Reg. B FCRA Recap - WordPress.com

IBA Lending Compliance School April 26, 2021

Day 1 - Reg. B-FCRA Recap 1

Reg. B –FCRA Recap

Application vs Inquiry/Prequalification…Recognizing the Difference

• Reg. B Definition: Application

– Oral or written request for an extension of credit that is made in

accordance with procedures established by the creditor for the

type of credit requested

• Procedures = actual practice

• Procedures also define what is a “completed application”

– All info needed to make credit decision

Day 1 Recap 2021 IBA Lending Compliance

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• Credit Inquiry

– Consumer seeks general information about a loan

• Do you offer Home Equity Lines Of Credit?

• What is your interest rate on a 30 year fixed rate mortgage?

• Do you require an escrow on real estate loans?

• What kind of information do you need from me for a mortgage loan?

• Do you offer student loans?

– Creditor provides basic product information

• No evaluation of creditworthiness


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• Prequalifications

– Basic review of applicants creditworthiness to determine

likelihood of ability to qualify for a loan and loan amount

– Requirements can vary by bank and situation

• Likely will require applicant to share basic information about

income, monthly housing payment, debts and savings

• May involve obtaining credit report

• May or may not involve issuing “prequal letter”

– Does NOT guarantee loan approval – subject to final

underwriting


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• An inquiry or prequal becomes an

application when:

– Creditor evaluates information about

the applicant,

– Makes a credit decision,

– AND communicates this to the

applicant

• A denial triggers an Adverse

Action Notice!

Whether the inquiry or prequalification

request becomes an application depends on how the creditor

responds to the consumer, not on

what the consumer says or asks.


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Obtaining a Credit Report

• Creditors need a “permissible purpose”

to obtain a credit report on a consumer

– An application for an extension of credit

• Includes prequal requests

• Does NOT include inquiries (no credit

request)

– Review or collection of an account

– Business transaction initiated by the

consumer

Document

application or

prequal date to

evidence

permissible

purpose!


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Joint Intent

• Reg. B requires a person’s intent to be a joint applicant

for an extension of credit be evidenced at the time of

application

• EACH & every joint request is a trigger

• Consumer & business purpose

• Application-driven requirement

• Joint applicant - Someone who applies

contemporaneously w/ the applicant for shared credit • NOT someone required by a creditor as a condition of the credit

extension


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Joint Intent

What is an “Extension of credit”?

• The granting of credit in any form including, but not

limited to, credit granted in addition to any existing credit

or credit limit; credit granted pursuant to an open-end

credit plan; the refinancing or other renewal of credit,

including the issuance of a new credit card in place of an

expiring credit card or in substitution for an existing credit

card; the consolidation of two or more obligations; or the

continuance of existing credit without any special effort

to collect at or after maturity.


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Polling Question #1

If a Bank's stated loan policy is to require all applications to

be in writing on the creditor's application form, but loan

officers also make credit decisions based on oral requests,

the oral requests are:

A. Inquiries

B. Applications


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Polling Question #2

At what point does an inquiry become an application?

A. When the creditor obtains a credit report.

B. When the creditor responds to the consumer’s questions about

a loan product and provides basic loan product details.

C. When the creditor communicates back to the applicant they

likely will not qualify for the loan they are inquiring about.

D. When the creditor asks the consumer about their employment

status and desired loan amount.


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Polling Question #3

Can a lender order a credit report in response to

an inquiry?

Yes

No


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Polling Question #4

Does a lender have compliance disclosure

requirements in response to an inquiry from a

consumer about car loan down payment requirements

and interest rates?

Yes

No

It depends


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Polling Question #5

For which of the following is it NOT necessary to

evidence joint intent?

A. A telephone application from Bob and Sue for a car loan.

B. A request from Bob and Sue to renew their home equity

line of credit.

C. A telephone call from Bob and Sue discussing

construction loan costs and terms.

D. An application for a business operating loan from Bob

and Sue, as individuals.


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Spot the Violation #1

Billie Jean has a conversation with Lender Larry at ABC

Bank about a car loan. Billie tells the lender she’s not

employed at this time and needs to buy a car to find a job.

Larry Lender tells Billie she wouldn’t qualify for a loan at

ABC Bank until she finds a job and encourages Billie to

come back and apply for a loan once she does and takes

no further action on the conversation.


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Billie Jean, an existing customer of the ABC Bank, calls

the Bank to apply individually for a car loan based on her

income. Lender Larry takes the application over the

phone and orders a joint credit report on Billie Jean and

her husband, Bob, in order to evaluate all debts the

couple may have. Lender Larry approves the loan to

Billie Jean in her name only, as she requested.


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Billie Jean and Bob apply for a loan to buy a new boat

with Lender Larry over the phone on Monday. Lender

Larry pulls credit on both and approves the loan. Billie

Jean and Bob come into the bank on Friday to sign the

loan papers on their way to pick up the boat. At that time,

along with the note and security agreement, Billie Jean

and Bob sign the statement of joint intent.


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• Banks should have procedures:

– Defining when they have an inquiry

• How to respond to inquiries

– And when they have an application (& completed application)

• Important to document application date to support obtaining

credit report

• Do what you say and say what you do!

– Actual practice of lenders needs to follow procedures!


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Reg. Z Coverage & Definitions Exercise

2021 IBA Compliance School – Lending

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1) Under Reg. Z, what is the definition of “Application”? 1. Submission of a financial statement for a business loan. 2. Asking questions about rates and fees charged for car loans. 3. Submission of a consumer’s financial information for the purpose of obtaining an extension of credit. 4. Providing a copy of a trust to the bank.

2) Which statement below is false?

Loans covered by Reg. Z must: 1. Be made to a consumer. 2. Be used for a consumer purpose. 3. Be secured by personal goods or real estate. 4. Either be charged interest or be payable in four or more installment payments.

3) True or False?

A loan made to a consumer, secured by their personal residence, for the purpose of starting up a new business is covered by Regulation Z.

4) Which of the following ARE exempt from Reg. Z? (check all that apply) 1. A loan to a buy a vacation home 2. A $60,000 loan to buy a Mercedes 3. A $15,000 unsecured home improvement loan 4. A loan to a single member LLC to purchase a car for the member’s wife personal use, secured by the car

5) True or False?

A loan is exempt from Reg. Z if a dwelling securing the loan is used as a residence and has more than one unit. 6) True or False?

Business day has two definitions in Reg. Z.

7) Finance charges (check all that apply): 1. Are fees for services required by the creditor as a condition of the credit extension unless expressly

exempted in the rule 2. Include only amounts payable to and retained by the creditor, such as interest, processing fees, etc. 3. Must always be paid directly by the borrower at or before consummation 4. Are charged in comparable cash transactions

Reg. Z Coverage & Definitions Exercise

2021 IBA Compliance School – Lending

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8) Which of the following fees ARE prepaid finance charges on a loan secured by real property (check all that apply)? 1. A third party appraisal fee 2. A lender’s in-house appraisal fee 3. The lender’s underwriting fee 4. Abstracting costs 5. Seller costs paid by the borrower 6. Title guaranty premiums 7. Odd days interest

9) Which statement does NOT apply to the definition of open-end credit? 1. The creditor reasonably contemplates repeated transactions. 2. The creditor may impose a finance charge from time to time on an outstanding unpaid balance. 3. 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. 4. Does not have a maturity date.

10) Which of the following is NOT a “material disclosure” (or “Fed box disclosure”) for Reg. Z purposes? 1. Finance Charge 2. Late Charge 3. Annual Percentage Rate 4. Amount Financed 5. Total of Payments

11) Which of the following IS a finance charge on a consumer auto loan, secured by the auto (check all that apply)? 1. An application fee charged to all applicants whose credit requests are approved 2. A lender’s loan processing fee 3. A credit report fee 4. Lien notation filing fee disclosed to the borrower to perfect the creditor’s security interest in the auto

12) Premiums for credit life and disability insurance can be exempted from the finance charge if: (check all that

apply) 1. The insurance is not required by the creditor and this fact is disclosed in writing to the consumer. 2. The premium for the initial term is disclosed. 3. The cost of the insurance is disclosed to the consumer at least 3 business days before consummation. 4. The consumer signs or initials to affirm their request for the insurance.

2021 IBA Lending Compliance School

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TRID GENERAL Q & A

1) True or False

The Rate Lock section of the Loan Estimate is completed as “Yes” when the Bank has a verbal rate lock agreement with the applicant(s).

2) Taxable Assessed Value of Land Only or Taxable Assessed Value Including Improvements

For construction loans, should the bank disclose estimated taxes, insurance and assessments on the Loan Estimate based on the land only or expected value of the property after the home is constructed?

3) True or False The amount disclosed in the “Estimated Taxes, Insurance and Assessments” section of the Closing Disclosure can be estimates of the Property Taxes, Homeowner’s Insurance and other monthly mortgage related fees; they don’t have to be actual amounts.

4) True or False A revised LE is required to be given within 3 business days of a change to the loan amount when no fees are affected.

5) True or False The CD can be used as the revised disclosure for changed circumstance purposes as long as it is given within 3 business days of learning of the change.

6) True or False Written List of Providers is provided to the applicants with the Loan Estimate allowing the applicants to shop for an Attorney to complete the Title Examination service and the fee is disclosed in section “C. Services You Can Shop For” as “Title – Title Examination”. If the applicants chose an Attorney listed on the Bank’s Written List of Providers to conduct the Title Examination service, the fee should be disclosed on the Closing Disclosure in section “B. Services Borrower Did Not Shop For.”

7) True or False

The “Calculating Cash to Close” table on the Closing Disclosure should be completed with the information from the first Loan Estimate issued, not the most recent Loan Estimate which reset the tolerances.

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TRID PURPOSE

Scenario #1

Customer wants to remodel her kitchen. She currently has a loan on her home and wants to add the funds to her current loan. What is the TRID purpose of this loan?

Scenario #2

Customers come into the bank and ask about financing the construction of their dream home. They already own the lot the dream home will be constructed on. What is the TRID purpose of this loan?

Scenario #3

Customers are building a new home and will be paying for the lot with the initial advance from the loan funds. What is the TRID purpose of this loan?

Scenario #4

Customer comes in and wants to purchase a motorhome for vacations. Customer requests to secure the loan with the customer’s residence which is free and clear of any liens. What is the TRID purpose of this loan?

Scenario #5

Customer comes in and wants to refinance a home the customer had purchased on contract. What is the TRID purpose of this loan?

Documents

Reg. B FCRA Recap - WordPress.com