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3/20/2017 1 CUNA Regulatory Compliance Certification eSchool: Introduction Consumer Lending Regulations Information provided in this presentation, including all materials, should not be construed as legal services, legal advice, or in any way establishing an attorney-client relationship. Credit unions should contact their own legal counsel for advice. Information may have changed since this presentation was prepared. This information is intended to only be a summary of the issues. Facilitator Jen Torbeck Senior Manager Risk and Compliance Solutions CUNA Mutual Group

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Page 1: CUNA Regulatory Compliance Certification eSchool: Introductionlegacy.cuna.org/training/elearning/eschool/member_AW5RCI17/032017.pdf · 3/20/2017 1 CUNA Regulatory Compliance Certification

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CUNA Regulatory Compliance Certification eSchool: Introduction

Consumer Lending Regulations

Information provided in this presentation, including all materials, should not be construed as legal services, legal

advice, or in any way establishing an attorney-client relationship. Credit unions should contact their own legal

counsel for advice. Information may have changed since this presentation was prepared. This information is intended to

only be a summary of the issues.

FacilitatorJen Torbeck

Senior Manager

Risk and Compliance Solutions

CUNA Mutual Group

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Objectives

Relate the consumer lending knowledge to military loans.

Consumer Loans

Explain the consumer lending process and regulations that impact each event.

Identify the various kinds of consumer lending.

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2

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Consumer Loans

• Open-end Loans

- Credit Card

- Line of Credit

• Closed-end Loans

• Military Consumer Loans

Open-end Lending

Definition:

This means consumer credit extended by a creditor under a plan in which:

�The creditor reasonably contemplates repeated transactions;

�The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and

�The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid.

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Closed-end Lending

“All credit other than open-end.”

The key to Closed-end credit is that there is a set amount borrowed, with a set term or maturity date. It’s a one-time transaction. If a member wants to borrow more they must reapply for credit and the credit union will either refinance a loan for them or write a new loan.

Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

Typical Consumer Lending Process

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Laws and Regulations

Truth In Lending Act (TILA) & Regulation Z

Equal Credit Opportunity Act (ECOA) & Regulation B

The Fair Credit Reporting Act (FCRA) & Regulation V

Unfair, Deceptive, or Abusive Acts or Practices (UDAAP)

The Fair Debt Collection Practices Act (FDCPA)

Truth in Lending (TILA)

“The purpose of this regulation is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The regulation also gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes.

1026.1(b)

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Rule Making Authority

The Dodd-Frank Act granted rulemaking authority under TILA to the Consumer Financial Protection Bureau (CFPB) and, with respect to the entities under the CFPB’s jurisdiction, granted the CFPB authority to supervise for and enforce compliance.

History

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Regulatory Scheme• Subpart A--General

• Subpart B--Open-End Credit

• Subpart C--Closed-End Credit

• Subpart D--Miscellaneous

• Subpart E--Special Rules for Certain Home Mortgage Transactions

• Subpart F--Certain Rules for Private Education Loans

• Subpart G—Special Rules Applicable to Credit Card Accounts and Open-End Credit Offered to College Students

Regulatory Scheme

Subpart A--General which applies to both open and closed-end loans

• 1026.1- Authority, purpose, coverage, organization, enforcement and liability. Record Retention is two years to retain evidence of compliance.

• 1026.2- Definitions

• 1026.3-Exempt transactions

• 1026.4-Finance charge

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ScopeReg Z does not apply to:

• An extension of credit primarily for a business, commercial or agricultural purpose.

• An extension of credit to other than a natural person,

• Credit over $50,000 ($54,600 for 2017) not secured by real property or a dwelling. (relatively recent change)

• An extension of credit not secured by real property, or by personal property used or expected to be used as the principal dwelling of the consumer, in which the amount financed exceeds $50,000 or in which there is an express written commitment to extend credit in excess of $50,000. 1026.3(a)

• Government insured or guaranteed student loans • (Note: private student loans ARE covered by Reg Z) 1026.3(f)

1026.3

Definitions

• (6) Business day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions.

• (13) Consummation means the time that a consumer becomes contractually obligated on a credit transaction.

• (19) Dwelling means a residential structure that contains 1 to 4 units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence.

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Finance Charge

“The finance charge is a measure of the cost of consumer credit as a dollar amount.”

1026.4

It includes:

• any charge payable directly or indirectly by the consumer, and

• imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.

• includes fees and amounts charged by someone other than the creditor, if the creditor:

• requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or

• retains a portion of the third-party charge, to the extent of the portion retained.

Finance Charge

Exclusions

Participation Fees

Charges

•Late payment

•Credit Limit

•Delinquency

•Default

•Overdrawn

Application Fees

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Finance Charge Excluding Insurance from Finance Charge:

• Credit Life, Disability, Debt Cancellation-• Not required to get loan and that fact is disclosed• Premium (unit cost for open-end, total cost for closed-

end)• Sign or initial to request coverage • 1026.4(d)(1)

• Property Insurance-• Must get, but can get from any provider acceptable to

credit union• If purchased from the credit union, the premium is

disclosed• 1026.4(d)(2)

Finance Charge - Examples1. Interest

2. Service, transaction, activity, and carrying charges

3. Borrowers’ points included, loan fees, assumption fees, finder's fees

4. Appraisal, investigation, and credit report fees

5. Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss.

6. Premiums or other charges for credit life or disability written in connection with a credit transaction.

7. Premiums for property insurance

8. Debt cancellation fees.

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CFPB Examination Manual pg. 350

Annual Percentage Rate

APR is the measure of the cost of credit, expressed as a nominal yearly rate.

It is a function of:• The amount financed;

• The finance charge; and

• The payment schedule

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APR Accuracy – Closed End

Tolerances for Calculation Accuracy: • APR : 1/8th of 1%

• Finance Charge: [closed-end credit]• $5 ($1000 or less)

• $10 (more than $1000)

Liability for Violations

• From $1,000 to $5,000 as penalty

• Actual Damages (hard to prove)

• Costs and Attorneys’ Fees• Corrective Process- you can relieve your credit

union of liability if within 60 days of discovering the error, if you send a corrective action notice and make appropriate adjustments to borrowers account.

• Third Party liability - if you have a third party from which you buy loans (indirect program) you may take on liability if the violation of TILA is obvious on its face.

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Open-end Credit

Subpart B

• 1026.5- General disclosure requirements

• 1026.6 - Account- opening disclosures

• 1026.7 - Periodic statement

• 1026.8 - Identifying transactions on periodic statements

• 1026.9 - Subsequent disclosure requirements

• 1026.10 - Payments

• 1026.11 - Treatment of credit balances; account termination

• 1026.12 - Special credit card provisions.

• 1026.13 - Billing error resolution.

• 1026.14 - Determination of annual percentage rate

• 1026.15 - Right of rescission

• 1026.16 - Advertising

Closed-end CreditSubpart C• 1026.17 - General disclosure requirements

• 1026.18 - Content of disclosures

• 1026.19 - Certain residential mortgage and variable-rate transactions

• 1026.20 - Subsequent disclosure requirements

• 1026.21 - Treatment of credit balances

• 1026.22 - Determination of annual percentage rate

• 1026.23 - Right of rescission

• 1026.24 - Advertising

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2727

Equal Credit Opportunity Act

Dodd-Frank Act (DFA) defines “fair lending” as:

Fair, equitable, and nondiscriminatory access to

credit for consumers.

ScopeA credit union cannot discriminate on a prohibited basis regarding any aspect of a credit transaction. This prohibition applies to all dealings between members and loan applicants and the credit union, including the following:

Advertising Application procedures

Information requirements Investigation procedures

Standards of creditworthiness, Terms of credit

Furnishing of credit information Revocation

Alteration Administration of credit accounts

Treatment of deliqnuent accounts

Termination of credit

Collection Procedures

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2929

History

• Regulation B implements the Equal Credit Opportunity Act (ECOA) and supplements the Fair Housing Act (FHA)

• Prohibits discrimination regarding any aspect of the credit transaction

- Advertising

- Application

- Underwriting

- Communicating

- Servicing

- Collecting

Rule Making Authority

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Liability for ViolationsUnder the Act itself, damages may range from $100 to $1,000 in an individual lawsuit and up to the lesser of $500,000 or 1% of the credit union’s net worth in a class action lawsuit.

In addition, damages may be sought under other theories of state and federal law plus the government may impose significant additional penalties. Thus, it is not unusual for a successful action under this Regulation to result in a multimillion dollar civil verdict.

Overt Evidence: when a lender blatantly discriminates on a prohibited basis

Evidence of Disparate Treatment: when a lender treats applicants differently based on one of the prohibited factors (no credible, nondiscriminatory explanation)

Evidence of Disparate Impact: when a lender applies a practice uniformly to all applicants, but the practice has a discriminatory effect on a prohibited basis and is not justified by business necessity

Types of Discrimination

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Effects Test

The “Effects Test” for disparate impact:

• Member must prove: Criteria or practice has a disproportionate adverse impact on a protected class

• Credit Union then must prove: Criteria or practice used has legitimate business necessity and valid predictor of loan performance

• Member may then prove: alternative criteria or practice available with less adverse impact.

Self Test The self-test:

Once it is completed, the information must be retained for 25 months.

1002.12(b)(6)

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Prohibited areas

Gender Marital StatusSpousal

Information

Income/alimony, child support

Race/National Origin

Religion

AgeReceipt of Public

Assistance

Child bearing intentions or capabilities

Think & Share

Listen to this scenario and please send your best answer through the chat

function.

A nonminority couple applies for an automobile loan. The lender finds adverse information in the couple’s credit report. The lender discusses the credit report with the couple and determines that the adverse information, a judgment against the couple, was incorrect, as the judgment had been vacated. The nonminority couple was granted a loan. A minority couple applied for a similar loan with the same lender. Upon discovering adverse information in the minority couple’s credit report, the lender denies the loan application on the basis of the adverse information without giving the couple an opportunity to discuss the report. This is an example of what type of treatment?

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The Fair Credit Reporting Act- FCRA

The Fair Credit Reporting Act, 15 U.S.C. § 1681 (“FCRA”) is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies. It was intended to protect consumers from the willful and/or negligent inclusion of inaccurate information in their credit reports. To that end, the FCRA regulates the collection, dissemination, and use of consumer information, including consumer credit information.Together with the Fair Debt Collection Practices Act ("FDCPA"), the FCRA forms the foundation of consumer rights law in the United States.

Definition:

Rule Making AuthorityThe FCRA was enacted by Congress to serve the following principal purposes:

• To regulate the consumer-reporting industry, and to ensure that the issuers of consumer reports provide information that is fair and equitable to consumers, and fair and accurate to report users.

• To prohibit consumer-reporting agencies from taking actions that are unfair that adversely affect a consumer’s credit and ability to obtain credit.

• To restrict the availability and use of consumer reports.

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Rule Making Authority

General rulemaking authority under FCRA was given to the Consumer Financial Protection Bureau (CFPB).

• NCUA and FTC also have some authority.

- 615(e) Red Flag Guidelines- 628 Disposal of Guidelines

History

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Liability for Violations

Obtaining credit reports under false pretenses or without a permissible purpose: can be fined up to $1,000 according to the Fair Credit Reporting Act.

Definitions

Consumer

• Under the FCRA, a consumer is an individual. Information a consumer reporting agency communicates that bears on the creditworthiness of a consumer is subject to the rules of the FCRA, including information related to business credit.

Consumer Report

• A consumer report is any oral, written, or other communication of information by a consumer-reporting agency.

• The information communicated must bear on a consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.

• The information must be used (or be expected to be used or collected, in whole or in part) to serve as a factor in establishing a consumer’s eligibility for any of the purposes permitted under the FCRA.

Consumer-reporting Agency

• The Act defines a consumer reporting agency as any person who, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other consumer information for the purpose of furnishing consumer reports to third parties, and uses any means of interstate commerce for the purpose of preparing or furnishing consumer reports.

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FACT Act Revisions to FCRA

• Free annual credit report

• Negative info notice

• Notice to home loan applicants

• Accuracy of information

• Address discrepancies

• Fraud alerts

• ID theft red flags

• Pre-screened offers

• Medical information

• Risk based pricing notice

• Affiliate marketing

Negative Information Notice (FACT Act)

• Notice when furnishing negative information to a credit bureau

• Two options: • Provide notice to member prior to furnishing the

information to credit bureaus

• Provide notice to member within 30 days after furnishing the information to credit bureaus

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Obligations of Credit Unions

• Report accurate information (accuracy and integrity policy)

• Update information as necessary

• If disputed by member, notify the CRA or correct the information

• If notified of dispute by CRA, conduct an investigation within 30 days

• Report voluntary credit account closings

• Report dates of delinquencies

Duty to Update Information• If a Credit Union

discovers that it has reported incorrect information to CRAs, it must provide corrected information to the CRAs and tell the CRAs what information is being corrected

• Must have policies and procedures addressing direct disputes

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Responding to Alerts

• Consumers may request that fraud and/or active duty alerts be placed on their credit reports

• Initial fraud alert period is 90 days; extended period is 7 years

• During alert period, creditors may not extend new credit unless they have safeguards in place to verify the identity of the consumer

ID Theft “Red Flag” Rules

• Requires creditors, including CUs, to have a written identity theft prevention program that is appropriate to the size and complexity of the institution, as well as the nature and scope of its activities.

• This program requires a number of components, such as:

• Reasonable policies and procedures;• Staff training;• Oversight of service providers; and • Oversight by the board of directors (or appropriate

committee)

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Medical Information RulesCreditors may obtain and use medical information in determining credit eligibility if the following 3 requirements are met:

• The information relates to debts, expenses, income, benefits, assets, collateral, or the purpose of the loan, including the use of proceeds

• May not use information in a way that is less favorable than the way in which non-medical info is used

• May not take medical conditions into account when making credit eligibility determination

Risk-Based Pricing Notice

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Risk-based Pricing

• Notice must be provided when a creditor uses a consumer report in connection with an application or extension of credit and based (at least in part) on that report grants or extends credit to that consumer on material terms that are materially less favorable than the most favorable terms available to a substantial portion of consumers by that creditor.

• Covers credit that is for personal, family or household purposes

FCRA ExampleUnited States of America v. Teletrack (2011)

� The Federal Trade Commission charged Teletrack of violating the FRCA by selling credit reports to marketers

� The FRCA protects consumers privacy by ensuring that credit report information is not sold for marketing purposes

� According to the FTC, Teletrack sold credit reports and other services to businesses. With the information Teletrack gathered they created a marketing database, and sold the information to marketers

� Teletrack settled and agreed to pay a civil penalty of $1.8 million and to furnish credit reports only to those people that it has reason to believe have a permissbile purpose to receive them under the FCRA

United States of America v Teletrack

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Unfair, Deceptive, or Abusive Acts and Practices

Definition: UDAAP includes misleading or harmful behaviors by those who offer financial products or services to consumers. Unfair, deceptive, or abusive acts qnd practices (UDAAPs), as defined by the Dodd-Frank Act of 2010, are illegal. The Consumer Financial Protection Bureau (CFPB) makes rules about UDAAP and the Federal Trade Commission helps enforce them.

“Unfair”

An act or practice is unfair when:

• It causes or is likely to cause substantial injury to consumers;

• The injury is not reasonably avoidable by consumers; and

• The injury is not outweighed by countervailing benefits to consumers or to competition.

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“Deceptive”

A representation, omission, act or practice is deceptive when:

• The representation, omission, act, or practice misleads or is likely to mislead the consumer;

• The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and

• The misleading representation, omission, act, or practice is material.

“Abusive”

Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service, or

Takes unreasonable advantage of:

− A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

− The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or

− The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

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UDAAP- Rule Making Authority

Consumer Financial Protection Bureau

UDAAP Scope

These examination procedures provide general guidance on:

• The principles of unfairness, deception, and abuse in the context of offering and providing consumer financial products and services;

• Assessing the risk that an institution’s practices may be unfair, deceptive, or abusive;

• Identifying unfair, deceptive or abusive acts or practices (including by providing examples of potentially unfair or deceptive acts and practices); and

• Understanding the interplay between unfair, deceptive, or abusive acts or practices and other consumer protection

statutes.

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UDAAP - History

Liability for Violations

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UDAAP Examples

Deceptive Practice

Continental Finance

Marketing, origination and

servicing of credit cards

UDAAP

• False statements regarding fees

- Terms and Conditions stated they could “elect” paper statements for $4.95 per month

- Automatically sent them and charged the fee

• Agreement indicated funds were “FDIC Insured”

- Not insured

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UDAAP • Ads promised “no strings attached” free checking

• Failed to disclose minimum level of activity

• If no activity for 90 days, converted to an account with fees and a minimum balance

• Only alert to customer was new name of account on statement

Deceptive AdvertisingM&T Bank

Free Checking Accounts

UDAAP

• Used the names/logos of the Department of Veterans Affairs (VA) and Federal Housing Administration (FHA) in ads

• Implied mortgages were endorsed by the VA or FHA

• Ads misrepresented the price and whether rates were fixed or variable

CFPB and mortgage ads• In a 2 month period in 2015,

issued 5 consent orders for mortgage marketing

Deceptive Advertising

RMK Financial

Implied FHA or VA mortgages

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UDAAP

• Inaccurate rates for jumbos

• Rates were for other products

• Rates were for a 800 credit score which wasn’t disclosed

• Majority of scores are below 800

• Rates were dependent on non-disclosed discount points, as high as $10,000

• Very few consumers received these rates

Deceptive AdvertisingAmerisave

Inaccurate rates in ads for

mortgages

UDAAP

• CFPB alleged that Dwollarepresented to consumers that it had robust data security and encryption practices.

• Exceed industry standards• Set a new precedent• Safer than credit cards• Industry encryption

• As a result of the consent order, Dwolla will pay a $100,000 fine, implement security measures, etc.

Deceptive PracticeDwolla

Data Security Enforcement

Action

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UDAAP Considerations1. Develop a formal process for new product design and implementation

2. Make sure risk and compliance is involved from the very start

3. Determine the characteristics of the product’s target customer

4. Gain a thorough understanding of the product’s terms and conditions

5. Understand how each cost or fee will be assessed and collected

6. Determine if there is burden on the consumer to activate the product or to get the benefit

7. Test the product in live circumstances to understand how it works in all possible transaction types

8. Use an outside party to provide a consumer perspective on the product

9. Review all proposed marketing and advertising strategies

10. Review a detailed plan of all sales practices

11. Conduct periodic reviews of the sales and marketing efforts and customer complaints.

Advertising

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Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

Typical Consumer Lending Process

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

Federal Laws and Regulations

• Equal Credit Opportunity Act (ECOA) & Regulation B

• The Fair Credit Reporting Act (FCRA)

• Truth In Lending Act (TILA) & Regulation Z

• UDAAP

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Advertising

• Cannot use words, symbols, models, or other forms of communication in advertising that express, imply, or suggest a discriminatory preference or a policy of exclusion

• Consider your ad campaigns

• May affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor

Advertising RulesOpen-end credit

Closed-end credit

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Advertising - Open-end

• If you advertise, you must state only those terms that are actually available

− no misleading terms: “free money”

• “Triggering terms” for additional disclosures (within the advertisement)

− anything required by 1026.6 (initial disclosure) (e.g. billing rights, charges, APR)

• Additional Disclosures if “triggered”:− Any minimum, fixed, transaction, activity or similar charge that

could be imposed. − Any periodic rate that may be applied, expressed as an

Annual Percentage Rate, as determined under Section 1026.14(b). If the plan provides for a variable rate, that fact shall be disclosed.

− Any membership or participation fee that could be imposed.

NOTE: APR is triggering term for OE, but NOT for CE

1026.16

Advertising – Closed-end

Actually available terms, no misleading terms • “Trigger terms”

1. Amount or percentage of down payment.2. Number of payments3. Amount of any payment4. Amount of any FC

• If any of the above given, must state:1. Amount or percentage of any down payment.2. Terms of repayment3. “APR, and if the rate may increase after

consummation.

NOTE: “APR” is triggering term for open-end, but not for closed-end advertising.

1026.24

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Prescreening Rules under FCRA• CUs are required to provide special notices to

members offered credit based on prescreened lists from credit reporting agency

• Members must be able to opt-out

• CUs must make a firm offer of credit to all members who pass the prescreening process

• CU must retain prescreen criteria for three years

UDAAP � Advertisement under

UDAAP is not unfair or deceptive.

� FTC test for misleading -The Four P’s

• Prominent• Presented in easy to

understand format• Placement• Proximity

� Material information- did you include all the information

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Exercise

Story ProblemMeet Aron Edwards. He tells his primary financial institution, a bank, that he has some concerns about a vehicle loan that he is interested in. He saw an advertisement on the bank’s website for a no cost car loan. The advertisement said "take out a car loan at no cost, no money down". Aron calls the bank to talk about the loan and the bank employee fails to mention the following:

• Aron has to pay the lien filing fee for $50.• The bank employee did not tell him that because of his

credit score of 550 he would be required to put 10% down on the loan.

• Aron has since found a car to purchase and calls the bank to send him the loan paperwork to sign and send back.

• When we receives it he sees the $50 fee and the request for the 10% down payment. Aron is upset and calls the bank.

Identify where the bank went wrong and why?

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Application

Typical Consumer Lending Process

Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

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Federal Laws and Regulations

• Equal Credit Opportunity Act (ECOA) & Regulation B

• The Fair Credit Reporting Act (FCRA)

• Truth In Lending Act (TILA) & Regulation Z

Application

What constitutes an “Application”?

Under Regulation B, an “application” means an oral or written request for an extension of credit made in accordance with procedures used by a creditor for the type of credit requested.

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General Rule

• Cannot discriminate against an applicant based on a prohibited basis regarding any aspect of a credit transaction. 1002.4(a)

• Cannot discourage anyone from applying for credit. 1002.4(b)

• Required disclosures must be clear and conspicuous in a form applicant can retain.1002.4(c)

Gender and Childbearing

• Credit Union can ask applicant to designate a title on application, such as Ms., Mr., or Mrs., as long as it’s optional

• Do not ask women specific questions about childbearing intentions

• Can ask the number, age, and expenses of dependents, and can ask indirect questions about future income

- “Is there anything likely to reduce your income over the next year?”

- “Do you anticipate any significant change in earnings?”

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Marital Status

• Cannot ask marital status for individual, unsecured credit and non-community property state Unmarried can only = single, divorced, or widowed

• Do not request a spouse to be a co-maker, guarantor, etc.

Marital Status (cont.)• Cannot request information about a

spouse or former spouse UNLESS:• Spouse will be permitted to use the account;

• Spouse will be contractually liable;

• Applicant is relying on spouse’s income as basis for repayment;

• Applicant or property is in community property state; or

• Applicant is relying on alimony, child support, or separate maintenance from spouse or former spouse as a basis for repayment

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National Origin

• May ask applicant’s permanent residence and immigration status

• May consider and deny credit based on the fact that the applicant is not a U.S. citizen (i.e., OK to discriminate against allnon-U.S. citizens equally)

• May not ask “Where were you born?” Any decision based on the answer would be discrimination

Age

• Can deny minors credit based on inability to enter into binding contracts

� Know the age of majority based on states where you lend and member location.

• Can favor Senior Citizens (62 and above)

� Consider this when you have checking accounts with Overdraft Line of Credit

• May consider the adequacy of security when the term of the credit extension exceeds applicant’s life expectancy

• Use standard denial reasons-“other” can be problematic.

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Protected income is income from following sources:

• Part-time employment;

• Alimony;

• Child support;

• Separate maintenance;

• Annuities;

• Pension or other retirement plans; and

• Public assistance.

Protected Income

Alimony, child support, separate maintenance

• A creditor can only ask for information on alimony, child support, or separate maintenance if applicant is told he/she does not have to provide it if it will not be considered as a basis for repayment

• If applicant chooses to provide, creditor only has to rely on this income to the extent that it will be consistently paid

• Court decree• Length of time• Regularity

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Intent to be Joint Borrower

A co-applicant must sign or initial separately on loan application, at time of application, to clearly indicate his/her intent to be a joint borrower

FCRA – Permissible Purpose

All users must have a permissible purpose under the FCRA to obtain a consumer report. Section 604 contains a list of the permissible purposes under the law. These are:

• As ordered by a court or a federal grand jury subpoena. Section 604(a)(1)

• As instructed by the consumer in writing. Section 604(a)(2)

• For the extension of credit as a result of an application from a consumer, or the review or collection of a consumer's account. Section 604(a)(3)(A)

• For employment purposes, including hiring and promotion decisions, where the consumer has given written permission. Sections 604(a)(3)(B) and 604(b)

• For the underwriting of insurance as a result of an application from a consumer. Section 604(a)(3)(C)

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Permissible Purposes Cont’d

• When there is a legitimate business need, in connection with a business transaction that is initiated by the consumer. Section 604(a)(3)(F)(i)

• To review a consumer's account to determine whether the consumer continues to meet the terms of the account. Section 604(a)(3)(F)(ii)

• To determine a consumer's eligibility for a license or other benefit granted by a governmental instrumentality required by law to consider an applicant's financial responsibility or status. Section 604(a)(3)(D)

• For use by a potential investor or servicer, or current insurer, in a valuation or assessment of the credit or prepayment risks associated with an existing credit obligation. Section 604(a)(3)(E)

• For use by state and local officials in connection with the determination of child support payments, or modifications and enforcement thereof. Sections 604(a)(4) and 604(a)(5)

• In addition, creditors and insurers may obtain certain consumer report information for the purpose of making "prescreened" unsolicited offers of credit or insurance. Section 604(c). The particular obligations of users of "prescreened" information are described in Section VII below.

Knowledge Check

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Application or No?

A consumer calls to ask about loan terms and an employee explains the creditor's basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.

Application or No?

A member asks the credit union to “preapprove” her for a loan (for example, to finance a vehicle) and the CU reviews the request under a program in which, after a comprehensive analysis of her creditworthiness, issues a written commitment valid for a designated period of time to extend a loan up to a specified amount.

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Application or No?

Under the same facts as the previous scenario, the financial institution evaluates the person's creditworthiness and determines that she does not qualify for a preapproval.

Application or No?

A consumer calls to ask about interest rates for car loans, and, in order to quote the appropriate rate, the loan officer asks for the make and sales price of the car and the amount of the down payment, then gives the consumer the rate.

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Application or No?

A consumer calls to ask about terms for a loan to purchase vacant land and states his income and the sales price of the property to be financed, and asks whether he qualifies for a loan; the employee responds by describing the general lending policies, explaining that he would need to look at all of the consumer's qualifications before making a decision, and offering to send an application form to the consumer

Credit Card Application Disclosures

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Credit Card Application Disclosure

The application disclosure must be posted in a prominent location on or with the credit card application.

• Direct mail applications: accurate as of mailing• Variable APR in effect within 60 days

• Available to General Public: Effective date and contact info statement

• If no credit terms, provide toll free number and cost statement

• In Person: like direct mail or general public

• Telephone: Either full oral disclosure, OR• If no annual/activity/inactivity fee, or if such fee is subject to a

right to reject;• Then issue a full disclosure in writing at the earlier of 30 days or

when the member gets the card− Include the right to reject if applicable

• Electronic

Credit CardApplication & Disclosure

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Decision Points

UnderwritingApproval/Denial

Typical Consumer Lending Process

Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

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ECOA & Regulation B

FCRA

Federal Laws and Regulations

• Approve

• Deny

• Counteroffer (must provide

notice of action)

Options for Response:

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Notification of Action Taken

Notify an applicant of action taken within:

(i) 30 days after receiving a completed application concerning the creditor’s approval of, counteroffer to, or adverse action on the application;

(ii) 30 days after taking adverse action on an incomplete application, unless notice is provided in accordance with paragraph (c) of this section;

(iii) 30 days after taking adverse action on an existing account; or

(iv) 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered.

1002.9(a)(1)

Denial - Adverse Action

The content of adverse action notice must be in writing and contain:

• a statement of the action taken • the name and address of the creditor; • a statement of the provisions of § 701(a) of the Act; • the name and address of the federal agency that

administers compliance with respect to the creditor; • and either:

(i) A statement of specific reasons for the action taken; or

(ii) A disclosure of the applicant’s right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor’s notification.

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Counteroffer

Option 1

• Notify the applicant of counter offeroAdverse Action on

original terms if�Within 90 days of

counter offer applicant does not respond or,

�Applicant denies the counteroffer

Option 2

• Combined notice within 30 dayso Denial of terms originally

requestedo Reasons for denialo ECOA noticeo FCRA noticeo Counter offer

� Qualified co-signer, lesser amount

� Time period the offer will remain open

If you grant the loan, you must provide disclosures either:

1. Account Opening for an open-end loan

2. At or before consummation for a closed-end loan.

Approval

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Account

Opening/Closing

Typical Consumer Lending Process

Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

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Truth In Lending Act & Regulation Z

Federal Laws and Regulations

Open-endGeneral Rules for Account Opening Disclosure

• Required Disclosures• Account opening table (e.g. APR, fees: annual/periodic)• Additional required disclosures below the table (e.g.

balance computation method)• All charges, whether finance charges or not- “charges that

are imposed as part of the open-end credit plan”• Rates- types of rates, the balances to which the rates

applies, and variable rate changes• Made in a form the member can keep• Clear and conspicuous• Given up request only

• Model Form

• Similar to Credit Card application and solicitation disclosures

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Open-end Account Opening

You must provide a Billing Rights statement with your Account Opening Disclosures PLUS:

Two Alternatives:

1. Long Form Notice Once a Year; or

2. Summary Notice with periodic statement• Model Form- G3 or G4

1026.9(a)

Credit CardAccount Opening Disclosure

Every member who opens an account must receive one

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� Provide at account opening, usually along with account opening disclosure

� May contain Reg Z requirements; if so, must be provided with the account opening disclosure

Credit Card Agreement

Closed-end

General disclosure requirements:

1. Form of disclosures-clear and conspicuous in a form the member can keep 1026.17(a)

2. “FINANCE CHARGE” and “ANNUAL PERCENTAGE RATE” must be more conspicuous when used with a number 1026.17(a)(2)

3. Timing of disclosures-before consummation 1026.17(b)

4. At least 10 point type for dwelling secured transactions

5. Basis of disclosures-actual terms. If not known, may use estimates and mark with “e”

6. The disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures required under §1026.18.” 1026.17(a)

1026.17(c)

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119119

Closed-end Disclosures • Identify the Creditor

• Amount Financed

• Itemization of Amount Financed

• Finance Charge

• Annual Percentage Rate (APR)

• Variable Rates

• Payment Schedule

• Total Payments

• Interest Rate and Payment Summary for Mortgages

• Total Payments

• Any Demand Feature

• Total Sales Price

• Prepayment

• Late Payment Penalties

• Insurance or Debt Cancellation

• Certain Security Interest Charges

• Assumption Policy

• Any Required Deposits (Escrows)

1026.18

ServicingServicing

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Typical Consumer Lending Process

Member / Non-Member enters

Inquires about loan Staff identifies loan type

Provided new account application to complete

Provided loan application to complete

Application(s) completed and returns to MSR

Member identificationis verified

New account and loan apps entered in system

Loan rates, terms & payments calculated

Credit report pulled

MSR monitors decision Member notification

of decision

Payment insurance products offered

Loan disbursement

Validate member insurance information

Collection calls made and/or notices sent

Repossession occurs

Discussion of finalterms & conditions

Membership decision

Underwritingdecision

Collectiondecision

Generation / Validation of documents

PaymentsPayments

Past-due remindersPast-due reminders

Loan payoffLoan payoff

Main LobbyInternet

Mobile BankingTelephone

Branch OfficePartner (e.g. Dealer)

Federal Laws and Regulations

Federal Laws and Regulations

Federal Laws and Regulations

Truth In Lending Act & Regulation Z

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Open-end (Change-in-terms Notices)

• Provided under what circumstances? • When there is a significant change in terms or minimum payment is

increased• Exception: rate increases due to delinquency, default or as a penalty

• Timing• Notice period- 45 days prior to effective date of the change for all

open-end accounts.• Exception: If member has agreed to change, CU only required to provide

notice prior to effective date of change (but, you must still provide notice!!)• Federal notice state law may differ

• Provided to Whom?• each affected member

1026.9(c)

Open-end (Change-in-terms Notices)

What is a significant change in terms?

Examples:• APRs, • Fees for issuance or availability• Fixed or minimum finance charges• Transaction charges• Grace period• Cash advance, late payment, over limit, balance transfer & returned

payment fees• Calculation of rates• Required insurance, debt cancellation, or debt suspension coverage if

such insurance or coverage is required as part of the plan.

1026.9(c)(2)(ii)

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CIT Notice Not Required

• Change in credit limit

• Suspension of future credit privileges

• Skip-a-pay changes (if explained on account opening disclosure)

• If not properly disclosed at account opening, may have to provide it.

Open-end (Change-in-terms Notices)

Open-end (Change-in-terms)

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Open-end Billing ErrorA billing error includes:

1. Advance shown but not made to consumer2. Advance not shown in proper form3. Advance where there’s a merchant dispute4. Failure to show a credit on the account 5. Computational error6. Advance requiring more information/clarification 7. Failure to send statement in timely fashion

1026.13

Open-end Billing Error

Notice of billing error to Credit Union must:

• Be made in writing• Be received within 60 days of periodic

statement that showed error• Enable credit union to identify member’s name

and account number• To the extent possible, identify why consumer

thinks there is an error plus type, date, and amount of error

1026.13

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Open-end Billing Error

Time/Requirements for resolution (by Credit Union)• Send written acknowledgement that received error

notice within 30 days (or resolve within 30 days).• Resolve within 2 billing cycles or 90 days.• Discontinue collection efforts.

Until a billing error is resolved:• Consumer can withhold payment on disputed amount.• No adverse credit reports.• Acceleration of debt prohibited on disputed amounts

(and no restrictions/suspension of account allowed).

1026.13

Open-end (Billing Error – Procedures)

• If error found - correct and send notice

• If different error found – correct error and credit consumer’s account

• If no error found -• Send notice with reasons no error and documents

to show no error• Notify consumer of amount due, but allow time

period to pay

• Reassertion of error- creditor has no obligations if consumer reasserts substantially same billing error

1026.13

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Credit Card - Special rules

1026.12(d) Offsets prohibited, BUT may get consensual lien. Must be clear they are agreeing to lien.

1026.12(c) Plan merchant disputes; cardholder may withhold payment from card issuer for the transaction plus finance charge

1026.12(b) Liability of cardholder for unauthorized use is a maximum of $50

Credit CardPeriodic Statements

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Payments for Credit CardsSpecial payment rules you must follow:

1. If due date is on a date when credit union doesn’t receive or accept payments by mail, cannot treat a payment received on next business day as late

2. Cut-off time for payments no earlier than 5:00 p.m. on the payment due date at the location specified by the creditor for receipt of payment

3. Payments made in person at a branch it shall be considered received on the date the member makes the payment

4. Cut off time for payments made in person at a branch can be no earlier than close of business

5. Cannot impose a separate fee to allow members to make a payment by any method unless such payment method involves an expedited service by a customer service rep

6. Recredit the member for the amount of the finance charge during the next billing cycle if payment was received on due date at the correct address for bill payments but credit union did not credit payment until following business day.

Credit Card (Allocation of Payments)

Payments in excess of the minimum must be applied to the highest APR and then to the next highest APR in descending order.

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Closed-end

Subsequent disclosure requirements

Refinancings. A refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer. A refinancing is a new transaction requiring new disclosures to the consumer. The new finance charge shall include any unearned portion of the old finance charge that is not credited to the existing obligation. The following shall not be treated as a refinancing:

− A renewal of a single payment obligation with no change in the original terms.

− A reduction in the annual percentage rate with a corresponding change in the payment schedule.

1026.20

Closed-end

Subsequent disclosures cont.

• An agreement involving a court proceeding.

• A change in the payment schedule or a change in collateral requirements as a result of the consumer's default or delinquency, unless the rate is increased, or the new amount financed exceeds the unpaid balance plus earned finance charge and premiums for continuation of insurance of the types described in 1026.4(d).

• The renewal of optional insurance purchased by the consumer and added to an existing transaction, if disclosures relating to the initial purchase were provided as required by this subpart.

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Uniform

Commercial

Code (UCC)

What is the UCC?

Uniform Commercial Code is a codification of all the best practices of the common law in order to create uniform laws throughout the various states to make commerce as predicable as possible.

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The Uniform Commercial Code was created by a panel consisting of state lawmakers, law professors and attorneys.

What effects does the UCC have on operations?

1. Articles 3 and 4 deal with checks

� How to handle

� Duties

� Liability

2. Article 9 deals with secured transactions

� Creating a valid security interest

� Perfecting a security interest

� Procedures in dealing with collateral (e.g. repo)

3. Not all transactions covered by all parts Art. 9

� Real estate

� Titled property like autos, trailers, boats

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Enforceable security interest

� Value has been given

� Debtor has rights in collateral

� The collateral is sufficiently identified

� Debtor authenticates a security agreement pledging the property

What can

a security

interest

cover?

• The security, of course

• After-acquired property (includes consumer goods but only if bought within 10 days of value given)

• Future advances (often referred to as cross-collateral, spreader, or anaconda clause)

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How do you “perfect” a security interest?

� Possession of goods� Consumer goods

(bought for personal, family, household purposes)- perfected on attachment

� Titled property- Title process

� Real Estate- register of deeds (file the mortgage or deed of trust)

� Other property-filing a financing statement (UCC-1)

Filing Considerations • Filing is good for a

certain period of time (generally five years)

• Extension can be filed (UCC-3) (generally extends for another 5 years)

• For consumer transactions, file where member’s principal residence is located

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� Repossession rules

� Commercially reasonable disposition

� Send timely notification of intent to sell-Notice of Disposition

� Apply the proceeds in accordance with UCC Notice of Calculation of Deficiency or Surplus

What duties does the credit union have in disposing

of collateral?

What happens when the underlying loan is paid off?

• Credit union must file termination statement

� Within one month of satisfaction or 20 days of a demand to release

• Potential $500 penalty for failure of credit union to file the statement

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CollectionsCollections

Federal Laws and Regulations

• Equal Credit Opportunity Act (ECOA) & Regulation B

• UDAAP

• Fair Debt Collections Practices Act

• Uniform Commercial Code (UCC)

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Fair Debt Collection Practices Act (FDCPA)

15 U.S.C. 1692 et seq.

“Purposes. It is the purpose of this subchapter to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.”

15 U.S.C. 1692(e)

Debt Collector:

Anyone using interstate commerce (mail, telephone, internet) to collect a debt.

*DOES NOT include-credit union unless they are collecting for someone else (at this time)

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Prohibitions� Hours for phone contact: outside

of the hours of 8:00 a.m. to 9:00 p.m. local time

� Contact after being asked to stop-written notice

� Contacting consumers at their place of employment after having been told to stop

� Contacting consumer known to be represented by an attorney

� Contacting consumer after request for validation

� Misrepresentation or deceit

� Publishing the consumer's name or address

� Seeking unjustified amounts

� Threatening arrest or legal action

� Abusive or profane language

� Contact with third parties

� Contact by embarrassing media, such as communicating with a consumer regarding a debt by, for example, post card

� Reporting false information on a consumer's credit report

Disclosures

1. Identify themselves and notify the consumer 2. Give the name and address of the original

creditor 3. Notify the consumer of their right to dispute

the debt, in part or in full, with the debt collector. This is known as “validation of debt notice”

4. Provide verification of the debt 5. File a lawsuit in a proper venue

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Military Loans:

Are you following the rules?

Federal Laws and Regulations

ServicemembersCivil Relief Act

SCRA

Military Lending Act

MLA

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MLA SCRA

WhoActive military members and their dependents

Active military members and their dependents (indirectly)

WhenApplies at point of origination(compliance leverages MLA database)

Applies to existing debt (compliance leverages SCRA database)

What

• Payday loans• Vehicle title loans• Refund anticipation loans• Deposit advance loans• Installment loans• Unsecured open-end lines of

credit• Credit cards (10/3/17)

• Outstanding credit card debt• Mortgage payments• Pending trials• Terminations of lease• Collection activity

HowThe MLA limits interest rates and fees to 36% MAPR (Military Annual Percentage Rate).

The SCRA caps interest rate charges, including late fees and other transaction fees, at 6%.

MLA & SCRA

SCRA Scope

Rental agreements

Rental agreements

Security depositsSecurity deposits

Prepaid rentPrepaid rent

EvictionEvictionInstallment contracts

Installment contracts

Credit card interest ratesCredit card

interest rates

Mortgage interest rates

Mortgage interest rates

Mortgage foreclosuresMortgage

foreclosuresCivil judicial proceedingsCivil judicial proceedings

Income tax payments

Income tax payments

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Definitions

Active Duty

Includes all individuals who are on full-time duty in the military service of the United States.

Interest

Includes interest on the loan, service charges, renewal charges, fees, or any other valid charge.

Dependent

Servicemembers spouse, child, or an individual for whom the servicemember provided more than one-half of the individuals support

What Servicemembers must do to request relief?

• In order to request relief, a servicememberor spouse, or both must provide a creditor with written notice and a copy of the military orders.

• The notice must be given to the creditor at any time up to 180 days after the member's termination or release from active duty

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SCRA Provisions that can affect your credit union • Creditors must reduce the interest rate on a

servicemember’s debts to no more than 6 percent per year, upon receiving a written request for relief and a copy of the military orders.

• The lessee servicemember may terminate certain residential and automobile leases after providing the lessor written notice of the request for termination along with a copy of the military orders.

• Contracts for purchases of real or personal property, for which the servicemember paid a deposit or made a payment before entering military service, may not be rescinded or terminated for breach of contract before or during his or her military service.

6% Interest Rate Limitation

Applies to debts incurred prior to entry into active

duty.

Rate must be reduced to 6%

if it was previously

higher.

Guarantors are protected as

well.

There’s an exception if member is not materially affected by going on active duty, but creditor has burden of proof on issue.

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SCRA

Court Proceedings Relief

Default judgments are generally not allowed (if servicemember is unable to appear).

Member is entitled to delay of proceedings unless he/she can appear without hardship.

Statute of limitations is typically suspended.

Default Judgment

Within 90 days of coming off of active duty, or of learning of the default judgment if still on active duty, they can ask that the court set aside the default judgment. In order to set aside the judgment they must prove:

(1) that the active duty service materially effected their ability to be present for the hearing; and

(2) that they have a meritorious defense to all or part of the case.

SCRA Adverse Action

• If a servicemember applies for, or receives a stay, postponement, or suspension of his or her obligations or liabilities pursuant to the SCRA may not in itself provide the basis for the following:

• A determination by a lender that the servicemember is unable to pay the obligation or liability in accordance with its terms

• A creditor’s denial or revocation of credit, change in terms of an existing credit arrangement, or refusal to grant credit to the servicemember in substantially the amount or on substantially the terms requested

• An adverse report relating to the creditworthiness of the servicemember by or to a consumer reporting agency

Suspension of Payments

• A servicemembermay not suspend payments to the credit union without court approval

• If a servicemember is having difficulty making loan payments even with the 6% rate, then he or she may petition the court to suspend or reduce obligations

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TILA Considerations• The SCRA’s interest rate limitation provisions

trigger certain requirements under Truth-in-Lending (Regulation Z)

• For open-end loans, a change in terms notice is required when member is no longer on active duty and CU reinstates the contract rate.

• For closed-end loans, an additional disclosure will only be required for variable rate loans secured by a member’s principal dwelling that have a term of greater than one year.

Military Lending Act- MLA

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The history of the MLA

2006

Military Lending Act passed by Congress

2015

Revised rules issued by Dept. of Defense

2016

Implementation required for

most consumer credit

2017

Credit card included as

covered product

Designed to Protect

MLA is designed to protect service members from certain lending practices that could impact force readiness. The act covers five key areas:

1) Loan Security- Loans cannot be secured with check or bank account

2) MAPR- Instituted Military APR with maximum of 36%, required disclosures

3) Allotments- Borrower cannot be required to establish an allotment to repay credit

4) Waivers/Arbitration- Borrower cannot be required to waive legal rights or agree to mandatory arbitration

5) Prepayment- cannot charge prepayment penalties

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CoveragePayday loans

Vehicle title loans

Tax refund anticipation loans

Overdraft lines of credit

Credit cards

Unsecured lines of credit

Unsecured installment loans

Private student loans

Auto refinance loans

MLA Covered Borrowers

Active duty members of the Army, Navy, Air Force, Marines or Coast Guard

Reservists and National Guard on active duty

Spouse of an active duty service member

Unremarried widower or unremarried widow of a service member

Children under the age of 18

Children 18 to 23 years old, who are full-time students

Children permanently incapable of self-support

Dependent parents

Eligibility

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Options for compliance

MLA Website: Transactional Search

MLA Website: Batch Search

Credit Reporting Agency

Credit Report MLA Indicator

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MLA Document Title

MLA-Specific Document Titles

MLA Disclosures

Payment obligation

Regulation Z

You must provide disclosures in writing and orally

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MLA DisclosuresYou must provide disclosures in writing and orally

MAPR Statement

Provisions Removed from MLA Documents

Purchase money loan disclosures:

�Total Sale Price disclosure

�Consumer Claims and Defenses notice

�Security Agreement language on buying property with loan proceeds.

�Waivers of state and federal law rights.

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MLA Credit Card Impacts

MAPR

Exclusion from MAPR for fees that are reasonable and bona fide

• Safe harbor for reasonable fee amount

• A bona fide fee may be considered reasonableeven without safe harbor

• If not bona fide and reasonable, fee must be included in MAPR

Charges

No balance in a billing cycle? Creditors are prohibited from imposing charges during the billing cycle.

• Prohibition does not apply to charging a participation fee

• Highest reasonable amount that can be charged is $100

LOANLINER® Compliant Documents

Application

Account Opening Disclosure

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LOANLINER® Compliant Documents

Credit Card Agreement and Disclosure

Story ProblemRemember Aron and his misleading car loan from our example earlier? Well he got his car loan BUT not from his primary financial institution. He got a new vehicle loan from a different credit union. His current loan terms are an 8% APR for five years, given his credit score.

Now Aron is with the National Guard and has been called to active duty. He comes into the credit union with copy of active duty orders. What are the credit union’s responsibilities to this servicemember?

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