Avoiding Compliance Traps
Examiners are finding violations of ?226.18(r), Truth in Lending's "required deposit disclosure." The required deposit disclosure is a sometime "sleeper" in Truth in Lending. It is a disclosure that must be made only under certain circumstances. Regulation Z requires that when the borrower must maintain a deposit as a condition of the specific loan transaction and the deposit account pays less than 5%, the TIL disclosures must include a statement that the APR does not reflect the effect of the required deposit. ?226.18(r).
This rule is driven by two forces bank products and the economy. When rates are high, the rule isn't triggered, and banks tend to forget about it. Unfortunately, they keep forgetting about it when the rates go down. When rates on deposits are low, as they presently are, the disclosure must be made. Many banks forgot to reintroduce this disclosure when rates fell. As a result, it is now being identified so frequently by examiners that it is presently one of the more common violations being reported.
This type of violation is easy to catch. It is a simple paper trail to follow. The loan documentation or the account documentation will contain the rate being paid on the deposit. Then it is a simple matter of looking for the presence or absence of the disclosure.
To prevent this kind of problem, it's a good idea to compare your TIL disclosures to ?226.18. Doing this every 12-18 months will catch this type of problem and function as a refresher for you. If you use the regulation as a checklist, you'll find the problem immediately when you reach ?226.18(r).
Copyright © 1995 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 1, 11/95
First published on 11/01/1995