer's point of view.  So, when tackling a RESPA issue - be sure to check this FAQ document to see if it addresses your issue.

***

A few weeks ago, I took part in a very funny e-mail discussion about Reg Z.  The three compliance officers and I found that Reg Z was very much like the GEICO stack of money from their ever-present commercials.  Regulation Z, like the GEICO stack of money, is always there.  Lurking.  Although, with some important differences.

First, rather than the happy googly eyes, I envision the Reg Z mini mascot to have a angry look or menacing stare.  Second, the music would be much different.  I envision hearing Darth Vader's theme music.  If anyone has other suggestions, please share them in the comments section.