March


March 13
Question: Can a lender order an appraisal prior to receiving intent to proceed? Is it a regulatory violation if a lender orders one without having received intent to proceed? When can we first charge for an appraisal? 

Answer: Reg Z does not expressly prohibit the actual ordering of an appraisal prior to receiving intent to proceed. However, without intent to proceed, the Bank runs the risk of not being able to charge the customer for it. Reg Z does not permit the Bank to impose any fee in connection with the transaction before the consumer has provided the intent to proceed. Once the bank has received intent to proceed, it may assess the fee. Some Banks choose to not order any appraisal prior to receiving intent to proceed because if the intent to proceed is never provided, the Bank cannot charge for it. So, this is not necessarily a regulatory error unless you attempt to charge for it without receiving intent to proceed. 



February

February 26

Question: Currently we provide the EFT Disclosure to all customers at the time of account opening whether or not they wish to receive a debit card.  Are we required in addition to supply the same disclosure when a debit card is sent to the customer?  

Answer: When it comes to the instance where the card is initially being issued, whether or not the bank would need to issue additional disclosures will depend upon the content of each set of the disclosures, namely the "old" and the "new" disclosures. As, under Regulation E, when an access device is issued, if the EFT capabilities differ from those described in the Regulation E disclosures initially issued by the bank, then new disclosures that accompany the access device are required to be issued to the customer, as suggested below:  

February 5
Question: Does MLA apply to the purchase of vacant land?  

Answer: Generally, yes, MLA would apply as vacant land loans are not specifically exempt. Note, however, that transactions to finance initial construction of a dwelling that will secure the loan would be exempt as a residential mortgage, so in some cases this exemption may apply:   
“…Exceptions. Notwithstanding paragraph (f)(1) of this section, consumer credit does not mean:   
A residential mortgage, which is any credit transaction secured by an interest in a dwelling, including a transaction to finance the purchase or initial construction of the dwelling, any refinance transaction, home equity loan or line of credit, or reverse mortgage…”  
https://www.ecfr.gov/current/title-32/part-232#p-232.3(f)(2)   

"(c) Addition of electronic fund transfer services. If an electronic fund transfer service is added to a consumer's account and is subject to terms and conditions different from those described in the initial disclosures, disclosures for the new service are required."  
https://www.consumerfinance.gov/rules-policy/regulations/1005/7/#c   
Further, the timing requirements provide the following:   
“…Disclosures given by a financial institution earlier than the regulation requires (for example, when the consumer opens a checking account) need not be repeated when the consumer later enters into an agreement with a third party to initiate preauthorized transfers to or from the consumer's account, unless the terms and conditions differ from those that the institution previously disclosed. …On the other hand, if an agreement for EFT services to be provided by an account-holding institution is directly between the consumer and the account-holding institution,disclosures must be given in close proximity to the event requiring disclosure, for example, when the consumer contracts for a new service.”  
https://www.consumerfinance.gov/rules-policy/regulations/1005/interp-7/#7-a-Interp-1   
Additionally, even if not required under the Regulation, new disclosures may, nonetheless, be required under the bank's internal policy, the account agreement, or, if it is a branded card, under the bank's agreement with the network. As always, to avoid implicating any UDAAP/UDAP and/or fair banking considerations, the bank will want to ensure that it is treating similarly situated consumers consistently, across the board in determining when new disclosures must be issued.  

January

January 31
Question: When are cash-out refinancing's reported for HMDA purposes instead of a refinancing? 

Answer: A financial institution reports a covered loan or an application as a cash-out refinancing if it meets the HMDA definition of a “refinancing” and the financial institution considered it to be a cash-out refinancing when processing the Application or setting loan terms. If a financial institution does not distinguish between a cash-out refinancing and a refinancing under its own guidelines, sets the terms of all refinancing's without regard to the amount of cash received by the borrower at loan closing or account opening, and does not offer loan products under investor guidelines, it reports all refinancing's as refinancing's. See: 2023 Guide to Getting It Right (ffiec.gov) (p. 158). 

January 22
Question: Are UDAAP audits required annually?  

Answer: While it does not require an annual audit, regulators will look at whether or not banks do a periodic review of policies and processes to comply with UDAAP.  

“1. Identify potential UDAAP concerns by reviewing all relevant written policies and procedures, customer complaints received by the entity or by the CFPB, internal and external audit reports, statistical and management reports, and examination reports. Determine whether: …  

The entity’s compliance program includes an established process for periodic analysis and monitoring of all decision-making processes used in connection with consumer financial products or services, and a process to take corrective action to address any   potential UDAAP concerns related to their use, including discrimination.”  https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf  

January 15
Question: Regarding escrow shortages, is 12 months the maximum that we can spread a shortage out over? 

Answer: Regulation X states that a shortage may be repaid over a minimum of 12 months, as set out here:   
 
“…If the shortage is less than one month’s escrow payment, then the servicer: 

  • May allow a shortage to exist and do nothing to change it, 

  • May require the borrower to repay the shortage amount within 30 days, or 

  • May require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period. 

If the shortage is equal to or more than one month’s escrow account payment, then the servicer: 

  • May allow a shortage to exist and do nothing to change it, or 

  • May require the borrower to repay the shortage in equal monthly payments over at least a 12-month period. 

12 CFR § 1024.17(f)(3). 

The specified repayment options in Regulation X are exclusive. Therefore, a servicer cannot include in the annual escrow statement any options for repayment of shortages that are not specified in Regulation X, such as a lump sum payment option for a shortage that is equal to or more than one month’s escrow payment. …” 

 https://www.consumerfinance.gov/compliance/compliance-resources/mortgage-resources/mortserv/mortgage-servicing-faqs/#escrow-accounts-deficiencies-shortages-surpluses  

Note that as always, the bank should also consider UDAP/UDAAP and fair lending implications when making these decisions. 

 



 

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