If you have a loan that has a finance charge that was understated by $500 but the resulting recalculated APR does not increase by more than 0.125%....is that within tolerance or a violation of Reg Z?

The APR is within the tolerance allowed by Section 226.22(a), so the APR is compliant. The FC is understated by more than the $100 tolerance allowed by Section 226.18(d)(1), so the FC is illegally understated.

Assuming an FC or APR understatement is discovered 1) within 30 days post-closing, 2) more than 30 days post-closing, what, if any, are the remedies?

Am I correct that if either are overstated there is no violation and no attempt to remedy is required?

Thank you.

There is no "one-size-fits-all" rule for curing TIL violations. Violations involving the APR or FC always trigger civil liability under Section 130(a) of the TILA. Just because you become liable for TILA penalties, that doesn't force you to take remedial action with regard to affected borrowers.

Section 130(b) provides an optional cure procedure for those who want to wipe the slate clean and eliminate the threat of penalties. As a policy, many lenders "take the cure" whenever they discover (post-closing) a violation. Note that the cure only works for the first 60 days after you discover a violation, and it necessitates reimbursement when the violations involve understatement of the FC or APR.

If the borrower discovers the violation and sues you before you take the cure, all of the 130(a) penalties, costs, and damages (reimbursement) will apply.

If a bank regulator discovers an APR or FC understatement violation, the agency will order you to take remedial action. Limitations and procedures for enforcement actions are spelled out in the agencies' TIL Enforcement Policy and related Q & A. Generally, the tolerance provisions of both Regulation Z and the Enforcement Policy are embedded in APRWIN.


Relevant time frames are:
- Prior to consummation you can redisclose as often as you wish. The latest of these disclosures will be the one that counts.
- The moment the borrower signs the note, you move into the post-closing rules discussed above.


Section 226.18(d)(1) permits unlimited FC overstatement in a transaction secured by real property or a dwelling. In all other cases, FC overstatements of more than $5 or $10 (depending on loan amount) are violations.

226.22(a) discusses APR accuracy in detail. In general, overstatements exceeding the 1/8% or 1/4% tolerance constitute violations of Regulation Z and trigger civil liability under Section 130(a). Loans subject to the unlimited tolerance for FC overstatement may (or may not) enjoy additional APR tolerance. For the additional tolerance to apply, the APR error has to be related to the FC error directly. APR overstatements caused by other factors (incorrect Amount Financed or "Fed calendar" time measurements, for example) do not enjoy this additional tolerance.

Although the technicalities and math may leave you scratching your head about the legality of overstated APRs, as a practical matter they're rarely litigated and regulators have bigger fish to fry.

No discussion of TIL error remediation is complete without mention of the TILA's criminal penalties: Whoever willfully and knowingly gives false or inaccurate information or fails to provide information which s/he is required to disclose under the TILA or Regulation Z can be fined up to $5,000 or imprisoned not more than one year, or both.

The threat of criminal penalties arises whenever systemic violations go unchecked. Once you are aware that there are TIL violations with a known cause, you must take remedial action to eliminate the cause. If you don't, the violations ratchet up to "willful and knowing" and you're one step closer to Club Fed.

Thanks Richard.

I'm off to Vegas. Wish me luck.

Does the tolerance rule apply to APRs in ads? I always thought not...just need to confirm and get a citation if I am right.

APR's in Ads must be accurate as well.§226.16(a), §226.24(c) state you must only disclose actual terms available and if you state a rate, it must the APR. §226.22(a)(2) states what an "accurate APR" is.

So a tolerance would apply in an ad for a loan. I must be thinking of APY for deposit ads...no tolerance there, right?

But, to be accurate and not misleading, the APR in the loan ad should match the APR the bank would disclose on the TIL using its calculation software, agree? Needless to say...one figure is coming from the loan officer and marketing and the other figure is coming from loan operations.

In addition to the UDAP guidance, Reg. Z has it's own on-board prohibition of deceptive advertising:
226.24 Advertising. (a) Actually available terms. If an advertisement
for credit states specific credit terms, it shall state only those terms
that actually are or will be arranged or offered by the creditor.

If you advertise an APR but then calculate a higher (out of tolerance) APR when customers accept your offer, you violate this section. As David advises, Section 226.22's tolerance is universal. It applies whenever you generate and use a closed-end APR.

Even if you are in compliance with Reg. Z's accuracy requirements, UDAP can still apply. This may be one of those strange times when regulators pull out the UDAP stick to deal with "bad faith." Your bank has the technology to produce precise APRs for individual transactions, but your post suggests that for ads your staff prefers to ignore the precise values in favor of a quick & easy alternative.

Thanks for your help. I think I want to learn how to fish, too!

Good morning- I would like to revisit this thread...with TRID, I just found that our LOS was not generating the correct APR and TIP under TRID for our ARM products...this is definitely due to operator error while inputting the data into the LOS...we are retaining staff immediately...but 2 questions- I think 1 has been answered above but can you please confirm I understand...

1) On deals currently in the pipeline, may my FI re-disclose the LE for accuracy? I found we were understating the APR.
If not, how, exactly, do I cure the understated finance charge?

2) I found 2 post-close deals that were understated. How can I have this cured? Meaning, is there a tool that I need to use to figure out the math so that I know exactly what needs to be reimbursed? 1 is past the 60 days so I only have 1 that I need to fix...and that is by the end of February...I haven't had this issue before so I am not really sure what to do...

Can anyone help, and break down a little - I am new to this :-/

Thank you-

1) answered in the TRID forum:
https://www.bankersonline.com/forum/ubbthreads.php/topics/2063836/Re:_APR_Accuracy#Post2063836

2) You cannot fix an APR through the re-issue of a CloD after a loan has closed. I would suggest you to use the OCC APRWIN program and calculate what you owe the customer.

http://www.occ.gov/tools-forms/tools/compliance-bsa/aprwin-software.html

Thank you, Randy -

This seems as good a place as any for my current conundrum...and I feel like I know I've calculated this situation before...but maybe those brain cells have filtered out of my head by now and I'm not sure what it is I'm missing. Maybe one of you can help me out here.

I need some assistance from someone to run an APRWIN. I can't understand why I'm not getting a tolerance issue with this.

Loan was done as commercial and should have been consumer. Details are

Loan date 5/11/2015 - maturity 11/11/2015

Loan amount was $100,000 with APR fees totaling 239.00 for an undisclosed amount financed of 99761.00 Undisclosed APR, so used rate of 6.0 as the APR.

Total payment due 11/11/2015 would have been $103,024.66.

APRWIN calculates an APR of 6.5430 with no tolerance warnings? Would the $239.00 worth of PPFCs listed on the note and charged to the customer be considered 'disclosed'? If so, then APRWIN will give what appears to be correct violations.

Not sure, but what do you need APRWIN for. Cut them a check for $239.00.

Well, that's my usual thought...but in this case, a total Finance charge was not disclosed either...so the APR adjustment as of Final Payment is $270.83 but my Finance Charge Adjustment is a whopping $3,024.66 and according to Win, I would reimburse the larger of the two. Prorating accordingly if it paid out earlier than 6 months.

Huh? Why would you refund all of the interest???

You see why I'm scratching my head?

It gives me an Original Payment Amt of $103,024.66 with an Adjusted payment amount of $102,753.83 for a total FC Adjustment using an APR of 6.543 of $3024.66, but there is only the $270.83 difference in those two payments.

What the heck am I missing here?

I can't even get APRWIN to show an error. You don't have a disclosed finance charge.

You have to put in the $239.00 in the finance charge area. Although it's not disclosed on a Reg Z disclosure, those fees are itemized on the note and are all of the ppfc's on this loan.

Maybe the BIG problem is that total FC's (included the interest over the life of the loan) is also amiss. THAT's probably why the finance charge adjustment is so huge.

Violations Involving the Non-Disclosure of the APR or Finance Charge

1. In cases where an APR was required to be disclosed but was not, the disclosed APR shall be considered to be the contract rate, if disclosed on the note or the Truth in Lending disclosure statement.

2. In cases where an APR was required to be disclosed but was not, and no contract rate was disclosed, consumers will not be required to pay an amount greater than the actual APR reduced by one-quarter of one percentage point, in the case of first lien mortgage transactions, and by one percentage point in all other transactions.

3. In cases where a finance charge was not disclosed, no adjustment will be ordered.

#3. Wow! How weird is THAT?

So, I'm back to my APR adjustment. Wonder why it increased from the total $239 to $270.83?

I was going off of what WIN said you had to do...never saw anything about plain non-disclosure.

Because you put in a disclosed finance charge in error into APRWIN. If you did not supply a TILA disclosure, how can you have disclosed a finance charge??

Well geez, Randy. I wanted some paperwork to show the PTB's what we needed to give back. I've hit them with so many like this this year, I figure they want paper and I was gonna be ready!

And that was the crux of my question above:

APRWIN calculates an APR of 6.5430 with no tolerance warnings? Would the $239.00 worth of PPFCs listed on the note and charged to the customer be considered 'disclosed'? If so, then APRWIN will give what appears to be correct violations.