Recent Final Rule Analysis & Regulatory Comment Calls

CUNA
June 4, 2009 | COMMENTS Click to View Comments

Technical Changes to the FACT Act “Red Flags” and Affiliate Marketing Rules

The National Credit Union Administration, the Federal Trade Commission and the other financial institution agencies recently issued a final rule that makes technical corrections to the identity theft “red flags” and address discrepancy rules and to the affiliate marketing rules that were issued under the Fair and Accurate Credit Transactions Act.

The first link below provides more information about the “red flags” and address discrepancy rules, and the second link provides more information about the affiliate marketing rules:

The agencies made several technical corrections to the identity theft “red flags” and address discrepancy final rules. These include a clarification that address discrepancy notices need only be provided by nationwide consumer reporting agencies.

The agencies made the following two corrections to the affiliate marketing rules:

A model form that allows consumers to voluntarily opt-out of marketing by businesses and their affiliates was amended by inserting language in brackets that allows businesses to disclose the duration of any opt-out period.
An additional provision in the instructions to the model forms to clarify that a person may add a disclosure to the forms that explains the treatment of opt-outs by joint consumers.

If you have any questions or need a copy of the final rule, please feel free to contact Senior Vice President & Deputy General Counsel Mary Dunn at mdunn@cuna.com or Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com or by telephone at (800) 356-9655, extension 6736 or 6732. You may also access the rule here.

Revisions to Regulation Z Mortgage Loan Disclosures

The Federal Reserve Board (Fed) has issued a final rule that will revise the Regulation Z disclosure requirements for mortgage loans. These are specific changes to implement provisions of the Mortgage Disclosure Improvement Act (MDIA), which was enacted this past July and amends certain provisions of the Truth in Lending Act (TILA). As previously planned, the Fed is in the process of reviewing Regulation Z in its entirety and will issue more changes to the mortgage disclosure provisions later this year.

The MDIA requires creditors to mail or deliver good faith estimates of mortgage loan costs within three business days after receiving the application for the loan and before any fees are collected, other than a reasonable fee for obtaining a credit report. These do not have to be provided if the consumer withdraws the application during this three-day period. For these provisions, “business days” are defined as any day in which the lender's office is open for business. These early disclosure provisions are consistent with the Fed's final rule last year that amends the Home Ownership Equity Protection Act (HOEPA), which imposes this requirement for the consumer's primary home, although the MDIA now broadens this requirement to include all dwellings, such as second homes. These requirements will apply to refinancings and home equity loans, but they will not apply to home equity lines of credit (HELOC), which are considered “open-end” loans and not subject to these provisions of TILA and Regulation Z.

The final rule incorporates this extended coverage and also implements these additional requirements that were included in the MDIA:

Creditors must wait at least seven business days after they provide the early disclosures before closing the loan. “Business days” are defined as all days, except Sundays and specific Federal public holidays, which differs from the definition that applies to the provisions described above for providing early disclosures.
Creditors must provide corrected disclosures with a revised annual percentage rate (APR) if there are any changes since the most recently provided disclosures that result in the APR being inaccurate beyond the tolerances that are currently outlined in Regulation Z. These disclosures must state the accurate APR and all changed terms and must be received at least three days before the loan closing. The consumer will have been considered to have received these disclosures three business days after they are mailed or otherwise sent by the lender. The lender may also rely on evidence of actual delivery, such as a receipt for certified or overnight mail. For these corrected disclosure provisions, “business days” are again defined as all days except Sundays and specific Federal public holidays. If corrected disclosures are required, the loan closing may not occur until both the seven-day and this three-day waiting period expires. The presumption that the consumer receives disclosures three days after they are mailed also applies to the delivery of the good faith estimates, as described above, and the definition of “business days” for corrected disclosures applies to this presumption for the good faith estimates.

With regard to the seven-day and three-day timing requirements, as described above, the final rule will allow a consumer to modify or waive the timing requirements for the loan closing if due to a bona fide personal financial emergency that must be satisfied before the end of the waiting period. This will be determined based on individual facts and circumstances, but should not be used routinely for convenience purposes. An example may include an impending foreclosure. However, accurate disclosures must be provided at or before the time these requirements are modified or waived. In these situations, the consumer must give the lender a dated, written statement describing the emergency. All consumers who are primarily liable on the loan obligation must sign this statement and pre-printed forms will not be permitted. Whether the emergency exists will be determined based on the facts surrounding the individual circumstances. Also, the waiver will no longer apply if the APR increases by more than the specified tolerance that is currently permitted under Regulation Z.

Both the initial disclosures and corrected disclosures must include the following statement: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

The seven-day and three-day timing requirements for disclosures do not apply to mortgage transactions secured by timeshares.

This rule will not apply to credit that is primarily for business purposes. One example would be for rental property that is not owner-occupied.

The requirements under the final rule, as well as the other requirements under the MDIA, will become effective for loan applications received on or after July 30, 2009. This differs from the effective date of the recent final rules that amend HOEPA, which is October 1, 2009. However, certain provisions of HOEPA will also now have a July 30, 2009 effective date, instead of October 1, 2009. These include the requirement to provide good faith estimates within three days after receiving the application and the prohibition on charging a fee until these disclosures are given, except for the credit report fee.

Proposed Revisions to Federal Home Loan Bank Membership to Include Non-Federally Insured CDFI Credit Unions

The Federal Housing Finance Agency (FHFA) has issued a proposal that will extend membership in Federal Home Loan Banks (FHLBs) to qualified Community Development Financial Institutions (CDFI) that are not federally insured. These are specific changes to implement provisions of the Federal Home Loan Bank Act (FHLB Act), which was amended by Section 1206 of the Housing and Economic Recovery Act of 2008 (HERA).

FHLBs are cooperative institutions owned by their members and provide low-cost financing for financial institutions for the making of various types of loans. Under the FHLB Act, each member of an FHLB must be either a building and loan association, cooperative bank, homestead association, insurance company, savings bank, or federally insured credit union. HERA expanded these requirements so that non-federally insured CDFI's could become members of an FHLB if they met certain criteria, listed below.

Institutions now allowed to become members of an FHLB must qualify for certification by the CDFI Fund under the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act). Such institutions include loan funds, venture capital funds and state-chartered credit unions without federal deposit Insurance. These institutions must meet current membership criteria, such as buying FHLB stock and pledging collateral.

In addition to the criteria listed above, a non-federally insured CDFI seeking FHLB membership must also demonstrate that it:

Is duly organized under a state or federal law;
Is either subject to inspection and regulation or certified as a CDFI under the CDFI Act;
Makes long-term mortgage loans;
Has at least 10 percent of their total assets in residential mortgage loans;
Is in sound financial condition;
Has sound character of management; and
Has a sound home-financing policy

Comments on the proposed rule are due by July 14, 2009. Please submit comments to CUNA by July 6, 2009.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.coop ; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rules. You may also access a copy of the rules here.

> Read the full comment call @ cuna.org

FTC Advance Notice of Proposed Rulemaking - Mortgage Acts and Practice

The Federal Trade Commission (FTC) has initiated two advance notice of proposed rulemaking (ANPR) with regard to mortgage loans. The purpose is to request and analyze comments in response to the ANPR for purposes of developing specific proposed rules in the future that would prohibit or restrict mortgage loan practices.

One ANPR addresses the activities that occur throughout the mortgage loan process. This includes advertising, marketing, origination, appraisals, and loan servicing. The other ANPR addresses the practices of those who offer loan modification and foreclosures rescue services to consumers, which have been the subject of recent scams.

For both ANPRs, the FTC is requesting general comments as to whether the agency should develop rules to restrict or prohibit activities in these areas. These ANPRs do not include any detailed or specific proposals. Any rules that would be developed would be issued under the unfair or deceptive acts or practices provisions of the FTC Act.

The rules adopted by the FTC will not apply to banks, thrifts, or federal credit unions. However they will apply to other entities in which the FTC has jurisdiction under the FTC Act and this would include state-chartered credit unions. Any rules that would apply to state-chartered credit unions would be in addition to the current rules that apply to mortgage lending.

Comments in response to the ANPR on activities that occur throughout the mortgage loan process are due by July 30, 2009. Please submit your comments to CUNA by July 21, 2009. Comments directed to the FTC must refer to “Mortgage Acts and Practices Rulemaking, Rule No. R911004.”

Comments in response to the ANPR on activities offered by loan modification and foreclosure rescue services are due by July 15, 2009. Please submit your comments to CUNA by July 7, 2009. Comments directed to the FTC must refer to “Mortgage Assistance Relief Services Rulemaking, Rule No. R911003.”

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com ; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, 6th Floor, Washington, DC 20004. You may also contact us if you would like a copy of the ANPRs or you may access them on the Internet at the following addresses:

> Read the full comment call @ cuna.org

> Regulatory & Legislative Resources for OpSS Council Members

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