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Reg D – Savings Deposit Transfers Rule Changes July 2, 2009
Reg Z – MDIA Changes – Effective July 30, 2009
The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act)
The Oklahoma Department of Consumer Credit’s Truth in Lending Permanent Rule
Consumer Loan Dollar Amounts – No Changes
Reg D – Savings Deposit Transfers Rule Changes July 2, 2009
Once in awhile a regulatory “miracle” of sorts occurs: the Regulations are amended making compliance simpler and easier rather than more complex. Remember September 26, 2008, when FDIC simplified calculations for determining deposit insurance on formal and informal trusts, (e.g., “pay on death,” “in trust for” and “for benefit of”), by expanding the class of “qualified beneficiaries” to include any living person plus charities and other non-profits? While the changes made to Regulation D §204.2 (d)(2) and footnote 4 for savings deposits transfers amending certain limitations on transfers to third parties is not quite as far reaching or as drastic, it does make compliance somewhat simpler.
Savings deposit accounts such as passbook savings, statement savings and money market deposit account (MMDA) have been restricted to no more than six transfers and withdrawals or a combination thereof out of such account during a calendar month or statement cycle of at least 4 weeks. Transfers and withdrawals have been divided into two categories. The first category included transfers made by check, draft, debit or similar order of the customer to third parties. No more than three transfers per calendar month or statement cycle were allowed to be made by a means set out in this first category. The second category covered preauthorized transfers to third parties either in writing, orally or by ACH (including transfers into other accounts owned by the same customer such as an arrangement to pay overdrafts), on a fixed schedule or predetermined time. These also counted toward the six transactions, BUT if there were fewer than three transfers by the means set out in the first category, then more than three transfers by means set out in the second category could be made as long as the total number of transfers did not exceed six. In other words, you could have four ACH transfers if there were only two withdrawals by checks to third parties. On the other hand, the customer was allowed a maximum of three checks to third parties even if there were no other transfers that counted against the six permitted. This caused more than a little confusion for quite a large number of bankers in trying to determine when an account had exceeded its 6 transfer limit without even mentioning the fact that it was a rare customer indeed who really understood the differences between the two categories of restricted transfers.
Under amended §204.2(d)(2), the total number of transfers during a calendar month or statement cycle still remains at six, but the three check, draft debit card and similar order limitation no longer exists. The distinction between these types of transfers and those made pursuant to preauthorized ACH, oral or internet authorization and the like has been eliminated by the amendment making it somewhat easier to determine whether or not the number of allowed transfers has exceeded those allowed.
In determining which transfers or withdrawals count to toward the six, you must remember that preauthorized transfers to pay loans at the same financial institution, as well as in-person withdrawals and transfers by the customer or his authorized agent such as a courier that are accomplished at the bank or ATM (but not by telephone or internet) are NOT counted toward the six. Further, directions by the customer to mail a cashier’s check made payable to the customer even if made by phone is not included in the six transfers or withdrawals. Banks are still entitled to contract with the customer to restrict transfers under §204.2(d)(2)to a number less than six by way of provisions in the deposit agreements.
Under Footnote 4, banks are still required to ensure that no more than six withdrawals or transfers occur during any calendar month or statement cycle of at least four weeks. The bank has a couple of options in this regard. The first is to prevent withdrawals or transfers in excess of six by invoking the provisions under §204.2(d)(1) and requiring the customer give not less than 7 days notice of intent to make a withdrawal from savings deposits. The second option (which is the one most banks choose to utilize) is to adopt procedures to monitor transfers on an ex post basis and contact customers who exceed the limits on more than an occasional basis.
What is “more than an occasional basis” is not specifically defined, and this allows the bank some flexibility in setting policy for using “rolling” calendar in determining its policy. Generally speaking, however, if the customer has exceeded the limits twice within six calendar months or six statement cycles, the bank will need to contact the customer, and advise the customer that an additional violation of the six transfer/withdrawal limit will result in the bank being required to either close the account and place the funds in another account that the customer is eligible to maintain (e.g., a NOW account, for instance, if the customer is an individual, or non-interest being checking account if it is a partnership, L.L.C., corporation or the like), or the bank must remove the transfer and withdrawal capabilities from the account. Note that if no excessive transfers occur more than a year after the second violation, the bank’s policy might be to restart the “occasional basis” clock from that point.
Reg Z – MDIA Changes – Effective July 30, 2009
There have been numerous amendments to the Truth in Lending Act, implemented by rules promulgated by the Board of Governors of the Federal Reserve System under Regulation Z. Amendments that are effective July 30, 2009, include changes in timing and delivery of early TIL disclosures and are applicable to all closed-end mortgages secured by a consumer’s dwelling other than those for temporary construction or bridge loans as exempted under §3500.5(b) of RESPA. Also included in the amendments effective July 30, 2009, are restrictions on when certain fees may be collected from the consumer. Additional changes to Reg Z will become effective October 1, 2009, and including amendments creating a new “higher price mortgage loan” classification with new underwriting standards and specific limitations on terms as well as mandatory escrow requirements. The required escrow provisions, however, do not go into effect until April 1, 2010. Finally, there are several additional changes to Reg AA with regard to prohibited credit card practices as well as changes to five areas of Reg Z’s open-end credit provisions. These are scheduled to take effect on July 1, 2010, however some of these changes appear to have been impacted by the CARD Act and are required on August 20th. There are also amendments to Reg Z’s open-end credit sections cover the credit card application and solicitation disclosures, account-opening disclosures, period statement disclosures, change-in-terms notices and advertising provisions. This month’s discussion in the Legal Update will deal solely with those changes effective in July, leaving the rest of the changes for future articles.
Many of you may be wondering how changes to certain sections of Reg Z originally slated to be effective October 1, 2009 are now effective two months earlier on July 30, 2009. Here is a summary of the events: on July 30, 2008, the Federal Reserve Board published a final rule amending Reg Z, the federal regulation that implements the Truth in Lending Act (“TILA”) as well as the Home Ownership Equity Protection Act (“HOEPA”).
On July 23, 2008, Congress passed the Housing and Economic Recovery Act (“HERA”) of 2008, and this legislation was signed into law by the president on July 30, 2008. HERA also included amendments to TILA known as the Mortgage Disclosure Improvement Act of 2008 (“MDIA”). Congress then enacted the Emergency Economic Stabilization Act of 2008 on October 3, 2008 which amended the MDIA. The MDIA revisions are effective July 30, 2009. On December 10, 2008, the Federal Reserve Board published its proposed rule that would amend Reg Z’s rules for the timing and content of disclosures for dwelling secured mortgage loans to conform Reg Z to the TILA amendments required under MDIA.
What loans are covered? Consumer loan applications received on or after July 30, 2009, are covered by the MDIA revisions. Probably one of the more significant changes is that additional loan types are covered and will require early TIL disclosures. Previously, creditors were required to provide the early disclosures for a residential mortgage transaction (a loan to finance the purchase or construction of a consumer’s dwelling) subject to RESPA only when secured by the consumer’s principal dwelling. Under the new rules, the early TIL disclosures are required for any extension of credit that is subject to RESPA where secured by the dwelling of a consumer. This expands transactions requiring ETIL to include not only the principal dwelling of the consumer but also vacation/second homes (homes that will be owner-occupied for 14 or more days per year) whether or not the loan is for the purchase or initial construction of the dwelling (unless exempt as a temporary construction loan or a bridge loan). It will also apply to refinances and assumptions considered new transactions under §226.20(a) and (b) and home equity loans. However, the disclosure rules for open-end HELOCs under §226.5b are not affected by the changes at this time (although those provisions are under review).
Definitions of “business day.” Prior to the revisions, creditors were required to deliver the early disclosures or place them in the mail, no later than three business days after receiving the consumer’s written application or before consummation, whichever was earlier. Creditors are now required to deliver or mail the early disclosures no later than three business days after receiving the written application and no later than seven business days before consummation. Further, if redisclosure becomes necessary, consummation cannot occur until three business days after the consumer receives the corrected disclosure. So before we can proceed further, it is necessary for us to familiarize ourselves with the definitions of “business day.”
Section 226.2(a)(6) provides two definitions of “business day.” The general definition of “business day” is a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions. This definition applies when the creditor is determining the deadline for delivery or mailing of the early TIL. Use of the general definition of “business day” maintains consistency between Truth in Lending Act in time line for providing early TIL and Real Estate Settlement Procedures Act’s timing requirements for providing the Good Faith Estimate.
Section 226(a)(6) also contains the more precise definition of “business day”: all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day applied. The more precise definition has been applied to the following sections of Reg Z: the “right of rescission” under §§226.15(a) and 226.23(a) and the timing of disclosures for HOEPA and reverse mortgages under §226.31(c)(1) and (c)(2), As noted, the amendments make no changes to the two definitions of business day set out in §226.2(a)(6), BUT the more precise definition now applies not only to the right of rescission sections and the HOEPA and reverse mortgages sections, but also will be the used in calculating the new prohibition regarding collection of certain fees (discussed below), in calculating the seven-business-day consummation waiting period and the newly required three-business-day waiting period prior to consummation as well in the event it becomes necessary to provide corrected disclosures to the consumer. And in the event disclosures are provided to the consumer by regular first class mail, the more precise definition of “business day” is used to calculate the three-business-day presumption of receipt by the consumer.
There is also an entirely new timing requirement dealing with redisclosure. Redisclosure is necessary under certain circumstances. For example, when the annual percentage rate disclosed by the early TIL (or by a subsequent disclosure) either: 1) varies at the time of consummation beyond the permitted tolerances (which will be described later), or 2) when there is a changed term other than one based on an estimate as permitted under §226.17(c)(2) and labeled as an estimate, corrected disclosures will be required to be provide to the consumer. When redisclosure becomes necessary, consummation may not occur until three business days after the consumer receives the corrected disclosures. When consummation may occur when corrected disclosure is required is calculated using the more precise definition of “business day.”
Let’s get this party started! The first question we have to answer is: Have we have received a written application? This requires that we define what constitutes a written application and additionally define when one is received. Without knowing these, we cannot properly determine when the deadlines occur or the date for consummation. The Official Staff Commentary for Reg Z §226.19(a)(1) states:
3. Written application. Creditors may rely on RESPA and Regulation X (including any interpretations issued by HUD) in deciding whether a “written application” has been received. In general, Regulation X requires disclosures “to every person from whom the Lender receives or for whom it prepares a written application on an application form or forms normally used by the Lender for a Federally Related Mortgage Loan” (24 CFR 3500.6(a)).
HUD’s Reg X (RESPA) was recently revised to provide that the “written application” may be in writing or electronically submitted including a written record of an oral application and must contain certain information. RESPA requires that the borrower provide information to the creditor intending:
“. . . the submission of a borrower’s financial information in anticipation of a credit decision relating to a federally related mortgage loan . . . .”
Information necessary for a written application must include: 1) the borrower’s name, monthly income and social security number; 2) the property address (without the property address, it is merely a prequalification that does not trigger early TIL); 3) an estimate of the value of the property; 4) the loan amount sought; and 5) any other information deemed necessary by the loan originator. If the creditor receives sufficient information to meet the definition of a “written application,” then there are still situations when the early disclosures are NOT required provided these occur before the expiration of three business days from receipt. These exceptions include when the consumer withdraws the application, when the consumer applies for a type or amount of credit that the creditor does not offer, or when the consumer’s application cannot be approved for some reason. If the consumer amends the application because of denial of the original application, then the amended application is considered a new application for purposes of starting the clock running, and there is no violation by the creditor for failure to provide disclosures based on the terms of the original application.
To determine when an application is received, the Official Staff Commentary to §226.19(a)(1)(i)-3 provides that this occurs:
. . . when it reaches the creditor in any of the ways applications are normally transmitted—by mail, hand delivery, or through an intermediary agent or broker . . . .
Additional guidance is provided by the comment 19(b)-3 in determining whether or not the transaction involves an intermediary agent or broker. Several facts are considered and the following example given:
. . . an “intermediary agent or broker” is a broker who, customarily within a brief period of time after receiving an application, inquires about the credit terms of several creditors with whom the broker does business and submits the application to one of them. The broker is responsible for only a small percentage of the applications received by that creditor. During the time the broker has the application, it might request a credit report and an appraisal (or even prepare an entire loan package if customary in that particular area).
If there is an intermediary agent or broker as defined, the application is received when it reaches the creditor, rather than when it reaches the agent or broker.
We have received an application, so now what happens? Presuming that the creditor approves the loan on the terms requested, the creditor must deliver or mail the early TIL within 3 business days (using the general definition of “business day”) after receipt of the application. For instance, a creditor who is open for business Monday through Friday receives the application on Wednesday. Using the general definition of “business day,” the creditor must deliver or mail the early TIL no later than the following Monday. If, on the other hand, the creditor is open Monday through Saturday or even 7 days a week, then the early TIL must be delivered or placed in the mail no later than Saturday.
If the early TIL disclosures are mailed, the consumer is considered to have received them three business days after mailing using the more precise definition of “business day.” Of course, the use of more precise definition makes sense since this coincides with the days when the U.S. Postal Service provides deliveries. In other words, if ETIL is mailed on Monday, receipt by the consumer is presumed to occur on Thursday. If mailed on Saturday, receipt will be presumed to occur on Wednesday.
Delivery of the early TIL disclosures may be accomplished in several different ways: in person, electronically in accordance with the E-Sign Act, by courier, by fax, by email attachment, by overnight mail or certified mail but if delivery is not done in person or in accordance with E-Sign with appropriate handshake acknowledgement proving date of receipt, the creditor will need proof of actual receipt by the consumer to document the date of receipt. Otherwise, receipt by the consumer cannot be presumed until three days after delivery by these methods (the same presumption as stated in the preceding paragraph for regular first class mail).
Notice requirement. MDIA requires that the disclosures must clearly and conspicuously provide the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.” The notice provision and language may be found in Section 226.19(a)(4).
Charging the consumer fees. Neither the creditor nor a third party (for example, an intermediary agent of mortgage broker) may charge any fee other than a fee for obtaining the consumer’s credit history before the consumer receives the early TIL. The fee charged for obtaining the credit history must be both bona fide and reasonable. If the disclosures are delivered to the consumer in person, the creditor can impose fees immediately following delivery. Using the previous examples, if we mail the TIL on Monday, the earliest a fee can be charged the consumer other than for the credit history would be after midnight on Thursday. On the other hand, under the second example, if we mail the TIL on Saturday, other fees could be charged after midnight on Wednesday.
When is redisclosure required? In general, if after providing disclosures, the annual percentage rate disclosed changes by more than 1/8 of 1 percentage point (0.125%) then new disclosures are required under §226.22(a)(2). If the mortgage is one having irregular transactions (e.g., loan with multiple advances, irregular payment periods or irregular payment amounts, other than a loan with only irregular first or final period or final payment amount), and the annual percentage rate changes by more than ¼ of 1 percentage point (0.25%) new disclosures are required. Remember that if the change exceeds the stated tolerances, new disclosures are required regardless of the fact that there may have been a decrease in the annual percentage rate rather than an increase.
If redisclosure is required, the creditor may provide either a complete set of new disclosures or simply redisclose the terms that have changed, but all changed terms must be disclosed. If a complete set of new disclosures are used, then the changed terms must be highlighted.
Let’s suppose that the APR stated in the early TIL is no longer accurate and redisclosure is necessary, and then, after providing the new disclosures, the APR changes again. Will another set of disclosures be required before consummation? If the APR of the most recent disclosure is still within the tolerances stated in under §226.22(a)(2), then a second redisclosure is not necessary as indicated by the Official Staff Commentary under §226.19(a)(2)(ii) – 4:
. . . . a creditor compares (a) what the annual percentage rate will be at consummation to (b) the annual percentage rate stated in the most recent disclosures the creditor made to the consumer.
In other words, to determine whether the change in terms is considered accurate and within tolerances, you compare the present annual percentage rate to the APR disclosed in last prior disclosure rather than comparing it with the annual percentage rate stated in the initial disclosure.
Waiver of Waiting Period Before Consummation. Just as it is currently possible to waive the right of rescission waiting period or the HOEPA waiting period, it is also possible for the consumer to modify or waive the timing requirements for the disclosures and consummation when the loan is needed to meet a bona fide personal financial emergency. In order to modify or waive the waiting period before consummation, the consumer must have received the early disclosures and/or corrected disclosures (if redisclosure was required) at or before the consumer’s written modification or waiver.
Waivers and modifications of either the seven-business-day waiting period from receipt of the early TIL or the three-business-day wait from receipt of the corrected, accurate disclosures, have specific requirements. The consumer must provide a dated written statement describing the emergency, specifically modifying or waiving the waiting period, and the statement must be signed by all who will be primarily liable. Just as with waiving or modifying the right of rescission, pre-printed forms may NOT be used. And just as the existence of a consumer’s waiver does NOT automatically insulate the creditor from liability for failure to provide the right of rescission, neither will the existence of a consumer’s waiver of the seven-business-day and/or three-business-day waiting period prior to consummation automatically insulate the creditor. There must be a bona fide financial emergency. The Official Commentary to §226.19(a)(3) – 1 provides the illustration of the consumer’s home at foreclosure as a bona fide financial emergency. Just as waivers should not be used to waive the right of rescission simply for reasons of convenience, for instance, the consumer will not be able to leave on vacation as planned, neither should waiver or modification of the seven-business-day or three-business-day waiting period be used simply as a matter of convenience.
Calculating when consummation may occur. As indicated earlier, when we calculate date for consummation, we are required to apply the more precise definition for “business day.” We are going to consider several different factual scenarios to illustrate how calculation of the consummation date is determined. The following scenarios are by no means exhaustive of all possible situations and are simply illustrative of only a few fact patterns.
Scenario #1: Here is the absolute earliest consummation date without a waiver of either the seven-business-day wait or the three-business-day corrected disclosure waiting period. The creditor receives the loan application on Monday, August 1st, and the early TIL is delivered personally to the consumer on that date. If the annual percentage rate and terms are accurate and no redisclosure is needed, counting seven-business-days from date of delivery of the ETIL using the more precise definition, this loan may be consummated seven-business-days: the following Tuesday, August 9th. If redisclosure is required, as long as the corrected disclosures are received by the consumer no later than Friday, August 5th (three-business-days prior to consummation using the more precise definition), consummation may still occur on August 9th. If the corrected disclosures are sent by regular first class mail, these would need to be placed in the mail no later than Tuesday, August 2nd to accommodate the three-business-day (more precise definition) after mailing presumption of receipt.
Scenario #2: The creditor again receives the loan application on Monday, August 1st, but this time mails the ETIL by regular mail on Monday, August 1st. This scenario presumes that the creditor has at least a six-business-day work week under the general definition of business day. We have the same facts as scenario #1, but the corrected disclosures are mailed by first class mail, on Saturday, August 6th. In this case, the corrected disclosures cannot be presumed to have been delivered until Wednesday, August 10th, (three-business-days more precise definition) and the earliest that consummation may occur is Saturday, August 13th, (three-business-days more precise definition).
Scenario #3: This scenario presumes that the creditor receives the application on Wednesday, August 3, 2009, and has a six- or seven-business-day-work week using the general definition. The last day to mail or deliver the early disclosures is Saturday, August 6th. The disclosures are sent by first class mail, and are deemed to have been received by the consumer on Wednesday, August 10th. Presuming that redisclosure is not necessary, the earliest date for consummation will be Monday, August 15th.
Scenario #4: The application is received on Wednesday, August 3, 2009, but the creditor has a Monday through Friday work week. The last date to mail or deliver the early disclosures would be Monday, August 8th, since the general definition of “business day” will be used in this case. If the ETIL is delivered by first class mail, then receipt is presumed on Thursday, August 11th. If there is no need for corrected disclosures, the earliest date for consummation is Tuesday, June 16th.
Scenario #5: The application is received on Monday, August 1, 2009. The creditor delivers the early TIL in person on Thursday, August 4, 2009. At this point, the earliest date for consummation is Tuesday, August 9th. This is a loan with regular payment transactions and the APR is disclosed by the early TIL is 5.25% but it increases to 5.5%, so new disclosures are required. We provide the new disclosures on Friday, August 5th in person. At this point we can still close on August 9th, however, the annual percentage rate increases again to 5.65% on Monday, August 8th. Are new disclosures (and additional waiting time) required before consummation? There will be no need to redisclose or delay consummation. Since we are only required to compare the final annual percentage rate (5.65%) with the APR stated in the most recent disclosure (5.5%), we are within tolerance for accuracy (0.125%per the early TIL and the final TIL are identical, pursuant to, we must compare the current APR (5.5%) with APR shown in the disclosure most recently provided (5.25%) to determine whether the or not the most recent disclosure is within tolerances (0.125%) under §226.22(a)(2). We do NOT compare the annual percentage rate stated in ETIL (5.25%) with the APR in the final TIL (5.65%) to determine accuracy tolerances per §226.22(a)(2).
Scenario #6: The application is received on Monday, August 1, 2009. The creditor delivers the early TIL in person on Thursday, August 4, 2009. At this point, the earliest date for consummation is Tuesday, August 9th. This is a loan with regular payment transactions and the APR is disclosed by the early TIL is 5.5% but it decreases to 5.25%, so new disclosures are required. We provide the new disclosures on Friday, August 5th in person. At this point we can still close on August 9th, however, the annual percentage rate returns to 5.5% on Monday, August 8th. Are new disclosures (and additional waiting time) required before consummation? Yes, we will need to redisclose and consummation will have to be deferred at least until Thursday, August 11th if the corrected disclosures are delivered in person on Monday, August 8th. Even though annual percentage rate disclosed per the early TIL and the final TIL are identical, pursuant to §226.22(a)(2), we must compare the current APR (5.5%) with APR shown in the disclosure most recently provided (5.25%) to determine whether the or not the most recent disclosure is within tolerances (0.125%).
Please keep in mind that these scenarios are for illustrative purposes only. For simplicity’s sake, I have totally avoided including a federally recognized holiday in any of these situations.
The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act)
The Secure and Fair Enforcement for Mortgage Licensing Act, (the “Federal S.A.F.E. Act”) is part of the Housing and Economic Recovery Act of 2008 (“HERA”) signed into law on July 1, 2008. The Federal S.A.F.E. Act requires a nationwide licensing and/or registration system for mortgage loan originators. All states are required to provide for registration and licensing of mortgage loan originators by July 1, 2009 (or by July 1, 2010 if the state’s legislature only meets biennially). Oklahoma complied by enacting S.B. 1062 on May 12, 2009. (the “OK S.A.F.E Act”), however, employees of depository institutions, subsidiaries owned and controlled by federally regulated banking agencies or an institution regulated by the Farm Credit Administrations and who is registered with and maintains a unique identifier through the Nationwide Mortgage Licensing System are exempt from all provisions of the OK S.A.F.E Act.
The Federal S.A.F.E. Act requires mortgage loan originators employed by institutions regulated by the Office of the Comptroller of the Currency, the Federal Reserve Board, the FDIC, the Office of Thrift Supervision, NCUA, through FFIEC and the Farm Credit Administration institutions to be registered, to maintain annual registration and to obtain a unique identifier. There are no requirements for these employees of federally regulated institutions to be licensed.
The Federal S.A.F.E. Act provides for the creation of a Federal registration system and further requires that the system be implemented by July 29, 2009. On June 9, 2009, the Joint Notice of Proposed Rulemaking was published in the Federal Register, Vol. 4, No. 109. The rule is scheduled to take effect on July 29, 2009, with implementation delayed for 180 days from the date when public notice is given that the Registry is operational. One impediment to using the current Registry developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, is that it is not designed to support the registration of individuals employed by agency-regulated institutions.
The Federal S.A.F.E Act and the OK S.A.F.E Act both provide for a unique mortgage loan originator identifier, fingerprint submission to FBI and any governmental agency or entity authorized to receive authorized to receive such information for a criminal history background check, and for mortgage loan originators to provide personal history and experience information. Both Acts contain provisions that exempt individuals who in the prior 12 months have acted as a loan originator for five or fewer residential mortgages as well as financial institutions that originate 25 or fewer residential mortgage loans in the last 12 months. Provisions also are made for employees of federally regulated institutions previously registered under State S.A.F.E. Acts to continue registration under the federal registry when it becomes operational.
The Oklahoma Department of Consumer Credit’s Truth in Lending Permanent Rule
The Oklahoma Department of Consumer Credit amended the Permanent Rules governing the Uniform Consumer Credit Code to conform to the amendments to the Truth in Lending Act and Mortgage Disclosure Improvement Act. The changes in the Permanent Rules have an effective date of July 11, 2009 and include revisions that are NOT effective under Reg Z, RESPA, and Reg AA until later in 2009 and 2010, e.g., July 30, 2009, October 1, 2009, April 1, 2010 and July 1, 2010. The revisions include changes to the Permanent Rules for new “higher priced loans,” mandatory escrows for these loans, and amendments to practices and disclosures for open-end credit.
The problem was brought to the attention of the General Counsel for the Oklahoma Department of Consumer Credit, and Scott Lesher, the Administrator of ODOCC, issued revised letter stating that persons have until the effective dates for the Federal Reserve Board rules to comply with the Department’s rules.
Consumer Loan Dollar Amounts – No Changes
Under the statutory authority established pursuant to Tit. 14A O.S. Section 1-106, the Consumer Credit Administrator adjusts certain dollar amounts effective as of July 1st each year to provide for inflation. These dollar amounts found in various sections of Oklahoma’s Uniform Consumer Credit Code (U3C) include late fees. For the first time in many years, there has been no increase in any dollar amounts, and the amounts in effect as of July 1, 2008 remain the same for this fiscal year. You may access the chart directly on the Oklahoma Department of Consumer Credit website:
Late Fees. A frequent question that banks routinely ask is “What is the maximum late fee for consumer loans and dealer paper? Since July 1, 2008, the maximum permitted late fee has been the greater of $22.00 or 5% of the past-due payment.
Before a bank can charge any late fee, the consumer must agree to it in writing. When a loan is originated, deferred or renewed, the signing of such document provides an opportunity to get the borrower to consent in writing to imposition of an increased late-fee formula. However, if a loan is already outstanding and is not being modified or renewed, a bank has no good way to increase the amount of late fee that the consumer has previously agreed to pay.
Some banks’ loan documents have specifically pegged the “dollar amount” portion of their late fee formula at $21.00 (or lower amounts in earlier years)—and so for existing loans there may be no way to raise the late fee at July 1. Other banks have used an adjustable formula in the late-fee provision of their loans, allowing for the greater of 5% of the late payment or the maximum dollar amount established by rule of the Consumer Credit Administrator from time to time. Banks using a formula that specifically allows for this type of inflation adjustment can re-set their existing loans to charge a new, higher late fee when the same is determined by the Consumer Credit Administrator.