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October 22
Advanced Visa Error Resolution;
Biran Crow

October 23
Advanced MasterCard Error Resolution;
Brian Crow

October 24
How to Audit Advertising - Compliance Issues Here, There, Everywhere!;
Patricia Cashman

October 29
Documenting an Applicant's Intent to be a Joint Applicant;
David Dickinson

November 4
Issues with Deceased Customers;
Mary Beth Guard and John Burnett

November 5
Vault Burglaries, Floods, Fires & Other Disasters;
Dave McGuinn



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#1576729 - 07/12/11 11:42 AM APR/Finance Charge Tolerance
awebster Offline
New Poster

Registered: 01/05/10
Posts: 14
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?

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Lending Compliance
#1576951 - 07/12/11 03:36 PM Re: APR/Finance Charge Tolerance [Re: awebster]
Richard Insley Online
Power Poster

Registered: 10/26/00
Posts: 7579
Loc: Richmond, VA
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.
_________________________
...gone fishing.

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#1577138 - 07/13/11 07:19 AM Re: APR/Finance Charge Tolerance [Re: Richard Insley]
WHEDA Offline
100 Club

Registered: 04/07/09
Posts: 171
Loc: Wisconsin
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.

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#1577169 - 07/13/11 09:16 AM Re: APR/Finance Charge Tolerance [Re: WHEDA]
Richard Insley Online
Power Poster

Registered: 10/26/00
Posts: 7579
Loc: Richmond, VA
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.

Originally Posted By: WHEDA
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?

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.

Originally Posted By: WHEDA
Am I correct that if either are overstated there is no violation and no attempt to remedy is required?

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.
_________________________
...gone fishing.

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#1577725 - 07/13/11 06:36 PM Re: APR/Finance Charge Tolerance [Re: Richard Insley]
WHEDA Offline
100 Club

Registered: 04/07/09
Posts: 171
Loc: Wisconsin
Thanks Richard.

I'm off to Vegas. Wish me luck.

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#1583356 - 07/26/11 04:10 PM Re: APR/Finance Charge Tolerance [Re: Richard Insley]
Sisyphus Offline
100 Club

Registered: 06/14/08
Posts: 193
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.

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#1583444 - 07/26/11 05:09 PM Re: APR/Finance Charge Tolerance [Re: Sisyphus]
David Dickinson Online
10K Club

Registered: 11/28/00
Posts: 14061
Loc: Central City, NE
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.
_________________________
David Dickinson
http://www.bankerscompliance.com

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#1583514 - 07/26/11 08:35 PM Re: APR/Finance Charge Tolerance [Re: David Dickinson]
Sisyphus Offline
100 Club

Registered: 06/14/08
Posts: 193
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.

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#1583541 - 07/27/11 08:08 AM Re: APR/Finance Charge Tolerance [Re: Sisyphus]
Richard Insley Online
Power Poster

Registered: 10/26/00
Posts: 7579
Loc: Richmond, VA
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.
_________________________
...gone fishing.

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#1583554 - 07/27/11 08:56 AM Re: APR/Finance Charge Tolerance [Re: Richard Insley]
Sisyphus Offline
100 Club

Registered: 06/14/08
Posts: 193
Thanks for your help. I think I want to learn how to fish, too! crazy

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