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A “minority census tract” is a census tract that has a minority population of at least 30 percent and a median income of less than 100 percent of the AMI. (fhfa.gov/DataTools/Downloads/Pages/Underserved-Areas-Data.aspx#:~:text=A%20“minority%20census%20tract”%20is,100%20percent%20of%20the%20AMI.)
A majority-minority (high-minority) census tract has a population that is at least 50 percent minorities, which means that more than half of individuals in the census tract are minorities, i.e. Black, Asian, Hispanic, Asian-Pacific Islander, and/or Native American. (https://www.lawinsider.com/dictionary/majority-minority-neighborhood)
Underserved area definition are determine by, low-income area and minority census tract definitions are based on prior year metropolitan area definitions as determined by OMB. Designated disaster areas are identified by FHFA based on the three most recent years’ declarations by the Federal Emergency Management Agency.
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Yes, you would have to have them sign a media release to be in your video.
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Looking into section 1026.42 there doesn’t appear to be glaring issues related to the fee waiver by the appraiser since it is more designed around the relationship between the bank and the appraiser. However, with the “why” I’d want to understand if there was any UDAP or conflict of interest issues. What made this person get a free appraisal?
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Hi Cindy –
I guess my questions is why do they want to do this? Pretty risky in today’s environment. However, you are correct in your whole assessment.
1. Yes, you will have to update the language in your disclosures, agreements, and provide the proper notification.
2. Yes, Fees are being scrutinized heavily using UDAAP standards. Firstly, you would need to have a very good reason for the $10 additional fee. You will need to clearly be able to explain ” the Why”. Without using explanations that show it to be fee income for the financial institution. To do that you will mostly likely need a break out of how much it costs the FI to have them close the CD early. It will be a hard sale if this process for opening and closing is basically automated. Even “employee” time spent opening or closing the account is probably not much by way of time or process.
The institution will need to prove the new standard is not “unfair” or “abusive”. Unfair because people are living paycheck to paycheck right now and we are in an “recession”. So why charge the interest penalty and the extra $10. Abusive because it will be a policy that could hurt a person or persons who really need their money. They could be in financial hardship that they didn’t have when it was opened. As long as disclosures properly explain the fee the institution should be able to avoid a “deceptive” standard.
3. Two other consideration,
a. Fair Banking. Fee Waivers – If there is the ability for the employee to waive any of the fees (interest and/or the $10) you are going to need a very good policy, procedure, and tracking mechanism. It will need
to be monitored and trended to spot potential issues/disparities, which ultimately for deposit accounts will tie back to UDAAP.
b. Reputation Risk – Complaints – You’re going to want to watch these closely as well. As you know, no amount of disclosing ever prevents complaints by depositors. So you will want to look for these as they could
be early warning signs. If they hit social media they could catch the eye of the CFPB and/or your Federal and State regulators, as well as special interest groups.Hope this helps provide another opinion on the risky practice charge fees. Please let us know if you have other thoughts or question.
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Good afternoon,
When reviewing the official interpretation on the CFPB website (https://www.consumerfinance.gov/rules-policy/regulations/1026/7/#a-6-i). It states –
Terminology. Although the creditor is required to indicate any time period the consumer may have to pay the balance outstanding without incurring additional finance charges, no specific wording is required, so long as the language used is consistent with that used on the account-opening disclosure statement. For example, “To avoid additional finance charges, pay the new balance before _” would suffice.
Based on this guidance, I would agree you do not need to have the language you have already disclosed in the HELOC disclosure and the credit agreement BUT it does indicate you would need some statement to “remind” them of the grace period. As shown above in what was taken from the CFPB.
Please let us know if you have additional questions.
1026.3 3(a) is the section in TILA that speaks to exemptions. Under this section Primary purpose is the factor when considering if the disclosures are needed.
Primary purposes – A creditor must determine in each case if the transaction is primarily for an exempt purpose. If some question exists as to the primary purpose for a credit extension, the creditor is, of course, free to make the disclosures, and the fact that disclosures are made under such circumstances is not controlling on the question of whether the transaction was exempt.
The whole purpose is to protect the consumer. So, the fact that you have a business and a Natural person as borrowers will not determine if you must follow the TILA rules. You will need to determine what the purpose of the loan is.
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After reviewing Fannie and Freddie rules as well as the CFPB appraisal requirements. these are defined as two separate actions. Definitions state a home appraisal is an estimate of a home’s fair market value. A home inspection is a thorough inspection of a property that determines the condition of the property and reveals any repairs that need to be made. The key difference between appraisal and inspection is the appraisal focuses on the home’s value, while the inspection focuses on the home’s condition. Additionally, most final inspections are done because either (1) the home is new or being remodeled; or (2) the home has FHA or other deficiencies.
As far as the HPML appraisals rules – An FI is required to deliver copies of any appraisals to covered applicants no later than three business days before the loan is consummated. It doesn’t speak to the CD requirements BUT clearly states no later than three business days before the loan is consummated.
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I would agree with your assessment, it makes sense, but there doesn’t seem to be a consideration for loans sold verse loans kept. As you know, the current ATR/QM Rule requires a lender to make a reasonable, good faith determination of the borrower’s ability to repay the mortgage and defines several categories of Qualified Mortgages (QMs). Loans that meet the definition of a Qualified Mortgage are considered to have met the Ability-to-Repay requirements and enjoy certain protections from liability.
In the General QM change, the original definition of General QM required that DTI must not exceed 43% and Appendix Q must be used to verify debts/income to be considered QM, among other criteria. In December 2020, the CFPB issued a revision to the General QM Rule, removing the DTI limit and Appendix Q and replacing it with limits on the loan’s pricing. Under the amended rule, a loan will meet the General QM definition if the annual percentage rate (APR) exceeds the average prime offer rate (APOR) for a comparable transaction by less than 2.25% (or up to 6.5% depending on the loan amount and transaction type) at the time the interest rate is set.
With out solid guidance, IMO make sure whatever you do is documented in policy/procedures and consistent.
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No, you may not place any funds on hold unless you have reason per Availability of Funds and Collection of Checks (Reg CC )(https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-229).
From a business decision – Suggestions to consider: Placing the funds on deposit into a short term CD. A draw type account for the construction loan purposes that they can make interest on.
These are of course just suggestions but are not hard fast requirements. Your FI, will need to make decisions on how you would handle and disclose this type of transaction for all borrowers to avoid potential fair lending, fair banking, and/or UDAAP issues.
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The rules do not allow for any “On-Us check” to be placed on hold. In account B that you reference, when was the deposit made (you have timing issues to consider)? Was this a new account? Would you have reasonable cause to have held the check? Was it a large check?
More details would help to see if there is a way to protect the funds. Dollar amounts, dates of the deposit, and account status (new, frequent overdrafts) will help in determing what actions can be taken to protect the funds.
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My understanding for the levy in a garnishment is that both are collection tools to seize assets. When researching the difference levies will apply to financial accounts and the garnishment will apply to wages placed into the account.
A levy allows a creditor to withdraw money from a financial account—most commonly, a checking or savings account. With a levy you will be freezing a financial account and then taking the money in that account and sending to cover the request.
A garnishment will instruct the FI to take a portion of deposited wage (following the exclusions) and sending them where instructed.
With the different types of definition’s for the two types you may just want to make sure your procedures are written for the little differences.
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My understanding is the same as yours. Interest is required to be paid at least annually. That can mean by depositing the interest into the CD, check, or even an electronic transfer. This method does ensure that 1099-INT will be reported properly.
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Regulation C (HMDA) requires institutions to report lending data to their supervisory agencies on a loan-by-loan and application-by-application basis by way of a “register” reporting format. Based on this direct requirement, I would say you do have to collect the information at the time of application for each of the loans.
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I agree with you. Based on everything I researched last week. You should be disclosing the interest rate of 2.50% not 2.49% per section (230.4(b)(1)(i)) and indicating what you stated “Interest will not be compounded on this account. Interest will be mailed to you by a check quarterly.” That will make it very clear to the customer.
Based on what I am understanding from your question your concerned that:
1. You are not disclosing the APY correctly on the CD TISA disclosure (out of curiosity, do you use a provider?) and
2. Should the disclosure explain how the interest is to be credited – by check, credited back to the CD, into another account.1) You are correct that you should be disclosing the frequency with which your CD compounds, and it is in most cases reflected in the
annual percentage yield (APY). However, the assumption for the APY is it will be calculated based on leaving the interest in the CD for its
entire term.If the depositor is going to take periodic disbursements of interest, such as monthly or quarterly payment then the money will not fully
compound which causes the difference in how the APY will be disclosed and pay interest. A couple of things:
a. When advertising the CD, the rules state that you must disclose the APY (230.8 (c)(2)) under the assumption that the interest
will be going back into the CD, and this may be where some of the confusion lies.
b. When providing the account disclosure at account opening, disclose based on how the account operates. So, in this case, you may
have the interest rate the same as the APY or slightly different if they are taking disbursements other than monthly. (230.4(b)(1)(i))
c. Disclosure for advertising and at account opening should clearly state “Withdrawal of interest prior to maturity” as applicable:
a) A statement that the annual percentage yield assumes interest remains on deposit until maturity and that a withdrawal
will reduce earnings for accounts where –
(I) Compounding occurs during the term, and
(II) Interest may be withdrawn prior to maturity or
b) A statement that interest cannot remain on deposit and that payout of interest is mandatory for accounts where:
(I) The stated maturity is greater than one year,
(II) Interest is not compounded on an annual or more frequent basis,
(III) Interest is required to be paid out at least annually, and
(IV) The annual percentage yield is determined in accordance with section E of Appendix A of Regulation DD.2) Yes, you should be explaining how the interest will be managed.
