Open-End Loan Advertising Compliance. John Zasada Principal CliftonLarsonAllen

Transcription

1 Open-End Loan Advertising Compliance John Zasada Principal CliftonLarsonAllen

2 Agenda Advertising compliance importance Regulation Z open end loan requirements APR Trigger terms HELOCs Credit cards Regulation B UDAAP

3 Top Compliance Violations Regulation Z RESPA TIS HMDA Flood

4 Regulatory Changes Thousands of pages ATR/QM TRID HMDA

5 Context Top regulatory compliance risk? Not advertising compliance BUT

6 Managing Advertising Compliance Wait and see Clean past exam New world CFPB Unfair, Deceptive or Abusive Acts or Practices

7 What s the big deal? Closer scrutiny Advertising is indicative of overall compliance An examiner can look at your advertisements and website and in a few minutes get a good idea of how firm a grasp you have on regulatory compliance

8 Compliance Integration Elevation of business line over the compliance function Get compliance involved Compliance over the long haul Risk/reward

9 Survey Question #1 Does your credit union periodically test advertisements for compliance? YES NO

10 Closed End vs. Open End Advertising rules very different for each Closed-end anything other than open end! Open -end Repeated transactions Creditor may impose finance charge from time to time on outstanding balance Amount of credit extended is made available to the extent that any outstanding balance is repaid

11 What is an Advertisement Regulation Z - A commercial message in any medium that promotes, directly or indirectly, a credit transaction

12 Truth in Lending Regulation Z Before the TIL - $45 per month for new car! True cost unknown TIL introduced trigger terms

13 APR TIL requires specific terminology APR is fine No need to spell out Annual Percentage Rate

14 Fixed Fixed Rate Cannot use the word fixed unless: You include a specific period of time the rate will be fixed or The rate will not increase while the plan is open 14

15 Terms must be available Bait and switch prohibited Terms must be attainable Cannot state 4% HELOCs available if in fact the currently offered best rate is 5%

16 Trigger Terms Any terms initially disclosed: APR Variable rate information Minimum interest charge Fees Transaction charges Grace period Balance computation method Implicit terms

17 Open vs. Closed-End APR is a trigger term for openend loans APR is not a trigger term for closed-end loans

18 Affirmatively or Negatively No fees No transaction charges Not: check out our low fees ask us about our competitive APR

19 Triggered Disclosures Finance charges APR Variable rate Membership or participation fee

20 Disclosing the APR Different options Disclose current APR Disclose APR as of a specific date Variable rate APR may vary Variable rate APR

21 Promotion Rate Trigger term (APR, etc.) requires: Finance charges and membership or participation fee Introductory APR and how long it applies APR after the introductory period and that it may vary

22 Promotional Rates and Fees Use the words Introductory or Intro to describe it Does apply to radio/television Does not apply to HELOCs 22

23 Compliant Example 4% APR FOR THE FIRST 12 MONTHS! After first 12 months, APR will be 8.5%, subject to increase"

24 Compliant Ad Pay just 14% APR on your credit card from ABC Credit Union!(Annual fee $30; minimum monthly finance charge of $1; $2 service charge on each cash advance.)

25 Problem: Our Credit Cards have no annual fee!

26 Solution Our Credit Cards have no annual fee! 12.00% APR $25 cash advance fee. 1% Foreign Transaction fee.

27 Deferred Interest Deferred interest period must be clear and conspicuous No interest must be preceded by if paid in full Deferred interest, the deferred interest period of time and if paid in full must be stated next to: no payments no interest similar terms

28 Disclosures Appearing Apart From Ad clearly refer Link used for electronic advertisements

29 Radio and TV Ads Treated differently Annual Percentage Rate If variable rate A toll free phone number 29

30 Credit Cards All of the general Open-End Rules apply In addition Open end rules require you to disclose all applicable finance charges. For credit cards, all transaction fees are finance charges: Cash advance Balance Transfer Foreign Transaction 30

31 Credit Card Agreements If CU provides credit cards, then must: Post copy of credit card agreement Provide ability for member to request copy

32 Credit Card Application Disclosures Annual percentage rate for purchases, balance transfers, cash advances Penalty APR and when it applies How to avoid paying interest on purchases Minimum interest charge For credit card tips from the federal reserve board Fees Annual fee Transaction fees Penalty Fees Other fees How we will calculate your balance

33 Credit Card Application / Solicitation

34 Survey Question #2 Does your credit union use advertisements that include credit card rates? YES NO

35 HELOCs Special rules Disclosures are IN ADDITION to disclosures applicable to general openend loans Open-end loan secured by a consumer s dwelling, vacation or 2 nd home

36 Trigger Terms Terms from the initial disclosure: APR When the finance charges begin to accrue Method of determining the balance to be used to compute finance charges Method of determining the finance charge The amount of any charge other than a finance charge that may be imposed as part of the plan Payment terms

37 Required Disclosures Finance Charge APR, variable rate, maximum APR Membership or participation fee An estimate of fees for opening plan Balloon payment information Tax advisor information

38 More on Balloon Payments Additional required disclosures: If you promote a minimum payment that may result in a balloon payment, you must also disclose: That a balloon payment will result; and The amount and timing of the balloon payment that will result if the consumer makes only the minimum payments for the maximum period of time that the consumer is permitted to make such payments. 38

39 Terms Affirmative or negative terms we waive closing costs Misleading fixed better be

40 Problem: Our HELOCs have no annual fee and no points!!!

41 Solution 1: Our HELOCs have no annual fee and no points!!! Low variable rate of 5% APR with maximum rate of 18% APR Interest paid may be tax deductible, Please consult your tax advisor

42 Solution 2: We ve got really good deals on HELOCs; phone us for details

43 More Rules for HELOCs Minimum payment If it could, then state it will Discounted/premium/promotional rates Duration and current rate Close proximity Promotional payment Amount and time periods of applicable payments Free money a no-no

44 Home Equity Lines of Credit WRONG: 1.99% APR HELOC! *initial rate for 6 months 44

45 Home Equity Lines of Credit CORRECT: 1.99% APR HELOC for 6 months then Prime +2 (Currently 4.99% APR) 45

46 Home Equity Lines of Credit HELOC Applications If you provide an application with written or electronic ad, you must also provide: HELOC Early Disclosure HELOC Early Brochure: What You Should Know About Home Equity Lines of Credit 46

47 Survey Question #3 Does your credit union review advertisements for compliance before they are released? YES NO

48 Equal Credit Opportunity Act- Regulation B Real estate-related loan advertisements, including HELOCs, must prominently indicate that the credit union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status. Include a copy of the logotype with "Equal Housing Lender" or "Equal Housing Opportunity," Or use any other method reasonably calculated to satisfy the notice requirement

49 Problem: Which is correct?

50 Advertising Discrimination Indirectly discouraging persons from applying for credit based on a prohibited basis under Regulation B? Suppose an advertisement contains pictures of people. It is possible that someone could allege that by not including persons of a protected class in these pictures, the credit union is discouraging them from applying for credit.

51 Advertising Discrimination The commentary to Regulation B states: Practices prohibited by this section include: Use of words, symbols, models or other forms of communication in advertising that express, imply or suggest a discriminatory preference or a policy of exclusion in violation of the act. Consequently, credit unions should consider what pictures of people they include on advertisements in terms of Regulation B and fair lending 51

52 Common Fair Lending Deficiency Age-based deposit account with credit feature Senior accounts for those 50 and older

53 Problem: Super Seniors Club Members aged 55 and older receive a special newsletter, free travelers checks, and discounts on loan rates

54 Solution: Super Seniors Club Members aged 55 and older receive a special newsletter, and free travelers checks. OR Members aged 62 and older receive a special newsletter, free travelers checks, and discounts on loan rates.

55 UDAAP Unfair, Deceptive or Abusive Acts or Practices Compliance with regulations not enough Please examiners and consumers Objective to subjective 4 Ps 3 rd party relationships Footnotes

56 Unfair Acts or Practices Substantial injury; Cannot be reasonably avoided; and Injury not outweighed by benefits

57 Deceptive Act or Practice Misleads consumer; Consumer makes reasonable interpretation; and Misleading act is material

58 Abusive Act or Practice Interferes with consumer understanding the product or service; Takes advantage of: Consumer s lack of understanding; Consumer s inability to protect themselves; or Consumer s reliance on credit union acting in his/her interests

59 4 Ps Prominence Presentation Placement Proximity

60 UDAAP Look at ethical behavior versus legal requirements Something can be legal but is it ethical? That is what can get you into trouble

61 Clear as Mud Guidance? Hits every part of the product life cycle Tip of the iceberg

62 UDAAP Examples Collecting debts outside of the agreement Failure to post payments and then charging late fees Misrepresenting that the credit union is acting on behalf of the government Misrepresenting whether information about a payment would be reported to a credit bureau

63 More UDAAP Examples Police report CD renewal Increase in non-interest income sparks scrutiny Disclosures fair?

64 UDAAP Cases Bancorp Discover American Express

65 Eyes and Ears Beyond technical violations to overall fairness Can one person do it? Each department Each staff person

66 Records Retention Incorporate into your overall records retention schedule Regulation B, Z, TIS

67 Thank You John Zasada CliftonLarsonAllen, LLP