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#911894 - 02/27/08 11:10 PM Inquiry vs Application
Norrie Offline
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If a consumer calls the bank and asks for the current interest rate being offered for a loan, is it okay for the bank to verbally quote just the current interest rate without an APR? If the consumer asks additional questions to the point the bank considers it an application, then the APR would be quoted.

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Lending Compliance
#911986 - 02/28/08 01:28 PM Re: Inquiry vs Application Norrie
Dan Persfull Offline
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Quote:
is it okay for the bank to verbally quote just the current interest rate without an APR?


Absolutely not. See 226.26 and its Commentary.
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#912455 - 02/28/08 09:02 PM Re: Inquiry vs Application Dan Persfull
Norrie Offline
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Just to confirm, when a person calls in to a loan officer and asks, "What is your 30-year fixed rate today?" and then says "thanks, goodbye", a loan officer must disclose an APR to this simple, inbound, rate inquiry.

Is this inquiry not seen as different than asking "about the cost of credit" as stated in 226.26(b)?

We are not talking about advertisements in any form here. Nor are we talking about outbound calls from a loan officer. Quoting a simple rate to inbound phone calls seems to be something that is practiced by most financial institutions that offer standard mortgage products.

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#912469 - 02/28/08 09:14 PM Re: Inquiry vs Application Norrie
Dan Persfull Offline
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Quote:
We are not talking about advertisements in any form here.


226.26 does not deal with advertising, it deals with oral disclosures of the APR.

Quote:
Is this inquiry not seen as different than asking "about the cost of credit" as stated in 226.26(b)?


How would inquiring about the interest rate not be inquiring about the "cost of credit"? Isn't the interest rate a direct cost of the credit?


Quote:
Quoting a simple rate to inbound phone calls seems to be something that is practiced by most financial institutions that offer standard mortgage products.


It is probably one of the most violated sections. It is also becoming one of the most tested. It is not uncommon anymore for examiners to do oral inquiries during or close to examination time and then citing the bank for the violation.
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#912510 - 02/28/08 09:42 PM Re: Inquiry vs Application Dan Persfull
Norrie Offline
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Thank you, Dan. I appreciate the clarification.

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#914224 - 03/03/08 11:54 PM Re: Inquiry vs Application Norrie
Norrie Offline
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What if an individual calls and identifies himself/herself as a loan officer from another bank checking out the competition or an employee of a realty company checking out market rates (providing they were not calling on behalf of a specific customer), then would the requirements of 226.26 still apply?

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#914238 - 03/04/08 01:11 AM Re: Inquiry vs Application Norrie
Richard Insley Offline
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Read the regulation:
"§ 226.26 Use of annual percentage rate in oral disclosures.
...
(b) Closed-end credit. In an oral response to a consumer's inquiry...."

Realtors and competitors are not consumers so the whole section does not apply.
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#916809 - 03/07/08 12:27 AM Re: Inquiry vs Application Dan Persfull
comply2me Offline
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Dan, we are going back and forth with our regulators about this subject and we think that it is ok to just quote the simple rate and not APRs.

Our stance hangs on the definition of consumer, as reg Z specifically defines it-Consumer means a cardholder or a natural person to whom consumer credit is offered or extended.

226.26 specifically cites " In an oral response to a consumer's inquiry-"

So if a person calls and asks for the rate on a 30 yr fixed rate loan, and they have not been extended or offered credit, we do not need to disclose the APR.

are we too literal in our interpretation.

thanks for your thoughts

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#916813 - 03/07/08 01:05 AM Re: Inquiry vs Application comply2me
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You are way too liberal and you are going to lose your argument with the regulators.

If a consumer is involved, it has to be the APR and optionally the simple interest rate in addition to the APR.

The quote during an inquiry is covered under "advertisement" as it is a direct or indirect promotion of a credit transaction.

The only exception is a communication relating to the negotiation of a specific transaction.

If you are talking to realtors, etc., what real good does it do to tell them only the interest rate anyway?? That has no relationship to actual costs if you are charging 3 points at that rate??
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#916859 - 03/07/08 11:52 AM Re: Inquiry vs Application rlcarey
comply2me Offline
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thanks for your reply, but I have to disagree with your interpretation of an advertisement. A person calling in to find out what the rate on a 30 year fixed rate loan is not an advertisement or commercial message.

An oral inquiry does not constitute an advertisement per Reg Z--Advertisement means a commercial message in any medium that promotes, directly or indirectly, a credit transaction.

the other BOL expert opined that this had nothing to do with advertising.

This is a very interesting issue as I have had differing opinions from each source I asked. Also, I find it interesting that this practice is, if not an industry standard, practiced widely. If it is a violation, then the BoAs, Wamus and Wells, of the world are in serious violation. We called several of these banks and could not get an APR.

Dan

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#916939 - 03/07/08 02:23 PM Re: Inquiry vs Application comply2me
Dan Persfull Offline
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Quote:
the other BOL expert opined that this had nothing to do with advertising.


I did not opine that. I said 226.26 did not deal with advertising.

And yes the BoA's, Wamus and Wells are in serious violation of this requirement, as is many other banks but that does not make it compliant.

BTW, isn't one of your employees quoting a rate to a consumer over the phone not constitute a medium? Isn't quoting your rate promoting your credit transaction? And by quoting the rate are you not offering a credit product in hopes that your rate will entice them to apply for the loan with your financial institution?

I don't think you are going to find any support for your position in this discussion. As you asked earlier, yes I think you are being too liberal in your interpretations.

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#917875 - 03/07/08 09:42 PM Re: Inquiry vs Application Dan Persfull
David Dickinson Offline
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FWIW, I agree with Dan and Randy. If you've been around BOL very long, you know I debate issues with examiners and push the literal meaning (rather then someone's interpretation). This is not an issue you can debate. This is an advertisement (no question).

This doesn't get cited often, but it could. I have tried many different ways to argue this for my clients when they are cited, but it has always failed. It's not a high risk issue, so I wouldn't sweat it, but your arguments won't hold up comply2me.
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#920533 - 03/12/08 02:06 PM Re: Inquiry vs Application David Dickinson
Richard Insley Offline
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This issue was settled by an Official Interpretation of Reg. Z in 1973, shown below. When the TILA and Reg. Z were rewritten in 1981 the formal interpretations were retired in favor of the OSC. Even though the OSC no longer contains these exact words, nothing about the Act or regulation has changed in a way that would cause this interpretation to change.

"But everyone else does it" is a squatter's rights type of argument that won't work with TILA. Just because the government has done a miserable job of enforcing this principal of TIL doesn't mean it's been repealed.

It's fascinating to watch regulators scurry about inventing ways to prevent a replay of the sub-prime disaster. Had they enforced Reg. Z's rate quotation and advertising requirements all along, many consumers could have foreseen and avoided loans with huge payment increases that were inevitable for severely discounted teaser rates and payments.

§226.101 Use of “annual percentage rate” in oral communications.

(a) Under § 226. l(a)(2), a stated purpose of the Truth in Lending Act and Regulation Z is to assure that every customer who has need for consumer credit is given meaningful information with respect to the cost of that credit so that he may readily compare the various credit terms available to him from different sources and avoid the uninformed use of credit. Under § 226.6(a), a creditor is required to make disclosures using certain prescribed terminology, including the “annual percentage rate.” The question arises as to the propriety of a creditor quoting annual rates other than “annual percentage rate” in response to consumer inquiries about the cost of credit, where such other rates could not be used in an advertisement under the proscriptions of § 226.10.
(b) The Truth in Lending Act and Regulation Z are intended to facilitate “shopping” between competitive credit plans. If a customer inquires about the cost of credit and the creditor responds by quoting an add-on or discount rate, he may mislead the customer since the use of such rates is prohibited in consumer credit advertising and such rates are significantly lower than the annual percentage rate which must be shown on the creditor’s disclosure statement. The quotation of these rates can frustrate the stated purpose of the Act and prevent the customer from making an informed use of credit.
(c) In response to any oral inquiry by a customer about the cost of credit, a creditor when quoting annual rates should use only those rates permitted to be used in advertisements under § 226.10. Irrespective of the method used by the creditor to compute finance charges, the annual rate of the creditor’s total finance charges should be quoted only in terms of the “annual percentage rate.”

(Source: 38 Fed. Reg. 18458, July 11, 1973)


Note: Sectional references are to old Reg. Z.
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#920987 - 03/12/08 05:08 PM Re: Inquiry vs Application Richard Insley
David Dickinson Offline
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Richard: great source. Where do you keep these things? Maybe a better question is "how do you remember where you have all of these resources?" Obviously, this was WAY before the internet and electronic forms. I'm impressed!
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#921175 - 03/12/08 06:38 PM Re: Inquiry vs Application David Dickinson
Richard Insley Offline
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When "old Reg. Z" was phased out I hung onto a copy of the old reg and Board Interpretations. For a while, I used both--new Z for new products & old Z for problems that turned up in audits of older loans. By then, a decade's experience had taught me that for Reg Z it's very, very important to understand the principles underlying the rules. Since most of the fundamentals survived Simplification, the "old Z" material still offers insight and direction, 27 years later!

Remembering what you have in the archives is easier if you have a feel for the history, principles, and direction of the issue at question. This one just happened to be public enemy #101 & was very easy to find in the table of contents for the old reg.
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#921534 - 03/12/08 09:47 PM Re: Inquiry vs Application Richard Insley
David Dickinson Offline
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Richard, you are "Z-Master"!
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#2220314 - 08/23/19 03:09 PM Re: Inquiry vs Application Norrie
trying_to_comply Offline
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For transactions subject to 1026.19(e), once we have the 6 pieces is it safe to conclude, by virtue of having an application, that a conversation between an MLO and a customer are not subject to 1026.26(b) as the customer will be provided disclosures reflecting the APR?

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#2220832 - 09/03/19 05:19 PM Re: Inquiry vs Application trying_to_comply
trying_to_comply Offline
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***Bump***

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#2220836 - 09/03/19 05:33 PM Re: Inquiry vs Application Norrie
Dan Persfull Offline
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Bloomington, IN
Providing a written disclosure does not negate the requirements of 1026.26(b).
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#2221128 - 09/06/19 08:09 PM Re: Inquiry vs Application Dan Persfull
trying_to_comply Offline
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Thank you Dan, so you don't see any significance in the term "inquiry" as opposed to any conversation that occurs during an application around rates?

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