[timob1973]

I’m reviewing our CD disclosures. Our CDs automatically renew and have a 10 day grace period to withdraw without penalty during the grace period. Since our CDs automatically renew, Regulation DD (1030.4 and commentary) does not require us to disclose if we pay accrued interest during the grace period.

While the commentary is very specific, I am wondering if there would be any UDAAP concerns by not disclosing especially if the Bank does not pay interest during the grace period.

Would any UDAAP risk be mitigated if we always paid the accrued interest regardless of providing a disclosure?

Any help would be greatly appreciated. Thanks in advance!!!

[rcooper]

This is an issue that has been around for many years. It can be considered a fair lending or UDAAP issue. Here is a link to older but relevant ABA article on the topic: https://www.aba.com/Compliance/Documents/ce24c8f593a24f1ead883b4ce2648284SA_JointCreditReportsandFairLending2010Apr.pdf.

Check with your credit bureau – you may be able to pull credit reports for non-married joint applicants. Another option might be to pull individual credit reports for everyone. The important thing to remember is ensure everyone is treated the same, which is the point the article linked above makes.

If your bank decides to cover the cost of the credit report, you would still need to disclose the fee on the LE along with a specific lender credit to offset it.

[jholzknecht]

I agree fully with Robin’s reply and want to elaborate on one point. The probability of an UDAAP violation increases significantly if you fail to deliver a timely disclosure and costs have risen by the time the disclosure is delivered. The increased cost would be an easily identified damage resulting from the violation. At a minimum we would encourage you to absorb the increased costs resulting from the delayed disclosure.

[rcooper]

There isn’t anything in the regulation or commentary or preamble that discusses this and, as far as I know, we haven’t heard any comments on it from the CFPB. As a result, it doesn’t seem there is anything from the regulators that indicates you must or should treat all fees as 0% tolerance. However, you also want to avoid further issues with the regulators (UDAAP) and it might be best to absorb the fees – evaluate the circumstances and all potential corrective actions. Most importantly, ensure you have processes in place to avoid this all together.

[kowsley]

It is okay to require the customer to open an account as a condition of the loan; however, what is prohibited is conditioning the extension of credit on the customer repaying the loan by automatic payment from that account. See 1005.10(e) below:

(e)Compulsory use. (1) Credit. No financial institution or other person may condition an extension of credit to a consumer on the consumer’s repayment by preauthorized electronic fund transfers, except for credit extended under an overdraft credit plan or extended to maintain a specified minimum balance in the consumer’s account.

Another concern to consider if requiring the customer to open an account as a condition of the loan is consistency. If this will be a stipulation of the loan, how will it be monitored? Will it be allowed to be “waived” by the loan officer? This may considered an unfair practice under UDAAP so you will want to establish very specific procedures for this product.

[rcooper]

As long as you are disclosing the account opening fee in the account disclosures I don’t think it will be a UDAAP concern.

[timob1973]

I’m reviewing our periodic statements and I have a question about what fees need to be disclosed. We currently have an account that requires a $10 fee to open. When we open the account, the $10 is deposited into a GL instead of debiting the customer’s account for the fee.

I know under 1030.6(a)(3) that any fee debited from the account must be disclosed on the periodic statement. However, since we don’t debit the customers account for this fee, are we in compliance? Or should we deposit the $10 into the customer’s account and then debit the fee?

My gut says that we are technically in compliance, but I’m concerned about potential UDAAP issues. Any help would be appreciated.

[kowsley]

Shelia, I actually am not aware of anyone that offers reverse mortgages nor have I had much experience with them in my own personal banking career; however, I have a few concerns that I would consider if looking to implement this product. As you know reverse mortgages are exempt from many of the regulatory requirements we are accustomed too; however, I do believe examiners would take a long hard look at the product, if implemented, during exams for things like UDAAP. These products generally tend to be offered to the older clientele to assist with living expenses. It would be a product that could easily be considered deceptive if not thoroughly explained when presented to the customer or if there were complaints received after closings. Just something to consider in your research and implementation.

I hope there are others on the forum that have had some experience with the product and respond to your question, I would be anxious to hear of their experiences with the product.

[jholzknecht]

Your situation seems to be:
• A “changed circumstance under Section 1024.2(b)(ii), which states, “Changed circumstances means information particular to the borrower or transaction that was relied on in providing the GFE and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE.”
• Covered by Section 1024.7(f)(2) – Changed circumstances affecting loan. If changed circumstances result in a change in the borrower’s eligibility for the specific loan terms identified in the GFE, the loan originator may provide a revised GFE to the borrower. If a revised GFE is to be provided, the loan originator must do so within 3 business days of receiving information sufficient to establish changed circumstances. The revised GFE may increase charges for services listed on the GFE only to the extent that the changed circumstances affecting the loan actually resulted in higher charges.

You mentioned that you have already reviewed Regulation E so we assume there is no problem under 15 U.S. Code § 1693k – Compulsory use of electronic fund transfers.

Also make sure the consumer is aware that the failure to open an account by a specific date will result in a change in product to one with a higher fee for those do not maintain an account with the bank. If the arrangement is not clearly explained to the consumer you are at risk of a UDAAP violation.

You should check state law for any possible prohibition against requiring an account in connection with the loan.

[rcooper]

I’m not aware of regulatory guidance that requires a stand-alone risk assessment for UDAAP. With that said, I do believe a UDAAP risk assessment is expected by examiners, shows your institution takes UDAAP seriously and finally, it is important for comprehensively evaluating UDAAP risk institution-wide. UDAAP should also be incorporated into other risk assessments as necessary.

[Kristin]

A consultant suggested that we do a stand-alone UDAAP risk assessment rather than include it within our annual Compliance risk assessment. Are you aware of any regulatory guidance to suggest a stand-alone UDAAP risk assessment?

[rcooper]

I don’t know of any regulatory requirements that state what you must report.Look at your contract with the credit bureaus to see if it provides for any requirements. And like you mentioned, if your agreement with FM or others have requirements then you should follow those. Consistency is important, so you should report all loans of the type that you report and you should report both borrower and co-borrower information to avoid unequal treatment.

Here’s a similar question that you might find useful: https://mycomplianceresource.com/forums/topic/fair-credit-or-udaap/

[rcooper]

If I understand correctly, you were using the HUD-1 to itemize fees for your HELOC transactions. As you know, HELOCs are exempt from RESPA and you aren’t required to use the HUD-1. With that said and based on the little information I have, I don’t think you have any reimbursement requirements or violations since HELOCs aren’t subhect RESPA. Your auditor might be concerned with potential liability under UDAAP or state law.

[rcooper]

A question we received from one of our members:

We had a request from a customer to change past dues we had reported to the credit bureau(even though they were past due). Our board wants to comply with his request. My question is could this be a fair credit or UDAAP issue because we would not do this for other customers?

[shea930]

When does the 120 day count begin for delinquencies? Our current understanding of this rule was that the borrower had to be past due for 120 days. For example they were still due for their January payment but we couldn’t file notice until sometime in May.

After reading some discussions on bankers online and guidance we received from the Kentucky Bankers Associations we are confused on when the 120 day count actually starts:

Per KBA guidance (Q3 & Q6)
Q.3.
When does the 120 days rule begin to run?
It begins on the day that the borrower is delinquent. Delinquency is defined in various regulations for various triggering dates. It is not, however, defined in the servicing regulations for implementation of the 120 day rule. For purposes of section 12 CFR 1024.40 (the section before the 120 day rule section), the commentary provides that “delinquency begins on the day a payment sufficient to cover principal, interest and, if applicable, escrow for a given billing cycle is due and unpaid, even if the borrower is afforded a period after the due date to pay before the servicer assesses a late fee.” While this does not specifically apply to the 120 day rule, it may be used as guidance. Delinquency and default are two different legal concepts. A borrower can be delinquent but not yet in default under the terms of the mortgage.

Q.6.
Must the servicer accept payments, full or partial, during the 120 days?
I would not recommend turning away any payments, even if you wish the customer would take their business elsewhere—that could be interpreted to be in violation of the spirit of the law and, perhaps a UDAAP. However, unless the payment brings them totally current, it would not reset the clock. Only if the payment completely covers principal, interest, escrow, late fees that are due the borrower is considered still delinquent. If the payment does bring them up to current, the clock is reset and will begin again upon delinquency.

So does this mean for example: The borrower is past due on their January and Feb payment and in March they pay January but nothing else. Since they are still considered delinquent and did bring their loan 100% current we can still continue our 120 day count and file notice in May? Does the 120 day rule mean the borrower has to be 120 days past due on 1 particular payment or does it mean that they stay 30 days delinquent for 120 days total?

Hopefully I’m making sense if not and you need me to clarify just let me know.