Yikes! The APR or APY is WRONG… Now What?!
February 7, 2023REGISTER NOW
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Yikes! The APR or APY is WRONG… Now What?! has been submitted to ABA Professional Certifications for CE credit review and is pending approval. Once we receive notification of the credit approval, we will notify attendees.
Mistakes happen. Even strong compliance programs can have a slip-up, and you may find your bank has wrongfully disclosed the Annual Percentage Rate (on a loan) or the Annual Percentage Yield (for a deposit product).
So what? What does it really matter if the number is wrong?
In banking, there are two “Truth” laws:
- Truth In Savings Act
- Truth In Lending Act
Congress passed these laws to ensure banks are being… well… truthful in the information they provide to customers. Congress made sure to cover both sides of the banking house: deposits accounts and loan accounts – and they were serious about it. After all, failure to be less than truthful – even inadvertently – causes consumer harm. Either the consumer isn’t earning the interest yield you told them they’d earn (APY), or they are paying a bigger interest rate than you told them they’d pay (APR).
That is a problem – both as a violation with the law itself, and also with UDAP. Lying is unfair and deceptive.
Of course, bankers aren’t in the business of lying, and we sure aren’t looking to swindle the customer. But we are human – and to err is human. Moreover, the calculations for both APR and APY are downright complicated. It can be difficult to even know you have a problem. A reliance on vendor software doesn’t solve anything either – many errors are a result of GIGO – garbage in / garbage out.
What are we to do?
Luckily, there are official and reliable calculators for your free use! The FFIEC maintains both APR and APY calculators, and they are most helpful. But I’ll be honest… they are also intimidating.
Join this program to learn more about APR and APY accuracy and let me show you the ropes for using those confounded calculators. It has become a bit of a forgotten skill that you don’t want to miss! I’ll also show you how to make things right for your customer, to mitigate regulatory consequences.
In a word: Violations.
In two words: Mandatory restitution.
In three words: Civil Money Penalties.
In four words: Doing the right thing.
Both TISA (Reg DD) and TILA (Reg Z) mandate accuracy in disclosures. There are consequences when that doesn’t happen, and you need to know how to make things right. An APR / Finance Charge error can easily lead to required restitution to a borrower.
TILA has severe consequences for making APR / Finance charge errors and then failing to correct them. Indeed, it is no understatement that APR and FC understatements are to be taken seriously… civil and criminal liability is like that. So, it is imperative to get it right – APR and Finance Charge accuracy is the central theme of the Truth In Lending Act, which officially made it a law for creditors to honor what they disclose.
Did you know there is a Joint Agency Statement of Policy from 1998 that remains the de-facto instruction guide for making APR / Finance Charge restitution?! Do you know what it says?
This is crucial information for you to know as a compliance professional. I’ve been on the front lines of compliance for 20+ years, and I’ve lived these things. I’ve implemented and been examined on these laws and have had to calculate restitution to reimburse real dollars back to the borrower. I have the perspective and insight to share!
This two-hour session will give you the practical knowledge to confidently understand:
- APY accuracy: Learn how to navigate the FFIEC calculator for determining APY accuracy on advertisements, disclosures, and periodic statements.
- APR and Finance Charge accuracy: Figure out why, when, and how to determine if your figures are right. If not, I’ll show you how to determine the right amount of reimbursement required, using the Agency’s Statement of Policy on Restitution and the FFIEC APR calculator.
Walking step-by-step through a case study, you’ll come away with a better understanding of a subject that need not be intimidating. You’ll be able to answer these questions:
- Why do I have to reimburse? It was an unintentional error – can’t I just re-disclose?
- Is the FFIEC APR calculator the same as the old APRWin? How do I use it?
- Do I have to cut a reimburse check for the borrower, or can I just credit the loan?
The program is designed for compliance officers, lenders, loan reviewers, auditors and bank managers.
Rebekah F Leonard, CRCM is the Director of Compliance for a $6 Billion community bank in Montana, as well as the owner of Elucidate, LLC, a compliance training company based in Miles City, Montana. Rebekah has been in the finance and banking industry since 1995, beginning in private-lending before settling into banking, where she’s covered nearly all of it – from customer service and teller work, to loan processing and review, to security & business continuity, to ultimately overseeing CRA, BSA and all aspects of compliance as a senior leader. She has successfully navigated numerous FDIC Compliance, CRA, and BSA Exams. Rebekah has a bachelor’s degree in Organizational Leadership from Chapman University (Magna cum Laude), attended the American Bankers Association National Compliance School in 2003, and has held her Certified Regulatory Compliance Manager designation since 2006. She actually likes compliance (really!) and enjoys sharing her passion of it with others.
February 7, 2023