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#2188846 - 08/13/18 02:28 PM Disclosing Lender Credits - Non TRID
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I am confused on how to deal with what is, in essence, lender credits on a loan where using the LE and CD is not applicable, such as a car loan for example. If the creditor provides monies to the borrower for moving their car loan to said creditor, does this show up in a disclosure somehow? For the TIL that would be used for a car loan, I don't see a place to put this. It seems like there is some old 12 CFR 226.18(b) commentary language, but this did not carry over to 1026.18(b)?

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Lending Compliance
#2188858 - 08/13/18 03:01 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
rlcarey Online
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Galveston, TX
As far as I am aware lender credits were not addressed in 226.18, only in 226.17, where they are still addressed.
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#2188952 - 08/13/18 09:55 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
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https://www.bankersonline.com/forum/ubbt...s_Impact_t.html

This is a similar thread. You had referenced the 1026.18 commentary in another thread that I can't find at the moment. It looks like it was moved to the commentary for 1026.17.

Here is the updated commentary: Rebates and loan premiums.
In a loan transaction, the creditor may offer a premium in the form of cash or merchandise to prospective borrowers. Similarly, in a credit sale transaction, a seller’s or manufacturer’s rebate may be offered to prospective purchasers of the creditor’s goods or services. Such premiums and rebates must be reflected in accordance with the terms of the legal obligation between the consumer and the creditor. Thus, if the creditor is legally obligated to provide the premium or rebate to the consumer as part of the credit transaction, the disclosures should reflect its value in the manner and at the time the creditor is obligated to provide it.

What is the practical obligation of the last sentence? How is the value reflected, and in what manner? I don't see any other TILA disclosures that have a Lender Credits field. Should the lender just add a line to the generic TIL disclosure somehow?

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#2188964 - 08/14/18 02:24 AM Re: Disclosing Lender Credits - Non TRID Compliance NABW
Richard Insley Offline
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Toano, VA
When and how (debits & credits, please) does the borrower receive the credit(s)?
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#2189033 - 08/14/18 04:47 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
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At closing, and the discussion is whether to do it as a cash deposit into the borrower's bank account, because there are no other loan costs.
Last edited by JPC; 08/14/18 04:48 PM.
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#2189051 - 08/14/18 05:52 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
Richard Insley Offline
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Toano, VA
The foundation for this discussion is Section 1026.17(c)(1)...which tells you (for closed-end credit) to base all disclosures on the terms of the legal obligation between the parties. By extension, that also includes the calculations by which the disclosures are produced.

The legal obligation always includes the promissory note, but it also includes commitments letters, security instruments, riders, and any other document that's an enforceable part of the deal. Based on the way a court interprets the facts, it might even include advertisements and other inducements.

In this case, you are offering and the borrower accepts a "signing bonus" of a sort. Depending on how you draft the agreement regarding the credit, it can affect the TIL calculations and disclosures in different ways. These differences are substantive (affecting the FC and APR), so you must look at this carefully.

You indicate that the credit is not applied in the form of a waiver of a portion of the Finance Charge because there are no fees. Instead, the credit is a simple "golden hello kiss"--i.e., additional loan proceeds that do not have to be repaid.

All amounts paid to the borrower or to others on the borrower's behalf must be included in the Amount Financed. For example, if your loan principle is $10,000, the borrower receives a $200 credit, and there are no Prepaid FCs, then the itemization would look like:
1. Principle amount of loan = $10,000
2. Plus: other amounts disbursed to borrower = $200
3. Equals: Amount Financed: $10,200

The payment schedule would be based on the $10,000 principle amount, the TOP would be the sum of these payments, and the APR would be based on this payment schedule and the $10,200 AF.
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#2189086 - 08/14/18 07:15 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
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Thank you for the detailed response. I guess I am still not quite getting how the $200 in your example is an amount financed. Where under 12 CFR 1026.18(b) would a "hello kiss" fall?

Amount financed.

The amount financed, using that term, and a brief description such as the amount of credit provided to you or on your behalf. The amount financed is calculated by:

Determining the principal loan amount or the cash price (subtracting any downpayment);


Adding any other amounts that are financed by the creditor and are not part of the finance charge; and


Subtracting any prepaid finance charge

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#2189111 - 08/14/18 08:16 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
Richard Insley Offline
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It is an "other amount that is financed by the creditor."

Note that Reg. Z does not define the term "financed." I'm not an attorney--just passing along what one told me when I asked the question "what does the law require me to do when it uses an undefined term?" The answer was to look to other English language authorities--especially the dictionary.

As bankers, we operate with the notion that "financed" means the same thing as "capitalized"--i.e., repayable and subject to the accrual of interest. That's not what the dictionary says. however.

Webster, for example, defines the verb "finance" to mean:
- to raise or provide funds or capital for, or
- to furnish with necessary funds

Your credit furnishes the necessary funds to attract willing applicants.

Another way to look at this is through the mathematical "eyes" of Appendix J. The general equation for calculating all APRs for closed-end credit deals with cash flows in one of two ways--cash out (advances) and cash in (receipts.) It does not consider why the cash is flowing out or in, only the direction and amount. There's no question that your "golden hello" is flowing out to the borrower. That puts it in the same part of the equation as the Amount Financed. Since Section 1026.18 provides no other way to label a "cash out", it has to fit within the AF somehow.

Since the "golden hello" is a distinctly different part of the credit contract from the loan principle, it's reasonable to break the two amounts apart and show (itemize) how you arrive at the total AF.

You are very wise to challenge where in the regulation can you find the authority for doing this one way vs. another. Usually, if you dig deep enough, the reg or interpretations give up an answer. In this case, you have to put the answer together from several pieces.
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#2189114 - 08/14/18 08:37 PM Re: Disclosing Lender Credits - Non TRID Compliance NABW
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Thank you, Richard. I was thinking of that use of the word "Finance" as well in this case, but I was dissuaded from doing so by the description at the beginning of the section regarding "Amount Financed" where it says, "such as the amount of credit provided to you on your behalf." And, then credit is defined as "the right to defer payment of debt or to incur debt and defer its payment."

I appreciate it how you pieced it all together and agree that you made a strong case for such treatment.

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