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Your question refers to the risk-based pricing (RBP)notice. That notice is required if any person both:
i. Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to a consumer that is primarily for personal, family, or household purposes; and
ii. Based in whole or in part on the consumer report, grants, extends, or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person.The RBP notice is not provided for every application; it is only provided for applicants that have been approved with an APR that is materially less favorable. The notice is required to be delivered before consummation of the transaction, but not earlier than the time the decision to approve an application for, or a grant, extension, or other provision of, credit, is communicated to the consumer by the person required to provide the notice. That does not appear to be the timing used for the notices you describe.
I don’t believe you are actually using a RBP notice. One exception to providing a RPB notice is when the consumer receives a credit score (CS) notice. The CS notice is provided to the applicant as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation.
I suspect that you and the auto dealer are using the exception that allows you to provide a CS notice in lieu of a RBP notice.
As long as the CS notice reflects the information from the report pulled by that entity there should be no UDAAP concern. Scores can differ from one credit bureau to another and from the same credit bureau from one day to another.
Since both the auto dealer and the bank pull credit reports with credit scores, both entities must provide the CS notice.
Let me know if I have misconstrued your question. There will be whole different set of issues, if that is the case.
A first mortgage loan made to an executive officer for the purchase or refinance of their primary residence made under Section 215.5(d) must be promptly reported to the board of directors, but prior approval is not required by this section.
Prior approval is generally required by Section 215.4(b)(1) when an extension of credit to any insider aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of $25,000 or 5 percent of the bank’s unimpaired capital and unimpaired surplus.
I have not seen a set-up like this. We have concerns about the deposit account documentation and about the Loan Estimate and the Closing Disclosure. We will get back to you on these matters.
We also hope others may have seen this arrangement and will chime in.
Now the picture is becoming more clear.
Most lenders advance construction funds based on inspections conducted by independent experts. This assures construction is actually occurring. While most customers are honest your method leaves open the possibility of fake invoices.
If 20% of the loan amount goes into the account, what happens to the other 80%?
We would love to help you but we need a lot more information. What is the purpose of the escrow? Will the construction loan proceeds be disbursed through this account? 20% of what?
I agree with all of Robin’s comments regarding the importance of consistency.
Since the property is in a non-participating community FEMA insurance is not available. It appears that options include denying the application, making the loan without property insurance, or making the loan with a private flood policy. If the policy in question is unacceptable the borrower may be able to obtain a policy from another private insurer that is acceptable.
You did not mention the aspect of the policy that is deficient. Is the issue completely unacceptable or is it an issue you could live with if no other options exist? Customer A had the option of purchasing FEMA coverage. Customer B does not have the option of purchasing a FEMA policy, but may have the option of a private policy that is acceptable.
Regarding the “fairness” aspect of your question, it appears that situations regarding Borrower A and Borrower B are different enough (participating and non-participating) to justify the difference in treatment.
Following are all of the CRA Loan Types:
1=Small Business
2=Small Farm
3=Other lines and loans for purpose of small business
4=Home Equity
5=Auto
6=Credit Card
7=Other secured consumer loans
8=Other unsecured consumer loans
9=Other Loan DataOnly Loan types 1 and 2 are reported. The other loan types are optional but may be collected, and maintained for examiner review.
On September 13, 2019 Compliance Resource published a detailed analysis of the 2018 HMDA data. The information is available here.
Section 1026.19(e)(3)(iv) of Regulation Z provides that a revised disclosure is permitted and tolerance may be reset after the expiration period has expired and the consumer has not indicated an intent to proceed. The fees in the revised disclosure may have changed from the original disclosure.
Beyond providing a LE that includes an expiration date there is no requirement to educate the borrower on the expiration date. Most creditors follow up with the borrower, often several times, after delivery of the LE to encourage them to provide intent to proceed.
Most creditors provide the intent to proceed form at the time they provide the LE. If you are providing the form late in the process then that delays the whole lending process since fees can not be imposed until you have received the borrower’s intent. It also increases the likelihood that you will have to provide a revised disclosure. UDAP could be a concern if a lender is intentionally delaying delivery of the intent to proceed form with the intent to increase the likelihood that the LE will expire and a new LE with higher fees would be delivered.
The easiest solution is to deliver the intent to proceed form with the LE and to perform rigorous follow up to obtain the borrower’s intent to proceed before the LE expires.
HMDA applies to an open-end line of credit or a closed-end mortgage loan, unless one of the exemptions apply. In either case the line of loan must be secured by a dwelling. The term dwelling includes a manufactured home. Regulation C does not discuss the condition of the dwelling. If the MH is removed prior to origination the transaction would not be covered. The safe answer is to report for HMDA.
The ability to repay (ATR) rules contain in Section 1026.32 of Regulation apply to any consumer credit secured by a dwelling. Once again the MH is a dwelling. There are exemptions, but none that are readily apparent in this case.
In my experience 10 inspections is more than what most lenders experience. That said your question is still valid.
Yes a refund is needed.
Section 1026.19(f)(2) states that if during the 30-day period following consummation an event occurs that causes the CD to become inaccurate, and results in a change to an amount actually paid by the consumer from the amount disclosed in the CD a corrected disclosure must be mailed or delivered not later than 30 days after receiving information sufficient to establish that such event has occurred. It appears that it will be more than 30 days after consummation before you are aware of the change in the number of inspections, so a revised disclosure would not be required.
You may want to consider charging for each inspection at the time of inspection instead of the collecting the funds in advance. You still have to disclose the estimated fees but this practice would eliminate the need for a refund.
This is informal guidance from the agencies. It is not in the interagency regulations. It is not in the interagency Qs & As. For several years we have recommended that financial institutions handle force-placed premiums as a MIRE event, when the premiums are added to the loan. Any time you make, increase, renew or extend, this is an increase, you must comply with all of the flood insurance requirements – determination, notice, insurance, escrow, etc.
The commentary for paragraph 4(a)(10)(ii)(3) states, “a financial institution complies with § 1003.4(a)(10)(ii) by reporting that the requirement is not applicable when reporting a purchased loan for which the institution chooses not to report the age.” The 2019 Filing Instructions Guide indicates that the appropriate entry for “not applicable” is 8888, and the appropriate entry for no co-applicant is 9999. Based on Scenario 2 in the 2017 CFPB publication entitled HMDA Loan Scenarios (see page 13) the correct entry is 8888 for applicant, and 9999 for co-applicant.
Hey Compliancegirl,
These are both great questions.
Regulation Z deals with the disclosure of fees. The regulation does not determine whether a fee is allowed or not. The legality of a fee is generally determined under either state usury law or by the terms of the loan agreement.
In-house evaluation fee – Generally you should be able to charge the fee, assuming it is not prohibited by state law, but you want to make sure the borrower is aware of the fee.
• Providing a loan estimate that discloses the fee assures the consumer is aware of the charge before consummation.
• Section 1026.4(c)(7) of regulation Z states that property appraisal fees or fees for inspections to assess the value or condition of the property may be excluded from the finance charge if:o The service is performed prior to closing;
o The transaction is secured by real property or is a residential mortgage transaction (a loan to buy or build the borrower’s principal dwelling); and
o The fees are bona fide and reasonable in amount.Future Lien Releases – Much like the in-house evaluation fee you generally should be able to charge the fee, assuming it is not prohibited by state law, but you want to make sure the borrower is aware of the fee.
• Providing a loan estimate that discloses the fee assures the consumer is aware of the charge before consummation.
• Section 1026.4(e) provides that if itemized and disclosed, taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest may be excluded from the finance charge.
• Charging the fee or adding it to the loan balance at origination for new originations should be fine.
• Adding the fee to the loan balance on loans currently outstanding may be a problem, if it will be part of the balance to which the finance charge will be imposed. You are modifying the borrower’s existing agreement and should receive the borrower’s consent when doing so.
• It appears the mobile app needs some attention. If it quotes incomplete payoffs, an attempt to collect a higher amount could be a unfair or deceptive act or practice.Here we are 30 days later and now we have another redlining case. I think this answers the question that I posed above. For details see the OneWest Bank Redlining Case.
