We are facing possible Reg Z Reimbursements that were discovered by our external auditors. I know we have 60 days to search our records and make the restitution to the customers. My question revolves around how far back we go. We had a Safety and Soundness Exam a couple of months ago - we don't have the final report yet and the Auditors seem to think we need this report to actually "count" this exam as our starting point. Otherwise, we will have to go back much further.

I'm thinking the last exam is the last exam and the fact that we are waiting on the final report shouldn't matter. Am I off base here?

Until the final report is issued your exam is still open.

In our last exam we thought we were done also, but before the final report was issued the lead examiner in writing up the report discovered they failed to look at a couple of things in the fair lending segment and we had to provide the necessary information so they could finalize that segment. So in essence our exam was still in progress at that time.

"My question revolves around how far back we go." & "Until the final report is issued your exam is still open."

Interesting points of view but the issue is who gets reimbursed for what Reg. Z disclosure error or incorrect RESPA or what "facing possible Reg. Z Reimbursements" really means?

Internal Audits, if for compliance purposes or whatever can be requested and reviewed by Fed. or State Financial Regulatory Agencies, (Depending on your Charter). Even with an issued Report, if your Regulators were unaware of the possible Reg. Z
violation and subsequently find out about it as a regulatory compliance violation, you've just "opened a can of worms". Regulatory agencies do not have limits on how far they can "go back" that's why compliance is such a costly endeavor if you make a mistake. Common sense usually dictates how far back your regulator may want you to go to clean up an honest mistake but if found to be purposeful, you could be in for a wind down of your operations.

LOL

We always provide our Audits to the Examiners as part of their request list, we are definitely not trying to hide anything. Are you saying that even if we follow the rules for Reg Z's Corrective Action Period and go back to our last exam that they may still decide to go back further?

I have found that they will require you to do a look back at all affected transactions back to the last exam date. So, if your last exam was a year ago you would be required to look back a year. If it were 3 years ago...3 years...

But, that is only what I have seen come down on other issues.

Thus my above comment. The date of the "pending" exam is not final until the report is issued. As what happen with us they could discover something they overlooked and come back to complete the exam. So IMO until you receive the report your exam is still in process.

I guess you missed my point with regards to the clean-up of the particular "issue is who gets reimbursed for what Reg. Z disclosure error or incorrect RESPA or what "facing possible Reg. Z Reimbursements" really means?

Depending on several variables (type; severity & extent of infraction), even going back 1 year may not be sufficient to extinguish a past pattern or practice of Reg. Z violations.

You may want to look at the FRB Reg. Z (T-I-L) Consumer Compliance Handbook, pg. 33 Administrative Enforcement also the FFEIC policy guide.

LOL

This matter is explained in the Interagency Enforcement Policy on Reg. Z published in the FR on 9/8/98. Get a copy here & save it for reference. These things tend to be good for 10 - 20 years at a time.

In addition to the time frame in the Regulators' policy, you should consider your exposure to civil liability and any investor requirements. Regardless of what makes the regulators happy, you can still be sued for any violation for a year. Beyond that, contracts generally allow investors to put loans back at any time a regulatory defect is discovered. Also extending beyond a year, courts can allow the borrower to raise TIL violations as a defense any time you sue a borrower.

Original anon here. Although I couldn't get to the FR page through the above link, I had a copy from previous research I had done (I think from one of your posts Richard - thank you!). Anyway, fortunately there are no investors involved and the violation is due to a finance charge not being reflected on the final disclosure as such on non real-estate related loans, so it may only effect smaller, shorter term credits (and nothing over 25K) - we will know much more when we complete our review.

I just was unsure on what the Regulators would consider "exam date" as our final reports have always come back dated from when they were actually onsite. We have had our exit meeting and everything, just waiting for the final so I wanted to do the right thing and wasn't sure what they would consider the "most recent exam".

The Final Exam date is the "Exam Report Date" not the on-site review period and this can sometimes be a month or two on smaller exams, longer on large Institution exams.

Your prompt actions fixing the problem (if you recognize and agree there is one) is the most important aspect to becoming or working toward being compliant. It's a better idea, if you agree with the examiners comments in the exit meeting, to star working on the fix before and without waiting for the final report. If you are unsure or lack confidence there is a violation and want confirmation, perhaps waiting until the exam report date is the best course. However, your reservations would tend to show a lack of initiative to take control of the situation.

I think I may need to clarify - the violations were just discovered by our Auditors, that we retain as part of our independent review - not through a Regulatory Exam. Our Examination, which was a S & S Exam, was conducted two months ago and Reg Z was not part of the scope. We have already begun our review to fix the problem and will do so well within the time frame alloted. It's just that Reg Z's Corrective Action Period says you determine which loans are subject to adjustment by "reviewing back to the most recent examination that precedes the current examination".

Since these were essentially discovered by "us" (through our independent audit firm) and not by an examination, I was trying to determine if we can just count the most recent examination as our look back point without having the final report.

Well, that changes things...
you need to discuss with your Auditor what the expectation is.

Reg. Z does not require corrective action.
The TIL Act does not require corrective action.
Your external auditors cannot require corrective action.
Your regulator will require corrective action, but only if it finds the violation and only in accordance with the Policy Guide.

Without using the term "last clean examination", the Policy Guide limits your regulator's retroactive "reach" to the period beginning on the date of the agency's last clean (no reimbursable Reg. Z violations found) exam. The Policy Guide recites this authority and explains how the courts forced the agencies to count the most recent agency exam of ANY kind as the last clean exam - whether or not the agency chose to test for compliance with Regulation Z.

Bottom line: Your regulator did not find this violation and has not issued a directive under the Policy Guide. You are free to resolve the problem any way you wish.

Original Anon here - thank you all for your input!