TILA_AC Flashcards
(162 cards)
1
Q
How is Reg Z formatted?
Subpart A,B,C,D,E,F,G
A
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.
2
Q
Does TILA tell banks how much interest they may charge or whether they must grant a consumer a loan?
A
No
3
Q
T or F:
Open-end = NOT home-secured
A
TRUE
Examples: credit cards; home equity loans
4
Q
When did the CFPB further amend Reg Z as well as Regulation X, the regulation implementing the Real
Estate Settlement Procedures Act (RESPA), to fulfill the
mandate in the Dodd-Frank Act to integrate the mortgage disclosures under TILA and RESPA sections 4 and 5?
I.e. the TISA-RESPA Integrated Disclosure Rule
A
2013
5
Q
What did this 2013 amendment require?
When was TILA-RESPA Integrated Rule effective?
A
Regulation Z now contains two new forms required for
most closed-end consumer mortgage loans.
The Loan Estimate - provided within 3 business days from application
Closing Disclosure- provided to consumers 3 business days before loan consummation.
Effective= These disclosures must be used for mortgage loans for which the creditor or mortgage broker receives an application on or after October 3, 2015
6
Q
I. SUBPART A
This subpart contains general information regarding both open-end and closed-end credit transactions. It sets forth definitions 12 CFR 1026.2 and sets out which transactions are covered and which are exempt from the regulation (12 CFR 1026.3). It also contains the rule for determining which fees are finance charges (12 CFR 1026.4).
A
N/A
7
Q
What is the purpose of TILA and Reg Z?
A
The TILA is intended to ensure that credit terms are disclosed in a meaningful way so consumers can compare credit terms more readily and knowledgeably.
8
Q
T or F:
In addition to providing a uniform system for disclosures, the act:
- Protects consumers against inaccurate and unfair credit billing and credit card practices;
- Provides ability to repay requirements and other limitations applicable to credit cards;
- Provides consumers with rescission rights;
- Provides for rate caps on certain dwelling-secured loans;
- Imposes limitations on home equity lines of credit (HELOCs) and certain closed-end home mortgages;
- Provides minimum standards for most dwelling-secured loans; and
- Delineates and prohibits unfair or deceptive mortgage lending practices.
A
TRUE
9
Q
What is successor of interest?
A
Person to whom an ownership interest in a dwelling securing a closed-end consumer credit transaction is transferred from a consumer, provided that the transfer is:
- A transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
- A transfer to a relative resulting from the death of the consumer;
- A transfer where the spouse or children of the consumer become an owner of the property;
- A transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or an incidental property settlement agreement, by which the spouse of the consumer becomes an owner of the property; or
- A transfer into an inter vivos trust in which the consumer is and remains a beneficiary and which does not relate to a transfer of rights of occupancy in the property.
10
Q
T or F:
A confirmed successor in interest is NOT a consumer.
A
FALSE- they are a consumer (once identity/ownership interest is confirmed by bank/servicer)
11
Q
What transactions are exempt from Regulation Z? (6)
A
- Credit extended for Business, Commercial or Agricultural purpose
- Credit extended to a non-natural person (gov. agencies);
- Public utility credit;
- Credit extended by a broker-dealer registered with the SEC or the Commodity Futures Trading Commission (CFTC), involving securities or commodities accounts;
- Home fuel budget plans not subject to a finance charge; and
- Certain student loan programs.
12
Q
Does TILA apply to credit extended to a Trust?
A
Yes, credit extended to trusts established for tax or real estate planning purposes or to land trusts is considered to be extended to a natural person
13
Q
T or F:
However, generally exempt credit (i.e. business purpose 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).
A
TRUE
14
Q
When determining whether credit is for consumer purposes, the creditor must evaluate all of the following? (5)
** consider all 5 factors before determining that disclosures are NOT necessary
** Normally, no ONE factor by itself is sufficient reason to determine the applicability of Reg Z
A
- Statement describing the purpose of the credit (i.e. statement proceeds used for vacation)
- The consumer’s primary occupation and how it relates to the use of the proceeds.
The higher the correlation between the consumer’s occupation and the property purchased from the loan proceeds, the greater the likelihood that the loan has a business purpose. For example, proceeds used to purchase dental supplies for a dentist would indicate a business purpose.
- Personal management of the assets purchased from proceeds.
The lower the degree of the borrower’s personal involvement in the management of the investment or enterprise purchased by the loan proceeds, the less likely the loan will have a business purpose. For example, money borrowed to purchase stock in an automobile company by an individual who does not work for that company would indicate a personal investment and a consumer purpose.
- The size of the transaction.
The larger the size of the transaction, the more likely the loan will have a business purpose. For example, if the loan is for a $5 million real estate transaction, that might indicate a business purpose.
- The amount of income derived from the property acquired by the loan proceeds relative to the borrower’s total income.
The lesser the income derived from the acquired property, the more likely the loan will have a consumer purpose. For example, if the borrower has an annual salary of $100,000 and receives about $500 in annual dividends from the acquired property, that would indicate a consumer purpose.
15
Q
T or F:
A checked box indicating the loan is for a business purpose is sufficient to determine the loan does not have a consumer purpose?
A
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)
16
Q
T or F:
A creditor can furnish TILA disclosures to the consumer regardless if the transaction is covered by Reg. Z?
A
TRUE
In any event, the bank 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 bank and compliance with the law.
17
Q
What are the four coverage considerations for Reg Z to apply?
A
Is the purpose of the credit for personal, family or household use? YES–>
Is the consumer credit extended to a consumer? YES–>
Is the consumer credit extended by a creditor? YES –>
Is the loan or Credit plan secured by real property, a coop unit, or a dwelling? –> YES
Then Reg Z Applies!
18
Q
What must be met under the regulation in order for an entity to be considered a “Creditor”? (3)
A
- The institution extends consumer credit regularly and;
a. The obligation is initially payable to the institution and
b. The obligation is either payable by written agreement in more than four installments or is subject to a finance charge. - The 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 four installments.
- The institution is not the card issuer, but it imposes a finance charge at the time of honoring a credit card.
19
Q
If the loan or credit plan is NOT secured by real property, a coop unit, or a dwelling - then what question?
If yes to this question- then what?
If no, then what?
A
Is the amount financed or credit limit at or below the annual threshold limit? –> YES, then Reg Z applies!
If NO–> Reg Z does not apply, but may apply later if the loan is refinanced for an amount at or below the annual threshold limit (as annually adjusted). 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 of Reg Z will apply.
20
Q
What is the definition of a finance charge?
A
A measure of the cost of the consumer credit represented in dollars and cents
21
Q
What does the finance charge include?
A
Any charges or fees payable directly or indirectly by the consumer and imposed directly or indirectly by the bank either as an incident to or as a condition of an extension of consumer credit
22
Q
What does a finance charge NOT include?
A
Any charge of a type payable in comparable cash transactions
Example:
-taxes
- title
- license fees
- registration fees
All paid in connection with an auto purchase
23
Q
What does a finance charge on a loan ALWAYS include?
A
Any interest charges
24
Q
For which credit transactions are finance charge accuracy tolerances permitted?
If disclosed finance charges are legally accurate, it would not be subject to reimbursement.
A
Closed-end credit
25
T or F:
Finance charge disclosures for open-end credit MUST be accurate since there is no tolerance for finance charge errors.
TRUE- only for closed-end
26
What are the tolerances for finance charges in closed-end transactions, other than a mortgage?
$5 if the amount financed is less than or equal to $1,000
AND
$10 if the amount financed exceeds $1,000
27
What is the finance charge tolerance for credit secured by real property or a dwelling (closed-end credit)?
The disclosed finance charge considered accurate if it is not understated by more than $100
Overstatements are not violations
28
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- one half of 1% tolerance
Finance charge- accurate if not understated by more than 1/2 of 1% of the credit extended or $100 (whichever if greater)
Total of payments for transactions- accurate if understated by no more than 1/2 of 1% of the face amount of the note or $100 (whichever is greater)
**Overstatements are NOT violations (i.e. the amount disclosed overstated the ACTUAL finance charge or total of payments)- considered accurate
29
What is the accuracy tolerance for rescission rights after the 3 business dat rescission period, 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.
Finance Charge: accurate if not understated by more than 1% of the credit extended or $100, whichever is greater.
Total of Payments for transactions- accurate if 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.
30
Right to rescind. After the initiation of foreclosure on the consumer’s principal dwelling that secures the obligation, the consumer can rescind if (2)?
(1) A mortgage broker fee that should have been included in the finance charge was not included; or
(2) The creditor did not provide the properly completed appropriate model form in Appendix H, or a substantially similar notice of rescission.
31
What are the accuracy tolerances for disclosures after the initiation of foreclosure on a consumer’s principal dwelling that secures the credit obligation? (Finance charge; Total of payments)
Finance Charge- accurate if not understated by more than $35
Total of payments- accurate if not understated by more than $35
*Overstatements are not violations!
32
T or F:
Charges imposed by third parties are finance charges if the bank requires use of the third party.
TRUE
33
What is a prepaid finance charge?
Any finance charge paid separately to the bank or to a third-party, in cash or by check before or at closing, settlement, or consummation of a transactions, or withheld from the proceeds of the credit at anytime.
Prepaid finance charges effectively reduce the amount of funds available for the consumer’s use, usually before or at the time the transaction is consummated.
34
Examples of common prepaid finance charges
-Points
-Loan origination fees
- RE/construction inspection fees
- Odd days’ interest (interest attributable to part of the first payment period when that period is longer than a regular payment period),
- FHA mortgage guarantee insurance fees
- PMI
-Credit report fees (non-real estate transactions).
35
What is 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.
36
T or F:
The finance charge initially includes any charge that is, or will be, connected with a specific loan.
TRUE
37
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; tax service fee; life of loan flood monitoring; settlement/closing fees
38
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.
39
What charges are NOT considered finance charges as long as they are a bona fide and reasonable amount? (6)
(residential mortgages & 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.
40
T or F:
The APR, which must be disclosed in nearly all consumer credit transactions, is designed to take into account all relevant factors and to provide a uniform measure for comparing the cost of various credit transactions.
TRUE
41
What is the definition of the amount financed?
Formula (normally)?
Is the itemization of the amount financed required for TRID?
Definition: Net amount of credit extended for the consumer's use.
Amount financed = total of payments - finance charge.
YES- itemization required.
42
How is amount financed calculated (in the regulation 1026.18(b))?
(1) Determining the principal loan amount or the cash price (subtracting any downpayment);
(2) Adding any other amounts that are financed by the creditor and are not part of the finance charge ; and
(3) Subtracting any prepaid finance charge.
EXAMPLE:
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. The consumer has no other debt with the financial institution. The amount financed is $4,975.
Bank treats the $10 service charge as an addition to the loan amount and not as a prepaid finance charge. If it does, the loan principal would be $5,000. The $5,000 loan principal does not include either the $400 or the $10 precomputed finance charge in the note.
The loan principal is increased by other amounts that are financed that are not part of the finance charge (the $25 credit report fee), and reduced by any prepaid finance charges (the $50 loan fee, not the $10 service charge) to arrive at the amount financed of $5,000 + $25 - $50 = $4,975.
Conversely, the financial institution may treat the $10 service charge as a prepaid finance charge. If it does, the loan principal would be $5,010. The $5,010 loan principal does not include the $400 precomputed finance charge. The loan principal is increased by other amounts that are financed that are not part of the finance charge (the $25 credit report fee) and reduced by any prepaid finance charges (the $50 loan fee and the $10 service charge withheld from loan proceeds) to arrive at the same amount financed of $5,010 + $25 - $50- $10 = $4,975.
43
T or F:
It is assumed that the amount financed equals the note amount, proceeds, or principal amount of the loan.
FALSE!!!!!
It should NOT be assumed that the amount financed under the regulation is equivalent to the note amount, proceeds, or principal amount of the loan.
44
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 from the total of payments and is not required to be disclosed.
45
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.
Amount financed= $4,975.
Amount financed= total of payments - finance charges
The amount financed may be calculated by first subtracting all finance charges included in the note amount:
Amount financed = 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, in cash, 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.
46
What are the finance charges in the below examples?
The APR is 12% 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.
First example:
Amount financed= total of payments- finance charge
5000= (36*166.07)- finance charge --> finance charge= 978.52
Second example:
4,500= ((35*152.18)+152.22) - finance charge --> finance charge = 978.52
47
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.
48
What is the payment schedule?
It includes all payments scheduled to repay loan principal, interest on the loan, and any other finance charge payable by the consumer after consummation of the transaction.
Any finance charge paid separately before or at
consummation (e.g., odd days’ interest) is not part of the payment schedule, but is a prepaid finance charge that must be reflected as a reduction in the value of the amount financed
49
What is the annual percentage rate (APR)?
(closed-end credit)
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.
50
How should APR be disclosed for closed-end credit?
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).
51
T or F:
APR is the same thing as the interest rate.
FALSE.
Since an APR measures the total cost of credit, including costs such as transaction charges or premiums for credit guarantee insurance, it is not an “interest” rate, as that term is generally used
52
What is the APR a function of (3)?
The amount financed (which is not necessarily equivalent to loan amount)
The finance charge (which is not necessarily equivalent to the total interest amount)
The payment schedule (which is not always equal to P+I payments)
53
When is the credit report fee considered a finance charge?
(1) Consumer pays a $25 credit report fee for an auto loan
(2) Consumer pays a $25 credit report fee for home improvement loan secured by real property
(1) FINANCE CHARGE
(2) NOT A FINANCE CHARGE
54
T or F:
The finance charge and APR, more than any
other disclosures, enable consumers to understand the cost of the credit and to comparison shop for credit.
TRUE
55
An incorrectly disclosed APR or finance charge would NOT be considered a violation under what circumstances? (3)
* If the error resulted from a corresponding error in a calculation tool used in good faith by the bank.
* If upon discovery of the error, the bank promptly discontinues use of that calculation tool for disclosure purposes.
* The bank notifies the CFPB in writing of the error in the calculation tool.
56
II. Subpart B- Open-End Credit
Subpart B relates to open-end credit. It contains rules on account-opening disclosures 12 CFR 1026.6 and periodic statements (12 CFR 1026.7-.8). It also describes special rules that apply to credit card transactions, treatment of payments 12 CFR 1026.10 and credit balances 12 CFR 1026.11, procedures for resolving credit billing errors 12 CFR 1026.13, annual percentage rate calculations 12 CFR 1026.14, rescission requirements 12 CFR 1026.15 and advertising (12 CFR 1026.16).
N/A
57
What is a grace period?
A period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate
58
For credit card accounts under an open-end (not home-secured) consumer credit plan, when must periodic statements be delivered/mailed?
What about when grace period?
At least 21 days prior to the payment due
date disclosed on the periodic statement
Payments are not treated as late for any purpose if they are received within 21 days after mailing or delivery of the statement
When grace period:
At least 21 days prior to the date that the grace period expires
No finance charges or late fees can be charged if payment is received within the above time periods after mailing/delivering the periodic statements.
59
For non-credit card open-end consumer plans without grace periods, when must creditors mail/deliver periodic statements?
At least 14 days prior to the date on which the required minimum periodic payment is due
Cannot treat as late a required minimum periodic payment received by the creditor within 14 days after it has mailed or delivered the periodic statement.
60
For open-end credit, not home-secured credit (credit cards), what "significant changes" in terms require 45-day advance written notice to consumers? (5)
Advanced notice is required for significant changes in terms including:
1. Penalty fees
2. Transaction fees
3. Fees imposed for the issuance or availability of the open-end plan.
4. Grace period
5. Balance computation method
61
For open end credit, not home-secured credit (credit cards), which changes do not require advance notice to consumers? (5)
* Reductions of finance charges;
* Termination of account privileges resulting from an agreement involving a court proceeding;
* Increase in an APR upon expiration of a specified period of time previously disclosed in writing;
* Increases in variable APRs that change according to an index not under the card issuer’s control; and
* Rate increases due to the completion of, or failure of a consumer to comply with, the terms of a workout or temporary hardship arrangement, if those terms are disclosed prior to commencement of the arrangement.
62
Can a customer reject significant changes in terms from open ended, not home-secured credit?
What are the exceptions?
YES!!
For significant changes in terms a creditor must also provide consumers the right to reject the change.
If the consumer does reject the change prior to the effective date, the creditor may not apply the change to the account
Exceptions (no option to reject):
- rate changes
- increases in the minimum payment
- certain changes in the balance computation method, and
- when the change results from the consumer’s failure to make a required minimum periodic payment within 60 days after the due date
63
When a consumer rejects a change or increase, the creditor must NOT...?
* Impose a fee or charge, or treat the account as in default solely as a result of the rejection; or
* Require repayment of the balance on the account using a method that is less beneficial to the consumer than one of the following methods:
(1) the method of repayment prior to the rejection;
(2) an amortization period of not less than five years from the date of rejection; or
(3) a minimum periodic payment that includes a percentage of the balance that is not more than twice the percentage included prior to the date of rejection
64
How are finance charges disclosed for open-end credit?
Each finance charge must be individually itemized
The aggregate total amount of the finance charge does NOT need to be disclosed.
65
What are the three common methods 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
66
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.
By finance charge, we mean amount of interest
67
What is the daily balance method?
A daily periodic rate is applied to either the balance on each day in the cycle (every day applied) or the sum of the balances on each of the days in the cycle (sum all of the daily balances, the apply the rate).
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.
68
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.
69
T or F:
If the bank uses the daily balance method and applies a single daily periodic rate, disclosure of the balance to which the rate was applied may be stated as any of the following:
* A balance for each day in the billing cycle. The daily periodic rate is multiplied by the balance on each day and the sum of the products is the finance charge.
* A balance for each day in the billing cycle on which the balance in the account changes. The finance charge is figured by the same method as discussed previously, but the statement shows the balance only for those days on which the balance changed.
* The sum of the daily balances during the billing cycle. The balance on which the finance charge is computed is the sum of all the daily balances in the billing cycle. The daily periodic rate is multiplied by that balance to determine the finance charge.
* The average daily balance during the billing cycle. If this is stated, the financial institution may, at its option, explain that the average daily balance is or can be multiplied by the number of days in the billing cycle and the periodic rate applied to the product to determine the amount of interest.
70
For open-end credit (credit cards), if the bank uses two or more periodic rates in computing the finance charge, what must a bank disclose?
For example, one rate applies to balances up to a certain amount, another rate applied to balances above the first amount.
All rates and conditions; range of balances to which each rate applies
Finance charge does not need to be broken into separate components based on different rates
71
The disclosed APR on an open-end credit account is accurate if it is within ______ of the APR calculated under Reg Z.
1/8 of one percentage point
72
What is the basic method for determining the APR for open-end credit transactions?
When is this method used?
Basic method= multiplying each periodic rate by the number of periods in a year --> i.e. monthly rate x 12= APR
This method is used in all types of open-end disclosures and is prospective as it does not involve any particular finance charge or periodic balance
I.e. corresponding APR
73
What is the second method for calculating the APR?
When can it be used?
Second method= quotient method
MAY be disclosed on periodic statements for HELOCs.
It reflects the annualized equivalent to the rate that was actually applied during the cycle.
i.e. effective APR
May include minimum, fixed, or transactional charges to the account.
74
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.
75
What is the equation for the basic APR method on open-end credit?
Monthly rate x 12 = APR
76
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
77
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) x 12 = 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.
78
What is the equation for effective APR when the finance charge includes a charge related to a specific transaction (such as cash advance fee), even if the total finance charge also includes 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.
79
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
80
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?
1. (Total finance charge / average daily balance) x 12 = APR
Or
2. (Total finance charge / sum of daily balances) x 365 = APR
81
If a bank wants to change the terms on a HELOC under 1026.6(a), or wants to increase the minimum periodic payment, when does the bank need to disclose/notify customers?
When is advance notice not required?
15 days before these changes.
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.
82
If a creditor prohibits additional extensions of credit or reduces the credit limit on a HELOC, when must they notify the customer?
What must the notice contain?
Written notice must be provided no later than three business days after the action is taken
Must include the specific reasons for the action. Also, if the creditor requires the consumer to request reinstatement of credit privileges, the notice also must state that fact.
83
When are creditors required to credit a payment to the consumer's account for open-end credit?
What happens is the bank fails to credit the payment in time to prevent a charge?
As of the date of receipt, except when a delay in
crediting does not result in a finance or other charge. If
If they fail to credit in time to prevent a charge, then the creditor must adjust the customers account so charges are credited back to the consumer during the next billing cycle.
84
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.
85
If the administrator of an estate requests the outstanding credit card balance of a deceased account holder, what is the issuer 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.
86
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.
87
When must a creditor mail/deliver written acknowledgement of the billing error notice to the consumer?
Within 30 days receiving the billing error notice, unless the creditor has complied with the appropriate resolution procedures within the 30 day period.
88
When must the creditor comply with the appropriate resolution procedures provided by 12 CFR 1026.13(e) and (f), as applicable?
Within two complete billing cycles (but not later than 90 days) after receiving a billing error notice
89
What three rules apply until a billing error is resolved?
* The consumer need not pay (and the creditor may not try to collect) any portion of any required payment that the consumer believes is related to the disputed amount (including related finance or other charges).
* The creditor or its agent is prohibited from making or threatening to make an adverse report to any person about the consumer’s credit standing, or report that an amount or account is delinquent, because the consumer failed to pay the disputed amount or related finance or other charges.
* A creditor shall not accelerate any part of the consumer’s indebtedness or restrict or close a consumer’s account solely because the consumer has exercised in good faith rights provided by this section.
90
T or F:
Regarding billing error resolution, a creditor can collect any undisputed portion, can deduct any disputed amount from the credit limit, can reflect the PENDING disputed amount and charges on a periodic statement
TRUE
91
If a creditor determines that a billing error occurred as asserted (open-end), what must it do 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.
92
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.
93
What must be disclosed on periodic statements for credit card accounts regarding minimum payments? (3)
- Estimate of the amount of time and the total cost (P&I) involved in paying the balance in full by making only the minimum payments
- An estimate of the monthly payment amount required to pay off the balance in 36 months and the total cost (P&I) of repaying the balance in 36 months.
- A minimum payment warning and an estimate of the total interest that a consumer would save if that consumer repaid the balance in 36 months, instead of making minimum payments.
NOTE: See the minimum payment CC screenshot I have in my TILA-TRID folder for an example of how this is disclosed
94
T or F:
It is deceptive or misleading to advertise that a credit card rate is fixed when it actually can change (i.e. variable).
TRUE
This would be considered a deceptive or misleading practice and is banned.
95
If an advertisement for 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 that could be imposed
* Any periodic rate that may be applied expressed as an APR (if variable periodic rate, that must be
disclosed)
*Any membership or participation fee that could be
imposed.
96
In advertisements for HELOCs, if any finance charges or other charges or payment terms are included in the advertisement (ad), then the ad must also include what? (3)
* Any loan fee that is a percentage of the credit limit under the plan and an estimate of any other fees imposed for opening the plan (stated as a single dollar amount or a reasonable range);
* Any periodic rate used to compute the finance charge, expressed as an APR
* The maximum APR that may be imposed in a variable-rate plan
97
Subpart C- Closed-End Credit
Subpart C relates to closed-end credit. It contains rules on disclosures 12 CFR 1026.17-.20, treatment of credit balances 12 CFR 1026.21, annual percentage rate calculations 12 CFR 1026.22, rescission rights 12 CFR 1026.23, and advertising (12 CFR 1026.24).
N/A
98
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
- credit extended to certain trusts for tax or estate planning purposes
99
What transactions are covered by TRID?
Most closed-end transactions secured by real property or a cooperative unit, OTHER THAN A REVERSE MORTGAGE
100
TRID disclosures do NOT apply to what loan types? (3)
1. HELOCs
2. Reverse mortgages
3. Mortgages secured by a mobile home or by a dwelling that is NOT attached to real property
101
What is considered "real property"?
land (dirt)- and everything that is permanently attached to the land
102
T or F:
TIL disclosures and the Consumer Handbook on Adjustable Rate Mortgages (CHARM) booklet must still be provided for certain closed-end loan transactions.
TRUE
103
When is a creditor required to mail/deliver the loan estimate (LE)?
Within 3 business days of receipt of the consumer's loan application
104
When is the creditor required to mail/deliver the closing disclosure?
No later than 3 business days before loan consummation
105
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
106
What type of disclosures do reverse mortgages receive under TRID?
When must these disclosures by delivered/mailed?
1. Good Faith Estimate (GFE)
2. HUD-1 Settlement Statement
3. TIL disclosures as required under the applicable sections of both TILA and RESPA.
For reverse mortgages, disclosures must be delivered or mailed to the consumer no later than the
3rd business day after a creditor receives the consumer’s written application
107
For chattel-dwelling mortgage loans, what disclosures are required under TRID?
When must these be delivered/mailed?
NOTE: Chattel-dwelling mortgage is a loan used to purchase an item of movable personal property, such as a manufactured home or a piece of construction equipment- i.e. manufactured home not permanently attached to land (manufactured home community). Manufactured home secures the mortgage.
TIL disclosures for chattel-dwelling loans that are NOT secured by land (GFE and HUD-1 not required)
For chattel-dwelling mortgage loans, disclosures must be provided to the consumer prior to consummation of the loan
108
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.
109
What are the disclosure requirements for variable rate closed-end loans subject to TRID?
* Disclosures must be given for the full term of the transaction and must be based on the terms in effect at the time of consummation
* If the variable rate transaction includes either 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 the basis for the variable rate feature for the remainder of the term.
* If the initial rate is not determined by the index/formula used for later interest rate adjustments, the disclosed APR must reflect a composite rate based on the initial rate for as long as it is applied and, for the remainder of the term, the rate that would have been applied using the index or formula at the time of consummation (i.e., the fully indexed rate).
* If the initial interest rate is set according to the index/formula used for later adjustments but is set at a value as of a date before consummation, disclosures should be based on the initial interest rate, even though the index may have changed by the consummation date.
110
What are the primary disclosures required under TRID for dwelling or real property secured loans? (4)
- finance charge
- amount financed
- payment schedule (total of payments)
- APR
111
For closed-end transactions secured by real property or a dwelling, a finance charge is considered accurate if? (2)
(1) If it is not understated by more that $100
(2) If it is greater than the amount required to be disclosed (i.e. overstated)
112
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.
113
If the obligation is a renewable balloon payment instrument that unconditionally obligates the bank 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?
The payment schedule must be disclosed using the longer term of the renewal period or periods. The long-term loan must be disclosed with a variable rate feature.
114
The APR for closed-end credit must be calculated using one of the following two ways:
(1) The actuarial method
(2) The U.S Rule (accrual method)
115
T or F:
Whichever method is used by the bank, the rate calculated will be accurate if it is able to “amortize” the amount financed while it generates the finance charge under the accrual method selected.
TRUE
116
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
117
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
118
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 for regular transactions- considered accurate
If the disclosed APR is within 1/4 of 1 percentage point for irregular transactions- considered accurate
OR IF:
1. The rate results from a disclosed finance charge and;
a). The disclosed finance charge is considered accurate,
or
b). For purposes of recession, the disclosed finance charge is considered accurate
2. The disclosed finance charge is calculated incorrectly but is considered accurate, then the disclosed APR is considered accurate if:
a) The finance charge is understated, and the disclosed APR is also understated but is closer to the actual APR- then APR considered accurate;
or
b) The disclosed finance charge is overstated and the disclosed APR is also overstated but is closer to the actual APR- then APR considered accurate
119
Read this example:
In an mortgage irregular transaction subject to a tolerance of one-fourth of 1% (i.e. .25%):
* Actual APR = 9.00%
* $75 omission from the finance charge corresponds to an APR of 8.50%- considered accurate under 1026.22(a)(4)
Explained: 8.50% APR considered accurate since the APR results from a disclosed finance charge that is considered accurate under 1026.18(d)(1)-i.e. the FINANCE CHARGE IS NOT UNDERSTATED BY MORE THAN $100- only understated by $75- so considered accurate for mortgages
* Disclosed APR = 8.65% is considered accurate under (12 CFR 1026.22(a)(5)).
Explained: Disclosed finance charge is understated (by $75), and the APR also understated (by 0.35%), but disclosed APR of 8.65% is closer to the actual APR of 9.0% than 8.5%
* However, a disclosed APR below 8.50% or above 9.25% would not be considered accurate
Explained: Disclosed APR below 8.5% not accurate since the disclosed APR (say 8.49%) would NOT be closer to the actual APR than the 8.5%)
Disclosed APR above 9.25% not accurate since the disclosed APR is above .25% threshold for irregular
N/A
120
Can the APR and finance charges be estimated for disclosure for construction-only and construction-to-permanent loans?
Yes, they can be estimated based on the best information reasonably available at the time of disclosure.
Reg Z includes certain optional provisions to help creditors estimate these for loans
121
Does a creditor have the option to disclose the advances together or separate?
YES- the creditor has the option to disclose the advances separate or together as one transaction
(this choice impacts calculations)
(1) A series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction or disclosed as separate transactions
NOTE- commentary from the reg: A creditor may treat all of the advances as a single transaction, or disclose each advance as a separate transaction. If these advances are treated as 1 transaction and the timing and amounts of advances are unknown, creditors must make disclosures based on estimates. If the advances are disclosed separately, disclosures must be provided before each advance occurs, with the disclosures for the first advance provided by consummation.
(2) If the loan is construction-to-perm and will be permanently financed by the same creditor, the construction phase and permanent phase can be treated as either one or more than one transactions.
NOTE- commentary from the reg: Flexible rule for disclosure of construction loans that may be permanently financed. These transactions have 2 distinct phases, similar to 2 separate transactions. The construction loan may be for initial construction or subsequent construction, such as rehab or remodeling. The construction period usually involves several disbursements of funds at times and in amounts that are unknown at the beginning of that period, with the consumer paying only accrued interest until construction is completed.
Unless the obligation is paid at that time, the loan then converts to permanent financing in which the loan amount is amortized just as in a standard mortgage transaction.
Section 1026.17(c)(6)(ii) permits the creditor to give either one combined disclosure for both the construction financing and the permanent financing, or a separate set of disclosures for the 2 phases. This rule is available whether the consumer is initially obligated to accept construction financing only or is obligated to accept both construction and permanent financing from the outset. If the consumer is obligated on both phases and the creditor chooses to give 2 sets of disclosures, both sets must be given to the consumer initially, because both transactions would be consummated at that time.
122
What is an interest reserve?
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.
From Google:
The interest reserve account allows a lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan. The interest is capitalized and added to the loan balance.
123
T or F:
The amount of interest reserves included in the commitment amount is treated as a prepaid finance charge.
FALSE
Among other things, the amount of interest reserves included in the commitment amount is NOT treated as a prepaid finance charge, whether the interest reserve is the same as or different from the estimated interest figure calculated under Appendix D
124
T or F:
If a creditor permits a consumer to make interest payments as they become due, the interest reserve should be disregarded in the disclosures and calculations under Appendix D (Comment App. D-5.i).
TRUE
125
What are the disclosure requirements for interest reserves in construction or construction-to-permanent 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
126
For a construction-to-permanent 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 but for the construction phase (i.e. only for the construction phase)
The amounts must be disclosed for the construction phase and not included in disclosures for the permanent phase
127
If a creditor charges separate amounts for the finance charges and points and fees for the construction phase and the permanent phase, how should that be handled?
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.
128
How should a creditor disclose this:
A creditor 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, and fees must be allocated to permanent financing. Fees and charges that are not used to compute the finance charge or points and fees may be allocated between the transactions in any manner the creditor choose
129
T or F:
TILA requires the use of one method of interest computation.
FALSE
TILA does not require you use 360 or 365 when calculating interest. It does however allow creditors to disregard that months have different number of days when calculating and making disclosures.
130
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 may base their disclosures on calculation tools that assume all months have an equal number of days, even if their practice is to take account of the variations in months to collect interest
131
Can creditors apply daily interest factors to a loan based on a 360-day year to the actual number of days between payments.
No this would be a violation.
the creditor must disclose the higher values of the finance charge, the APR , and the payment schedule resulting from this practice.
132
See facts below:
12% simple interest rate
Daily rate is .033333$ (.12/360)
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 $10 million one year single payment unsecured loan.
What is the APR and finance charge calculate?
Is this a violation?
APR disclosed at 12% or
Finance charge disclosed is $1,200 (.12 x 10,0000)
Yes, violation.
APR calculated is 12.17% (.033333 x 365 = .121667)
Finance charge calculated is $1,216.67 (.121667 x 10 million=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.
133
What is a required deposit?
A deposit that banks requires the consumer to maintain as a condition of the specific credit transaction (with some exceptions)
It can include a compensating balance or a deposit balance that secures the loan
134
Is a required deposit a finance charge?
NO- not a finance charge since it is eventually released to the consumer
135
Is the effect of a required deposit reflected in the APR?
NO
136
What loan types are exempt from TRID? (4)
What disclosures do they get instead?
1. Reverse mortgages
2. HELOCS
3. Chattel-dwelling loans (such as loans secured by a mobile home or by a dwelling that is not attached to real property)
4. Loans made by a creditor who makes 5 or fewer loans a year
Disclosures= GFE, HUD-1, and TIL
137
T or F:
Most closed-end mortgage loans are exempt from the requirement to provide the GFE, HUD-1, and servicing disclosure requirements of (12 CFR 1024.6, 1024.7, 1024.8, 1024.10, and 1024.33(a)).
TRUE- instead subject to the disclosure, timing, and other requirements under TILA and Reg Z
138
Specifically, what loan types are exempt from the requirement to provide the GFE, HUD-1, and servicing disclosures? (2)
1. TRID subject loans (closed end loans secured by real property or cooperative units)
2. 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.
139
Can a creditor use the TRID disclosures in lieu of the GFE, HUD-1, and servicing disclosures for TRID exempt loans (i.e. reverse mortgage)?
No!
The applicable TIL and RESPA forms are required for those loans.
140
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.
141
What disclosures must be provided for TRID loans? (4)
- Loan Estimate
- Closing Disclosure
- Special information booklet
- CHARM booklet for ARM loans
142
When must the loan estimate to be delivered or placed in the mail?
Within 3 business days after receiving the application and no later than 7 business days before consummation
143
T or F:
If a mortgage broker receives a consumer’s application, the mortgage broker may provide the Loan Estimate to the consumer on the creditor’s behalf.
TRUE
If it does so, the mortgage broker must comply with all requirements, as well as the three-year record retention requirements.
The creditor is expected to maintain communication with mortgage brokers to ensure that the Loan Estimate and its delivery satisfy the rule’s requirements, and the creditor is legally responsible for any errors or defects
144
If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received the Loan Estimate ___ business days after it is delivered or placed in the mail (this applies to electronic delivery as well).
THREE
145
What is an application as defined by TRID? (6)
* The consumer’s name;
* The consumer’s income;
* The consumer’s SSN to obtain a credit report;
* The property address;
* An estimate of the value of the property; and
* The mortgage loan amount sought.
146
What triggers the timing requirements for then 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.
147
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, does the bank still have to provide the LE?
What is the caveat here?
No, the bank DOES NOT need to provide the LE.
CAVEAT= 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/resubmitted application.
148
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 functions
Example- if a bank does not have any LOs/lending personnel working on Saturdays to help with loans, then Saturday is not a business day since the bank does not carry out all its business functions
149
What is a business day for the closing disclosure?
This applies to most other timing requirements under TRID.
All calendar days except Sundays and legal public holidays.
150
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 may use estimates even if it knows that more precise info will be available later (i.e. by the point of consummation)
151
T or F:
When estimated figures are used, they must be designated as such on the Loan Estimate
TRUE
152
Can a consumer modify or waive the 7 business day waiting period after receiving the LE for a loan to consummate?
Yes, if the mortgage loan is needed to meet a bona fide personal financial emergency that necessitates consummating the loan before the end of the waiting period
153
In order to waive/modify this waiting period, what must the consumer give the creditor?
Consumer must give the creditor a dated written statement describing the emergency, modifies or waives the waiting period, and is signed by all applicants.
ex: imminent sale of home due to foreclosure, where the foreclosure sale will proceed unless loan proceeds are made available to the consumer during the waiting period
154
T or F:
Generally, if the charge paid by or imposed on the consumer exceeds the amount originally disclosed on the Loan Estimate, it is not in good faith
TRUE- The general rule is that the estimated closing cost is in good faith if the charge does not exceed the amount disclosed in the
Loan Estimate.
155
What charges are considered 0% Tolerance between the LE and CD? (2)
These charges cannot exceed the amount disclosed on the LE unless a revised LE was provided.
0% tolerance applies to individual fees
* Fees for required services
* Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for a third-party service provider for a settlement service or transfer taxes
On LE:
Box A. Origination Charges
Box B. Services you CANNOT Shop for
Transfer Taxes in Box E. Taxes & Other Government Fees
156
What charges are considered 10% cumulative tolerance? (2)
10% tolerance applies to the AGGREGATE of fees
(1) Recording fees
(2) 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
From LE:
Box C. Services you Can Shop for
Recording Fees (Box E.)
157
What charges do not have any tolerance limits? (i.e. unlimited tolerance)
- 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
158
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.
159
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)
160
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.
161
How do we determine if the LE was made in good faith?
By calculating the difference between the LE's estimated charges and actual charges paid by consumer on the CD
162
Can a creditor provide a revised LE for informational purposes?
YES
