[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.

[jholzknecht]

There are a number of things that can cause the balloon payment on the note to differ from the balloon payment on the TIL disclosure:
* Different loan terms;
* Different interest rates;
* Rounding amounts in one case but not the other;
* Using different calculation calendars (360/360 versus 365/360); and
* Others.

You need to determine the cause of the difference in your case. The difference could be a truth-in-lending violation or a UDAAP violation.

[jholzknecht]

A worksheet similar to what you describe can be beneficial to the consumer, but can be a compliance nightmare – resulting in TIL, RESPA and UDAAP violations. None of the existing regulations contemplate the use of a worksheet. The new integrated disclosure, which are effective on August 1, 2015, do explain how to use such a worksheet, but it isn’t 2015 yet..

If the form looks too much like a GFE, examiners may determine it is a GFE subject to all of the RESPA rules. If the numbers on the worksheet differ from the numbers on the actual GFE you may have a UDAAP violation.

These RESPA arguments can also be applied to Truth in Lending issues. It may be deemed an incomplete TIL disclosure and differences between the worksheet and the actual TIL may be deemed to be a UDAAP violation. If the examiner determines that the form is an advertisement or a solicitation additional problems, such as a lack of an APR, could arise.

Make sure the form does not resemble a GFE or a TIL. Include qualifying language that states the form is not a GFE or TIL, that numbers are preliminary estimates and that more refined estimates will be provided later in the GFE and TIL, and that form is not an advertisement of solicitation for credit.

[jholzknecht]

Without details regarding the homeowners warranty (HOW) program it is difficult to reach an opinion. I have UDAAP on the brain today. I published a blog article this morning warning of potential problems with add-an products. Please review that article in the blog section of our website. HOW programs are generally a very legitimate product. Just be sure that the product is truly beneficial to your customer.

Let me know if have specific questions about HOW.

[jholzknecht]

The following question was submitted by email and we wanted to share it with you.

CFPB Bulletin 2013-12 has to do with identifying and communicating with a successor in interest of a deceased borrower, modification of the Early Intervention Rule, and the interplay between these rules and the FDCPA. As a Small Servicer, we are exempt from the requirements of the Early Intervention Rule. Are we also exempt from the successor in interest and the communication vs the FDCPA?

Answer: The small servicer exemption is in RESPA, not FDCPA. However, I suspect that the FDCPA does not directly impact your operations. The FDCPA does not apply when your bank is collecting debts owed to your bank. It applies when your bank is collecting debts owed to a third party.

Most banks follow FDCPA guidance because while engaging in practices prohibited by the FDCPA may not be violations of the FDCPA. engaging in such practices may be UDAAP violations.

[jholzknecht]

The following question was submitted by email and we wanted to share it with you.

CFPB Bulletin 2013-12 has to do with identifying and communicating with a successor in interest of a deceased borrower, modification of the Early Intervention Rule, and the interplay between these rules and the FDCPA. As a Small Servicer, we are exempt from the requirements of the Early Intervention Rule. Are we also exempt from the successor in interest and the communication vs the FDCPA?

Answer: The small servicer exemption is in RESPA, not FDCPA. However, I suspect that the FDCPA does not directly impact your operations. The FDCPA does not apply when your bank is collecting debts owed to your bank. It applies when your bank is collecting debts owed to a third party.

Most banks follow FDCPA guidance because while engaging in practices prohibited by the FDCPA may not be violations of the FDCPA. engaging in such practices may be UDAAP violations.

[rcooper]

I believe most banks charge the same fee for NSFs and overdrafts. With that being said, IMO, if you had an automated program that customer could opt in/out of I wouldn’t see as much concern as I do with the ad hoc program since the customer would be agreeing to/authorizing the payment of overdrafts and the assessment of a higher fee. And even though you will be disclosing the change in fee, this type of program may encourage managers to approve overdrafts to increase fee income when perhaps customers may not quite meet your guidelines, which could be a UDAAP problem.

[penncm]

Our bank has an ad-hoc overdraft program where on a daily basis all NSF items are set to return unless the store manager changes the code to pay the item. The decision to pay or return is entirely up to the store manager, although a customer may request the item to be paid and our bank does have guidelines set on what to consider when making the decision.
Currently, our NSF and OD fees are the same. The bank is considering increasing the OD fee by $5 but leaving the NSF fee the same. The justification is that by paying the item for the customer, the customer is avoiding a fee that may be charged by the payee and the embarassment of a returned check.

Because the decision making is entirely up to the store manager and not the customer, would this possibly be considered a UDAAP issue by the customer or regulators? The fee would clearly be disclosed to the customer and a 30 day notice provided prior to implementing the fee. Our disclosure booklet states that “any decision to pay an overdraft is solely at our discretion and if we chose to pay one or more overdrafts we are not obligated to pay any future overdrafts”.

Does it make a difference that if a customer makes a deposit to cover the negative balance the next day, the items will be paid and the higher fee charged? Or at the manager’s discretion, items can be paid with a negative balance up to a signing authority limit?

[rcooper]

You need to train at least annually on the following (this information is also available on our calender at https://mycomplianceresource.com/compliance-calendar/. There are no specified required dates so we have assigned them to dates throughout the year.)

BSA/AML
CIP
Physical Bank Security
Information Security
ID Theft/Red Flags
Reg CC
And LO are required to have periodic training on state and federal lending laws

You should also make sure everyone has had fair lending and UDAAP training recently.

[kowsley]

Sr. Mgt. is considering changing our “higher rate” loan product from a balloon product to an ARM product with a 10 year callable feature to offset interest rate risk. I know that demand/callable features are not available on HCM’s; however, this product wouldn’t hit the thresholds to make it a HCM. Would this callable feature be acceptable? If so, would it raise UDAAP flags as this product is typically offered to those customers that have a detrimental financial history – lower credit scores, etc.

[rcooper]

We are unaware of any federal law that mandates the order of posting payments. As long as the payment order is properly disclosed in your contract, we don’t see a UDAAP concern.

[rcooper]

IMO, I think it would depend on the situation. If you have forced placed because the customer didn’t obtain insurance as agreed/required, you have to purchase it and, as a result, add it to the loan amount (per your agreement); if the customer then obtains insurance and you cancel the policy you purchased you wouldn’t need to refund interest for the period that the customer failed to provide insurance. However, if after the customer provides you with a policy and you don’t promptly credit their account with the refund and continue to charge interest then you should refund it in that situation. Or if insurance was force-placed in error, then interest should be refunded. Be mindful of UDAAP – you don’t was a process in place that consistently charges customers for something that isn’t needed. Also make sure you’re familiar with the new force place requirements in RESPA under 12 CFR 1024.37, for hazard insurance, effective January 10, 2014.

[jholzknecht]

Excellent question. I am not aware of any federal law that directly addresses this issue. You might have state law concerns. Examiners could cite a UDAAP violation, but the small amount of the overpayment makes that seem unlikely. If a significant number of customers have small loses it is more likely that a violation might be cited.

If the overpayment is the result of an action of the borrower you might consider imposing a fee for issuing a refund check. The fee will either eliminate the refund, or at least compensate you for the effort. Any such fee should be included in your contract. If the overpayment is the result of a bank error it is not reasonable to impose a fee.

Issuing small refunds is a nuisance, but it is clearly the safe course of action.

[rcooper]

I think tackling UDAAP by department makes sense. Many banks have implemented UDAAP checklists for product development and marketing as part of their procedure. Through these channels is where your major contact with consumers occurs and it reaches products/marketing for all departments. Then you could work your way through other departments (i.e. electronic banking, lending, retail deposit, etc.) and the products they offer making sure your current procedures/products aren’t unfair, deceptive or abusive to customers.

If you haven’t done so already, you should consider training for staff, especially those who create policies and procedures, develop products and work in the marketing department.