Home Equity Line of Credit Loans

Transcription

1 Home Equity Line of Credit Loans Rules and Regulations Related to Home Equity Line of Credit Lending October 20, 2014

2 Home Equity Line of Credit Loans TABLE OF CONTENTS Summary Analysis of the Final Rules 1 Detailed Analysis of the Final Rules 12 C.F.R NCUA NONDISCRIMINATION REQUIREMENTS 3 12 C.F.R. 722 NCUA APPRAISAL REQUIREMENTS 7 12 C.F.R. 760 NCUA LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS REQUIREMENTS C.F.R EQUAL CREDIT OPPORTUNITY ACT (REGULATION B) C.F.R 1007 S.A.F.E. MORTGAGE LICENSING ACT-FEDERAL REGISTRATION OF RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G) C.F.R FAIR CREDIT REPORTING (REGULATION V) C.F.R REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X) C.F.R TRUTH IN LENDING (REGULATION Z) C.F.R 1003 HOME MORTGAGE DISCLOSURE (REGULATION C) U.S.C. App b - CIVIL SERVICE RELIEF ACT 175 Compliance Implementation Checklists 177 Sample Policies 197 Model Forms 203

3 Home Equity Line of Credit Loans DISCLAIMER THE INFORMATION PROVIDED IS GENERAL INFORMATION AND IS NOT TO BE CONSIDERED LEGAL ADVICE ABOUT THE SUBJECT MATTERS COVERED OR ANY SPECIFIC LEGAL ISSUE. THE ADVICE OF AN ATTORNEY SHOULD BE OBTAINED AS APPROPRIATE TO SPECIFIC ISSUES AND FACTUAL SITUATIONS

4 Home Equity Line of Credit Loans Summary of Rules and Regulations for Granting Home Equity Line of Credit Loans HOME EQUITY LINE OF CREDIT LENDING The recent changes in the mortgage lending regulations are numerous and can be very confusing. Not all of the changes affect every type of mortgage loan and it is sometimes difficult to determine the necessary requirements for compliance. This package contains information that is specific to home equity line of credit lending. It contains the regulations that specifically apply to granting home equity line of credit loans along with compliance checklists, sample policies and sample forms. This tool can be used to enhance the credit union s home equity line of credit lending compliance efforts. 12 C.F.R NCUA NONDISCRIMINATION REQUIREMENTS Credit unions are prohibited from discriminating on the basis of the race, color, national origin, religion, sex, handicap, or familial status in connection with making or advertising a real estate related loan. Every federal credit union that engages in real estate-related lending must display a notice of nondiscrimination in the public lobby of the credit union and in the public area of each office where such loans are made so that it is clearly visible to the general public. 12 C.F.R. 722 NCUA APPRAISAL REQUIREMENTS This rule provides protection for federal financial and public policy interests in real estate-related transactions by requiring real estate appraisals used in connection with federally related transactions to be performed in writing, in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. 12 C.F.R. 760 NCUA LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS REQUIREMENTS This rule prohibits a credit union from making any loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. 12 C.F.R EQUAL CREDIT OPPORTUNITY ACT (REGULATION B) This regulation promotes the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); to the fact that all or part of the applicant's income derives from a public assistance program; or to the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The regulation also requires creditors to notify applicants of action taken on their applications; to report credit history in the names of both spouses on an account; to retain records of credit applications; to collect information about the applicant's race and other personal characteristics in applications for certain dwelling-related loans; and to provide applicants with copies of appraisal reports used in connection with credit transactions. 12 C.F.R 1007 S.A.F.E. MORTGAGE LICENSING ACT-FEDERAL REGISTRATION OF RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G) The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act) requires individual residential mortgage loan originators (MLOs) employed by the credit union to register with the Rules and Regulations for Home Equity Line of Credit Lending Page 1

5 Registry and maintain their registration as well as obtain a unique identifier through the Registry. It also requires the MLO to provide their unique identifier to consumers. Credit unions must adopt and follow written policies and procedures to assure compliance with the registration requirements and require their employees who are mortgage loan originators to comply with the requirements. The credit union also must annually conduct independent testing of their compliance with the requirements. 12 C.F.R FAIR CREDIT REPORTING (REGULATION V) The Fair Credit Reporting Act (Regulation V) promotes the accuracy, fairness, and privacy of information in the files of consumer reporting agencies. It includes requirements for users of consumer reports to provide risk based pricing notices when in connection with an application and based in whole or in part of the consumer report, provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person. It also includes requirements for a user to develop and implement reasonable policies and procedures designed to enable the user to form a reasonable belief that a consumer report relates to the consumer about whom it has requested the report when the user receives a notice of address discrepancy. This regulation also requires furnishers of consumer report information to have a system in place to receive and process notices of disputes. 12 C.F.R REAL ESTATE SETTLEMENT PROCEDURES ACT (REGULATION X) RESPA requires that borrowers receive disclosures at various times throughout the mortgage process and that the disclosures provide the costs associated with the settlement, outline lender servicing and escrow account practices, provide a list of homeownership counseling organizations and describe business relationships between settlement service providers. RESPA also prohibits a person from giving or accepting anything of value for referrals of settlement service business or from services that are not performed. 12 C.F.R TRUTH IN LENDING (REGULATION Z) The Truth in Lending Act is intended to ensure credit terms are disclosed in a meaningful way so consumers can compare credit terms more easily. All creditors must use the same credit terminology and expressions of rates. In addition to providing a uniform system for disclosures, the act also protects consumers against inaccurate and unfair credit practices as well as requirements related to appraisals. 12 C.F.R 1003 HOME MORTGAGE DISCLOSURE (REGULATION C) (OPTIONAL FOR HELOC LOANS) This regulation requires the credit union to report data to the appropriate Federal agency about home purchase loans, home improvement loans and refinancings that it originates, purchases, or for which it receives applications. It also requires the credit union to disclose certain data to the public. Note: As of this publication HMDA reporting is optional for home equity line of credit loans but there is currently a proposed rule out for comment that could change this option. 50 U.S.C. App b - CIVIL SERVICE RELIEF ACT The Civil Service Relief Act provides protections for military members as they enter active duty. It covers issues such as installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments. Rules and Regulations for Home Equity Line of Credit Lending Page 2

6 Home Equity Line of Credit Loans Rules and Regulations for Granting Home Equity Line of Credit Loans 12 C.F.R NCUA NONDISCRIMINATION REQUIREMENTS Definitions Application means an oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested. Dwelling means any building, structure, or portion thereof which is occupied as, or designed, or intended for occupancy as, a residence by one or more families and any vacant land which is offered for sale or lease for the construction or location thereon any building, structure, or portion thereof. Real Estate-Related Loan means any loan for which application to finance or refinance the purchase, construction, improvement, repair or maintenance of a dwelling. Nondiscrimination in Lending A Federal credit union may not deny a real estate-related loan, or discriminate in setting or exercising its rights pursuant to the terms or conditions of such a loan, or discourage an application for such a loan, on the basis of the race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18) of: Any applicant or joint applicant; Any person associated, in connection with a real-estate related loan application, with an applicant or joint applicant; The present or prospective owners, lessees, tenants or occupants of the dwelling for which a real estate-related loan is requested; The present or prospective owners, lessees, tenants, or occupants of other dwellings in the vicinity of the dwelling for which a real-estate related loan is requested. With regard to a real estate-related loan a federal credit union may not consider lending criteria or exercise a lending policy which has the effect of discriminating on the basis of race, color, national origin, relation, sex, handicap, or familial status (having children under the age of 18). Consideration of any of the following factors in connection with a real-estate related loan is not necessary to a federal credit union s business, generally has a discriminatory effect, and is therefore prohibited: The age or location of the dwelling; Zip code of the applicant s current residence; Previous home ownership; The age or location of dwellings in the neighborhood of the dwelling; The income level of residents in the neighborhood of the dwelling. Rules and Regulations for Home Equity Line of Credit Lending Page 3

7 Nondiscrimination in Appraisals A federal credit union may not rely upon the appraisal of a dwelling if it knows, or should know, that the appraisal is based upon consideration of the race, color, national origin, religion, sex, handicap, or familial status (having children under the age of 18) of: Any applicant or joint applicant; Any person associated, in connection with a real estate-related application, with an applicant or joint applicant; The present or prospective owners, lessees, tenants, or occupants of the dwelling for which a real estate-related loan is requested; The present or prospective owners, lessees, tenants, or occupants of other dwellings in the vicinity of the dwelling for which a real-estate-related loan is requested. A federal credit union may not rely upon an appraisal that it knows or should know is based upon consideration of any of the following criteria, as such criteria generally have a discriminatory effect, and are not necessary to a federal credit union s business: The age or location of the dwelling; The age or location of dwellings in the neighborhood of the dwelling; The income level of the residents in the neighborhood of the dwelling. It is recognized that there may be factors concerning location of the dwelling which can be properly considered in an appraisal. If any such factor is relied upon in an appraisal, it must be specifically documented in the appraisal, accompanied by a brief statement demonstrating the necessity of using such factors. Each federal credit union shall make available to any requesting member/applicant a copy of the appraisal used in connection with that member s real estate-related loan application. The appraisal shall be available for a period of 25 months after the applicant has received notice from the federal credit union of the action taken by the federal credit union on the real estaterelated loan application. Note: Please refer to regulation B for 1 st lien position appraisal requirements. Nondiscrimination in Advertising No federal credit union may engage in any form of advertising of real estate related loans that indicates the credit union discriminates on the basis of race, color, religion, national origin, sex, handicap or familial status in violation of the Fair Housing Act. Advertisements must not contain any words, symbol, models or other forms of communication that suggest a discriminatory preference or policy of exclusion in violation of the Fair Housing Act or the Equal Credit Opportunity Act. Any federal credit union that advertises real estate-related loans must prominently indicate in such advertisement in a manner appropriate to the advertising medium and format used, that the credit union makes such loans without regard to race, color, religion, national origin, sex, handicap, or familial status. With respect to written and visual advertisements, a credit union may satisfy the notice requirement by including in the advertisement: A copy of the logotype, with the legend Equal Housing Lender from the poster described in this regulation; or Rules and Regulations for Home Equity Line of Credit Lending Page 4

8 A copy of the logotype with the legend Equal Housing Opportunity from the poster described in (a) of the United States Department of Housing and Urban Development s (HUD) regulations (24 CFR (a)). With respect to oral advertisements, a credit union may satisfy the notice requirement by a spoken statement that the credit union is An Equal Housing Lender ; or An Equal Opportunity Lender. When an oral advertisement is used in conjunction with a written or visual advertisement, the use of either of the above methods will satisfy the notice requirement. A credit union may use any other method reasonably calculated to satisfy the notice requirement. Lobby Notice of Nondiscrimination Every federal credit union that engages in real estate-related lending must display a notice of nondiscrimination. The notice must be placed in the public lobby of the credit union and in the public area of each office where such loans are made and must be clearly visible to the general public. The notice must incorporate either a facsimile of the logotype and language appearing in the official poster or the logotype and language appearing at 24 CFR (a). Posters containing the required logotype and language may be obtained from the regional offices of the National Credit Union Administration. Guidelines Compliance with the Fair Housing Act is achieved when each loan applicant s creditworthiness is evaluated on an individual basis, without presuming that the applicant has certain characteristics of a group. If certain lending policies or procedures do presume group characteristics they may violate the Fair Housing Act, even though the characteristics are not based upon a prohibited basis. Such a violation occurs when otherwise facially nondiscriminatory lending procedures, either general lending policies, or specific criteria used in reviewing loan applications have the effect of making real estate loans unavailable or less available on the basis of race, color, sex, national origin, religion, handicap, or familial status. A policy or criterion which has discriminatory effect is not a violation of the Fair Housing Act if it achieves a legitimate business necessity which cannot be achieved using less discriminatory standards. It is also important to note that the Equal Opportunity Act and Regulation B prohibit discrimination either per se or in effect, on the basis of the applicant s: Age, Marital status, Receipt of public assistance, or The exercise of any rights under the Consumer Credit Protection Act. The prohibited use of location factors is intended to prevent abandonment of areas in which a federal credit union s members live or want to live. It is not intended to require loans in those areas that are geographically remote from a federal credit union s main or branch offices or that contravene the parameters of a federal credit union s charter. Further this prohibition does not preclude requiring a borrower to obtain flood insurance protection pursuant to the National Flood Insurance Act and Part 760 of NCUA s Rules and Regulations, nor does it preclude its involvement with Federal or State housing insurance programs which provide for lower interest rates for the purchase of homes in certain urban or rural areas. Also the legitimate use of location factors in an appraisal does not constitute a violation. The prohibited use of prior home ownership does not preclude a federal credit union from considering an applicant s payment history on a loan which was made to obtain a home. Such action entails consideration of the Rules and Regulations for Home Equity Line of Credit Lending Page 5

9 payment record on a previous loan in determining credit worthiness; it does not entail consideration of prior home ownership. Age of Property The prohibition against consideration of the age or location of the dwelling in a real-estate related appraisal are intended to prohibit the use of unfounded or unsubstantiated assumptions regarding the effect upon loan risk of the age of a dwelling or the physical or economic characteristics of an area. Appraisals should be based on the current market value of the property offered as security including: Considerations of specific improvement to be made by the borrower; and The likelihood that the property will retain an adequate value over the term of the loan. The term age of the dwelling does not encompass structural soundness. The age of the dwelling may be used by an appraiser as a basis for conducting further inspections of certain structural aspects of the dwelling. An unsubstantiated determination that a house over X years in age is not structurally sound, however, is prohibited. Location Factors There may be location factors which may be considered in an appraisal. The use of any such factors must be specifically documented in the appraisal. These factors will most often be those location factors which may negatively affect the short range future value (3-5 years) of a property. Factors which in some cases may cause the market value of a property to decline are recent zoning changes or a significant number of abandoned homes in the immediate vicinity of the property. However not all zoning changes will cause a decline in property values, and proximity to abandoned buildings may not affect the market value of a property because the cause of abandonment is unrelated to high risk. Proper considerations include: The condition and utility of the improvements; Various physical factors such as street conditions; Amenities such as parks and recreation areas; Availability of public utilities and municipal services; and Exposure to flooding and land faults. Rules and Regulations for Home Equity Line of Credit Lending Page 6

10 12 C.F.R NCUA APPRAISAL REQUIREMENTS Definitions Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately-described property as of a specific date(s), supported by the presentation and analysis of relevant market information. Appraisal Foundation means the Appraisal Foundation established on November 30, 1987, as a not-for-profit corporation under the laws of Illinois. Appraisal Subcommittee means the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Complex 1- to 4-Family Residential Property Appraisal means one in which the property to be appraised, the form of ownership or market conditions are atypical. Federally Related Transaction means any real estate-related financial transaction entered into on or after August 9, 1990 that: The National Credit Union Administration, or any federally insured credit union, engages in or contracts for; and Requires the services of an appraiser. Market Value means the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Real Estate or Real Property means an identified parcel or tract of land, including easements, rights of way, undivided or future interests and similar rights in a parcel or tract of land, but does not include mineral rights, timber rights, and growing crops, water rights and similar interests severable from the land when the transaction does not involve the associated parcel or tract of land. Real Estate-Related Financial Transaction means any transaction involving: The sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof; or The refinancing of real property or interests in real property; or The use of real property or interests in property as security for a loan or investment, including mortgage-backed securities. Rules and Regulations for Home Equity Line of Credit Lending Page 7

11 State-Certified Appraiser means any individual who has satisfied the requirements for certification in a state or territory whose criteria for certification as a real estate appraiser currently meet the minimum criteria for certification issued by the Appraiser Qualification Board of the Appraisal Foundation. No individual shall be a state-certified appraiser unless such individual has achieved a passing grade upon a suitable examination administered by a state or territory that is consistent with and equivalent to the Uniform State Certification Examination issued or endorsed by the Appraiser Qualification Board. In addition, the Appraisal Subcommittee must not have issued a finding that the policies, practices, or procedures of a state or territory are inconsistent with title XI of FIRREA. The National Credit Union Administration may, from time to time, impose additional qualification criteria for certified appraisers performing appraisals in connection with federally related transactions within its jurisdiction. State-Licensed Appraiser means any individual who has satisfied the requirements for licensing in a state or territory where the licensing procedures comply with title XI of FIRREA and where the Appraisal Subcommittee has not issued a finding that the policies, practices, or procedures of the State or territory are inconsistent with title XI. The NCUA may, from time to time, impose additional qualification criteria for licensed appraisers performing appraisals in connection with federally related transactions within its jurisdiction. Tract Development means a project of five units or more that is constructed or is to be constructed as a single development. Transaction Value means: For loans or other extensions of credit, the amount of the loan or extension of credit; and For sales, leases, purchases, and investments in or exchanges of real property, the market value of the real property interest involved; and For the pooling of loans or interests in real property for resale or purchase, the amount of the loan or market value of the real property calculated with respect to each such loan or interest in real property Appraisals Required; Transactions Requiring a State-Certified or Licensed Appraiser Appraisals Required An appraisal performed by a State certified or licensed appraiser is required for all real estaterelated financial transactions except those in which: The transaction value is $250,000 or less; A lien on real property has been taken as collateral through an abundance of caution and where the terms of the transaction as a consequence have not been made more favorable than they would have been in the absence of a lien; A lien on real estate has been taken for purposes other than the real estate's value; A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; The transaction involves an existing extension of credit at the credit union, provided that: o There is no advancement of new monies, other than funds necessary to cover reasonable closing costs; and o There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the credit union s real estate collateral protection after the transaction. Rules and Regulations for Home Equity Line of Credit Lending Page 8

12 The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgage-backed securities, and each loan or interest in a loan, pooled loan, or real property interest met the requirements of this regulation, if applicable, at the time of origination; The transaction is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency; The transaction either: o Qualifies for sale to a United States government agency or United States government sponsored agency; or o Involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate; or The regional director has granted a waiver from the appraisal requirement for a category of loans meeting the definition of a member business loan. Transactions Requiring a State-Certified Appraiser All federally related transactions having a transaction value of $1,000,000 or more shall require an appraisal prepared by a state-certified appraiser. All federally related transactions having a transaction value of more than $250,000, other than those involving appraisals of 1- to 4-family residential properties, shall require an appraisal prepared by a state-certified appraiser. All complex 1- to 4-family residential property appraisals rendered in connection with federally related transactions shall require a state-certified appraiser if the transaction value is $250,000 or more. A regulated institution may presume that appraisals of 1- to 4-family residential properties are not complex unless the institution has readily available information that a given appraisal will be complex. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. If, during the course of the appraisal, a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either: The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and cosign the appraisal; or The institution may engage a certified appraiser to complete the appraisal. Transactions Requiring Either a State-Certified or Licensed Appraiser All appraisals for federally related transactions not requiring the services of a state-certified appraiser shall be prepared by either a state-certified appraiser or a state-licensed appraiser. Valuation Requirement Secured transactions exempted from the appraisal requirements above and not otherwise exempted from this regulation or fully insured shall be supported by a written estimate of market value, as defined in this regulation, performed by an individual having no direct or indirect interest in the property, and qualified and experienced to perform such estimates of value for the type and amount of credit being considered. Appraisals to Address Safety and Soundness Concerns NCUA reserves the right to require an appraisal under this subpart whenever the agency believes it is necessary to address safety and soundness concerns. Rules and Regulations for Home Equity Line of Credit Lending Page 9

13 722.4 Minimum Appraisal Standards. For federally related transactions, all appraisals shall, at a minimum: Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005; Be written and contain sufficient information and analysis to support the institution's decision to engage in the transaction; Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units; Be based upon the definition of market value; and Be performed by State licensed or certified appraisers in accordance with requirements set forth above Appraiser Independence Staff Appraiser If an appraisal is prepared by a staff appraiser, that appraiser must be independent of the lending, investment, and collection functions and not involved, except as an appraiser, in the federally related transaction, and have no direct or indirect interest, financial or otherwise, in the property. If the only qualified persons available to perform an appraisal are involved in the lending, investment, or collection functions of the credit union, the credit union shall take appropriate steps to ensure that the appraisers exercise independent judgment. Such steps include, but are not limited to, prohibiting an individual from performing an appraisal in connection with federally related transactions in which the appraiser is otherwise involved. Fee Appraisers If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the credit union or its agent and have no direct or indirect interest, financial or otherwise, in the property or the transaction. A credit union also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution; if: The appraiser has no direct or indirect interest, financial or otherwise, in the property or transaction; and The credit union determines that the appraisal conforms to the requirement of this regulation and is otherwise acceptable Professional Association Membership; Competency Membership in Appraisal Organization A state-certified appraiser or a state-licensed appraiser may not be excluded from consideration for an assignment for a federally related transaction solely by virtue of membership or lack of membership in any particular appraisal organization. Competency All staff and fee appraisers performing appraisals in connection with federally related transactions must be state-certified or -licensed as appropriate. However, a state-certified or - licensed appraiser may not be considered competent solely by virtue of being certified or Rules and Regulations for Home Equity Line of Credit Lending Page 10

14 licensed. Any determination of competency shall be based upon the individual's experience and educational background as they relate to the particular appraisal assignment for which he or she is being considered Enforcement Credit unions and institution-affiliated parties, including staff appraisers and fee appraisers, may be subject to removal and/or prohibition orders, cease-and-desist orders, and the imposition of civil money penalties pursuant to section 1786 of the Federal Credit Union Act, or any other applicable law. Rules and Regulations for Home Equity Line of Credit Lending Page 11

15 12 C.F.R NCUA LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS REQUIREMENTS Definitions Building means a walled and roofed structure other than a gas or liquid storage tank that is principally above ground and affixed to a permanent site, and a walled and roofed structure while in the course of construction, alteration, or repair. Community means a State or a political subdivision of a State that has zoning and building code jurisdiction over a particular area having special flood hazards. Designated Loan means a loan secured by a building or mobile home that is located or to be located in a special flood hazard area in which flood insurance is available under the Act. Mobile Home means a structure, transportable in one or more sections that is built on a permanent chassis and designed for use with or without a permanent foundation when attached to the required utilities. The term mobile home does not include a recreational vehicle. For purposes of this rule, the term mobile home means a mobile home on a permanent foundation. The term mobile home means a manufactured home as that term is used in the National Flood Insurance Program. Servicer means the person responsible for receiving any scheduled, periodic payments from a borrower under the terms of a loan including amounts for taxes, insurance premiums, and other charges with respect to the property securing the loan; and making payments of principal and interest and any other payments from the amounts received from the borrower as may be required under the terms of the loan. Special Flood Hazard Area means the land in a flood plain within a community having at least a one percent chance of flooding in any given year as designated by the Director of FEMA. Table Funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds Requirement to Purchase Flood Insurance Where Available A credit union shall not make, increase, extend, or renew any designated loan unless the building or mobile home and any personal property securing the loan is covered by flood insurance for the term of the loan. The amount of insurance must be at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage available for the particular type of property under the Act. Flood insurance coverage under the Act is limited to the overall value of the property securing the designated loan minus the value of the land on which the property is located Exemptions The flood insurance requirements do not apply to: Any State-owned property covered under a policy of self-insurance satisfactory to the Director of FEMA, who publishes and periodically revises the list of States falling within this exemption; or Property securing any loan with an original principal balance of $5,000 or less and a repayment term of one year or less. Rules and Regulations for Home Equity Line of Credit Lending Page 12

16 760.5 Escrow Requirement If a credit union requires the escrow of taxes, insurance premiums, fees or any other charges for a loan secured by residential improved real estate or a mobile home on or after November 1, 1966, the credit union shall also require the escrow of all premiums and fees for any flood insurance required. The credit union or a servicer acting on behalf of the credit union shall deposit the flood insurance premiums on behalf of the borrower in an escrow account. This escrow account will be subject to escrow requirements adopted pursuant to section 10 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2609)(RESPA), which generally limits the amount that may be maintained in escrow accounts for certain types of loans and which requires escrow account statements for those accounts, only if the loan is otherwise subject to RESPA. Following receipt of a notice from the Director of FEMA or other provider of flood insurance that premiums are due, the credit union or a servicer acting on behalf of the credit union shall pay the amount owed to the insurance provider from the escrow account by the date when such premiums are due Required Use of Standard Flood Hazard Determination Form A credit union shall use the standard flood hazard determination form developed by the Director when determining whether the building or mobile home offered as collateral security for a loan is or will be located in a special flood hazard area in which flood insurance is available under the Act. The standard flood hazard determination form may be used in printed, computerized, or electronic manner. A credit union may obtain the standard flood hazard determination form from FEMA s Web site at A credit union shall retain a copy of the completed standard flood hazard determination form in either hard copy or electronic form for the period of time the credit union owns the loan Forced Placement of Flood Insurance If a credit union or a servicer acting on behalf of the credit union determines at any time during the term of a designated loan that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance or is covered by flood insurance in an amount less than the amount required then the credit union or its servicer shall notify the borrower that the borrower should obtain flood insurance at the borrower s expense in an amount at least equal to the amount required for the remaining term of the loan. If the borrower fails to obtain flood insurance within 45 days after notification the credit union or its servicer shall purchase insurance on the borrower s behalf. The credit union may charge the borrower for the cost of premiums and fees incurred in purchasing the insurance Determination of Fees Any credit union or a servicer acting on behalf of the credit union may charge a reasonable fee for determining whether the building or mobile home securing the loan is located, or will be located in a special flood hazard area. A determination fee may also include, but is not limited to, a fee for life of loan monitoring. Rules and Regulations for Home Equity Line of Credit Lending Page 13

17 Borrower Fee The determination fee may be charged to the borrower if the determination: Is made in connection with making, increasing, extending, or renewing of the loan that is initiated by the borrower; Reflects the Director of FEMA s revision or updating of floodplain areas or flood-risk zones; Reflects the Director of FEMA s publication of a notice or compendium that: o Affects the area in which the building or mobile home securing the loan is located; or o By determination of the Director of FEMA, may reasonably require a determination whether the building or mobile home securing the loan is located in a special flood hazard area; or Results in the purchase of flood insurance coverage by the credit union or its servicer on behalf of the borrower. Purchaser or Transferee Fee The determination fee may be charged to the purchaser or transferee of a loan in the case of the sale or transfer of the loan Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance Notice Requirement When a credit union makes, increases, extends or renews a loan secured by a building or a mobile home located or to be located in a special flood hazard area, the credit union shall mail or deliver a written notice to the borrower and to the servicer in all cases whether or not flood insurance is available under the Act for the collateral securing the loan. Contents of Notice The written notice must include the following information: A warning, in a form approved by the Director of FEMA, that the building or the mobile home is or will be located in a special flood hazard area; A description of the flood insurance purchase requirements set forth in section 102(b) of the Flood Disaster Protection Act of 1973, as amended (42 U.S a(b)); A statement, where applicable, that flood insurance is available under the National Flood Insurance Program and may also be available from private insurers; and A statement whether Federal disaster relief assistance may be available in the event of damage to the building or mobile home cause by flooding in a Federally-declared disaster. Timing of Notice The credit union shall provide the notice to the borrower within a reasonable time before completion of the transaction and to the servicer as promptly as practicable after the credit union provides notice to the borrower and in any event no later than the time the credit union provides other similar notices to the servicer concerning hazard insurance and taxes. The notice to the servicer may be made electronically or may take the form of a copy of the notice to the borrower. Record of Receipt The credit union shall retain a record of the receipt of the notices by the borrower and the servicer for the period of time the credit union owns the loan. Rules and Regulations for Home Equity Line of Credit Lending Page 14

18 Alternate Method of Notice Instead of providing the notice to the borrower, a credit union may obtain satisfactory written assurance from a seller or lessor that, within a reasonable time before the completion of the sale or lease transaction, the seller or lessor has provided such notice to the purchaser or lessee. The credit union shall retain a record of the written assurance from the seller or lessor for the period of time the credit union owns the loan. Use of Prescribed Form of Notice A credit union will be considered to be in compliance with the requirement for providing written notice to the borrower containing the language presented in the appendix to this regulation within a reasonable time before the completion of the transaction. The notice presented in the appendix to this regulation satisfies the borrower notice requirements of the Act. Notice of Servicer s Identity Notice Requirement When a credit union makes, increases, extends, renews, sells, or transfers a loan secured by a building or mobile home located or to be located in a special flood hazard area, the credit union shall notify the Director of FEMA (or the Director s designee) in writing of the identity of the servicer of the loan. The Director of FEMA has designated the insurance provider to receive the credit union s notice of the servicer s identity. This notice may be provided electronically if electronic transmission is satisfactory to the Director of FEMA s designee. Transfer of Servicing Rights The credit union shall notify the Director of FEMA (or the Director s designee) of any change in the servicer of a loan within 60 days after the effective date of the change. This notice may be provided electronically if electronic transmission is satisfactory to the Director of FEMA s designee. Upon any change in the servicing of a loan the duty to provide notice shall transfer to the transferee servicer. Rules and Regulations for Home Equity Line of Credit Lending Page 15

19 12 C.F.R EQUAL CREDIT OPPORTUNITY ACT (REGULATION B) Definitions Account means an extension of credit. When employed in relation to an account, the word use refers only to open-end credit. Act means the Equal Credit Opportunity Act (Title VII of the Consumer Credit Protection Act). Adverse Action means: A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms), and the applicant uses or expressly accepts the credit offered; A termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts; or A refusal to increase the amount of credit available to an applicant who has made an application for an increase. The term does not include: A change in the terms of an account expressly agreed to by an applicant; Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account; A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts, or when the refusal is a denial of an application for an increase in the amount of credit available under the account; A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested. An action that is included in both the definition of adverse action and included in the examples of what the term does not include is not considered to meet the definition of adverse action. Age refers only to the age of natural persons and means the number of fully elapsed years from the date of an applicant's birth. Applicant means any person who requests or who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit. The term includes guarantors, sureties, endorsers, and similar parties. Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit. Rules and Regulations for Home Equity Line of Credit Lending Page 16

20 A Completed Application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information. Business Credit refers to extensions of credit primarily for business or commercial (including agricultural) purposes, but excluding extensions of credit of the following types: Public utilities credit; Securities credit; Incidental credit; and Government credit Consumer Credit means credit extended to a natural person primarily for personal, family, or household purposes. Contractually Liable means expressly obligated to repay all debts arising on an account by reason of an agreement to that effect. Credit means the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefore. Credit Card means any card, plate, coupon book, or other single credit device that may be used from time to time to obtain money, property, or services on credit. Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor's assignee, transferee, or subrogee who so participates. For purposes of discrimination and discouragement, the term creditor also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. A person is not a creditor regarding any violation of the Act or this part committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction. The term does not include a person whose only participation in a credit transaction involves honoring a credit card. Credit Transaction means every aspect of an applicant's dealings with a creditor regarding an application for credit or an existing extension of credit (including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation, alteration, or termination of credit; and collection procedures). Discriminate Against an Applicant means to treat an applicant less favorably than other applicants. Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes, but is not limited to, an individual condominium or cooperative unit and a mobile or other manufactured home. Rules and Regulations for Home Equity Line of Credit Lending Page 17

21 Elderly means age 62 or older. Empirically Derived and Other Credit Scoring Systems means a credit scoring system that evaluates an applicant's creditworthiness mechanically, based on key attributes of the applicant and aspects of the transaction, and that determines, alone or in conjunction with an evaluation of additional information about the applicant, whether an applicant is deemed creditworthy. To qualify as an empirically derived, demonstrably and statistically sound, credit scoring system, the system must be: Based on data that are derived from an empirical comparison of sample groups or the population of creditworthy and non-creditworthy applicants who applied for credit within a reasonable preceding period of time; Developed for the purpose of evaluating the creditworthiness of applicants with respect to the legitimate business interests of the creditor utilizing the system (including, but not limited to, minimizing bad debt losses and operating expenses in accordance with the creditor's business judgment); Developed and validated using accepted statistical principles and methodology; and Periodically revalidated by the use of appropriate statistical principles and methodology and adjusted as necessary to maintain predictive ability. A creditor may use an empirically derived, demonstrably and statistically sound, credit scoring system obtained from another person or may obtain credit experience from which to develop such a system. Any such system must satisfy the criteria set forth above; if the creditor is unable during the development process to validate the system based on its own credit experience, the system must be validated when sufficient credit experience becomes available. A system that fails this validity test is no longer an empirically derived, demonstrably and statistically sound, credit scoring system for that creditor. Extend Credit and Extension of Credit means the granting of credit in any form (including, but not limited to, credit granted in addition to any existing credit or credit limit; credit granted pursuant to an open-end credit plan; the refinancing or other renewal of credit, including the issuance of a new credit card in place of an expiring credit card or in substitution for an existing credit card; the consolidation of two or more obligations; or the continuance of existing credit without any special effort to collect at or after maturity). Good Faith means honesty in fact in the conduct or transaction. Inadvertent Error means a mechanical, electronic, or clerical error that a creditor demonstrates was not intentional and occurred notwithstanding the maintenance of procedures reasonably adapted to avoid such errors. Judgmental System of Evaluating Applicants means any system for evaluating the creditworthiness of an applicant other than an empirically derived, demonstrably and statistically sound, credit scoring system. Marital Status means the state of being unmarried, married, or separated, as defined by applicable state law. The term unmarried includes persons who are single, divorced, or widowed. Rules and Regulations for Home Equity Line of Credit Lending Page 18

22 Negative Factor or Value, in Relation to the Age of Elderly Applicants means utilizing a factor, value, or weight that is less favorable regarding elderly applicants than the creditor's experience warrants or is less favorable than the factor, value, or weight assigned to the class of applicants that are not classified as elderly and are most favored by a creditor on the basis of age. Open-End Credit means credit extended under a plan in which a creditor may permit an applicant to make purchases or obtain loans from time to time directly from the creditor or indirectly by use of a credit card, check, or other device. Person means a natural person, corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association. Pertinent Element of Creditworthiness, in Relation to a Judgmental System of Evaluating Applicants, means any information about applicants that a creditor obtains and considers and that has a demonstrable relationship to a determination of creditworthiness. Prohibited Basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any state law upon which an exemption has been granted by the Bureau. State means any state, the District of Columbia, the Commonwealth of Puerto Rico, or any territory or possession of the United States. Valuation means any estimate of the value of a dwelling developed in connection with an application for credit General Rules Discrimination A credit union shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction. Discouragement A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. Written Application A creditor shall take written applications for the purchase or refinance of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling. This includes a residential structure that contains one to four units, whether or not that structure is attached to real property such as an individual condominium or cooperative unit and a mobile or other manufactured home. Form of Disclosures A creditor that provides in writing any disclosures or information required by this part must provide the disclosures in a clear and conspicuous manner and, in a form the applicant may retain. Rules and Regulations for Home Equity Line of Credit Lending Page 19

23 Disclosures in Electronic Form The disclosures required by this part that are required to be given in writing may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C et seq.). Where the disclosures required for a self test, obtaining information about sex, marital status, income from alimony, child support, separate maintenance income, information for monitoring purposes, appraisals accompany an application accessed by the applicant in electronic form, these disclosures may be provided to the applicant in electronic form on or with the application form, without regard to the consumer consent or other provisions of the E-Sign Act. Foreign-Language Disclosures Disclosures may be made in languages other than English, provided they are available in English upon request Rules Concerning Requests for Information Requests for Information Except for information about race, color, religion, national origin, sex, spouse or former spouse, marital status, income from alimony, child support, or separate maintenance, childbearing, and childrearing, a creditor may request any information in connection with a credit transaction. This paragraph does not limit or abrogate any Federal or state law regarding privacy, privileged information, credit reporting limitations, or similar restrictions on obtainable information. Required Collection of Information A creditor shall request information for monitoring purposes for credit secured by the applicant's dwelling. In addition, a creditor may obtain information required by a regulation, order, or agreement issued by, or entered into with, a court or an enforcement agency (including the Attorney General of the United States or a similar state official) to monitor or enforce compliance with the Act, this part, or other Federal or state statutes or regulations. Special-Purpose Credit A creditor may obtain information that is otherwise restricted to determine eligibility for a special purpose credit program. Limitation on Information About Race, Color, Religion, National Origin, or Sex A creditor may only inquire about the race, color, religion, national origin, or sex of an applicant or any other person in connection with a credit transaction for the purpose of conducting a selftest that meets the necessary requirements. A creditor that makes such an inquiry shall disclose orally or in writing, at the time the information is requested, that: The applicant will not be required to provide the information; The creditor is requesting the information to monitor its compliance with the Federal Equal Credit Opportunity Act; Federal law prohibits the creditor from discriminating on the basis of this information, or on the basis of an applicant's decision not to furnish the information; and If applicable, certain information will be collected based on visual observation or surname if not provided by the applicant or other person. An applicant may be requested to designate a title on an application form (such as Ms., Miss, Mr., or Mrs.) if the form discloses that the designation of a title is optional. An application form shall otherwise use only terms that are neutral as to sex. Rules and Regulations for Home Equity Line of Credit Lending Page 20

24 Except as permitted below, a creditor may not request any information concerning the spouse or former spouse of an applicant. Permissible Inquiries A creditor may request any information concerning an applicant's spouse (or former spouse) that may be requested about the applicant if: The spouse will be permitted to use the account; The spouse will be contractually liable on the account; The applicant is relying on the spouse's income as a basis for repayment of the credit requested; The applicant resides in a community property state or is relying on property located in such a state as a basis for repayment of the credit requested; or The applicant is relying on alimony, child support, or separate maintenance payments from a spouse or former spouse as a basis for repayment of the credit requested. Other Accounts of the Applicant A creditor may request that an applicant list any account on which the applicant is contractually liable and to provide the name and address of the person in whose name the account is held. A creditor may also ask an applicant to list the names in which the applicant has previously received credit. Other Limitations on Information Request - Marital Status If an applicant applies for individual unsecured credit, a creditor shall not inquire about the applicant's marital status unless the applicant resides in a community property state or is relying on property located in such a state as a basis for repayment of the credit requested. If an application is for other than individual unsecured credit, a creditor may inquire about the applicant's marital status, but shall use only the terms married, unmarried, and separated. A creditor may explain that the category unmarried includes single, divorced, and widowed persons. Disclosure About Income from Alimony, Child Support, or Separate Maintenance A creditor shall not inquire whether income stated in an application is derived from alimony, child support, or separate maintenance payments unless the creditor discloses to the applicant that such income need not be revealed if the applicant does not want the creditor to consider it in determining the applicant's creditworthiness. Childbearing, Childrearing A creditor shall not inquire about birth control practices, intentions concerning the bearing or rearing of children, or capability to bear children. A creditor may inquire about the number and ages of an applicant's dependents or about dependent-related financial obligations or expenditures, provided such information is requested without regard to sex, marital status, or any other prohibited basis. Permanent Residency and Immigration Status A creditor may inquire about the permanent residency and immigration status of an applicant or any other person in connection with a credit transaction. Rules and Regulations for Home Equity Line of Credit Lending Page 21

25 Rules Concerning Evaluation of Applications General Rule Concerning Use of Information Except as otherwise provided in the Act and this part, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis. The legislative history of the Act indicates that the Congress intended an effects test concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a creditor's determination of creditworthiness. Age, Receipt of Public Assistance Except as permitted in this paragraph, a creditor shall not take into account an applicant's age, (provided that the applicant has the capacity to enter into a binding contract), or whether an applicant's income derives from any public assistance program: In an empirically derived, demonstrably and statistically sound, credit scoring system, a creditor may use an applicant's age as a predictive variable, provided that the age of an elderly applicant is not assigned a negative factor or value. In a judgmental system of evaluating creditworthiness, a creditor may consider an applicant's age or whether an applicant's income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness. In any system of evaluating creditworthiness, a creditor may consider the age of an elderly applicant when such age is used to favor the elderly applicant in extending credit. Childbearing, Childrearing In evaluating creditworthiness, a creditor shall not make assumptions or use aggregate statistics relating to the likelihood that any category of persons will bear or rear children or will, for that reason, receive diminished or interrupted income in the future. Telephone Listing A creditor shall not take into account whether there is a telephone listing in the name of an applicant for consumer credit but may take into account whether there is a telephone in the applicant's residence. Income A creditor shall not discount or exclude from consideration the income of an applicant or the spouse of an applicant because of a prohibited basis or because the income is derived from part-time employment or is an annuity, pension, or other retirement benefit; a creditor may consider the amount and probable continuance of any income in evaluating an applicant's creditworthiness. When an applicant relies on alimony, child support, or separate maintenance payments in applying for credit, the creditor shall consider such payments as income to the extent that they are likely to be consistently made. Credit History To the extent that a creditor considers credit history in evaluating the creditworthiness of similarly qualified applicants for a similar type and amount of credit, in evaluating an applicant's creditworthiness a creditor shall consider: The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use or for which both are contractually liable; On the applicant's request, any information the applicant may present that tends to indicate the credit history being considered by the creditor does not accurately reflect the applicant's creditworthiness; and Rules and Regulations for Home Equity Line of Credit Lending Page 22

26 On the applicant's request, the credit history, when available, of any account reported in the name of the applicant's spouse or former spouse that the applicant can demonstrate accurately reflects the applicant's creditworthiness. Immigration Status A creditor may consider the applicant's immigration status or status as a permanent resident of the United States, and any additional information that may be necessary to ascertain the creditor's rights and remedies regarding repayment. Marital Status Except as otherwise permitted or required by law, a creditor shall evaluate married and unmarried applicants by the same standards; and in evaluating joint applicants, a creditor shall not treat applicants differently based on the existence, absence, or likelihood of a marital relationship between the parties. Race, Color, Religion, National Origin, Sex Except as otherwise permitted or required by law, a creditor shall not consider race, color, religion, national origin, or sex (or an applicant's or other person's decision not to provide the information) in any aspect of a credit transaction. State Property Laws A creditor's consideration or application of state property laws directly or indirectly affecting creditworthiness does not constitute unlawful discrimination for the purposes of the Act or this part Rules Concerning Extensions of Credit Individual accounts A creditor shall not refuse to grant an individual account to a creditworthy applicant on the basis of sex, marital status, or any other prohibited basis. Designation of Name A creditor shall not refuse to allow an applicant to open or maintain an account in a birth-given first name and a surname that is the applicant's birth-given surname, the spouse's surname, or a combined surname. Action Concerning Existing Open-End Accounts - Limitations In the absence of evidence of the applicant's inability or unwillingness to repay, a creditor shall not take any of the following actions regarding an applicant who is contractually liable on an existing open-end account on the basis of the applicant's reaching a certain age or retiring or on the basis of a change in the applicant's name or marital status: Require a reapplication, except as provided below; Change the terms of the account; or Terminate the account. Requiring Reapplication A creditor may require a reapplication for an open-end account on the basis of a change in the marital status of an applicant who is contractually liable if the credit granted was based in whole or in part on income of the applicant's spouse and if information available to the creditor indicates that the applicant's income may not support the amount of credit currently available. Rules and Regulations for Home Equity Line of Credit Lending Page 23

27 Signature of Spouse or Other Person - Rule for Qualified Applicant Except as provided below, a creditor shall not require the signature of an applicant's spouse or other person, other than a joint applicant, on any credit instrument if the applicant qualifies under the creditor's standards of creditworthiness for the amount and terms of the credit requested. A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit. Unsecured Credit If an applicant requests unsecured credit and relies in part upon property that the applicant owns jointly with another person to satisfy the creditor's standards of creditworthiness, the creditor may require the signature of the other person only on the instrument(s) necessary, or reasonably believed by the creditor to be necessary, under the law of the state in which the property is located, to enable the creditor to reach the property being relied upon in the event of the death or default of the applicant. Unsecured Credit - Community Property States If a married applicant requests unsecured credit and resides in a community property state, or if the applicant is relying on property located in such a state, a creditor may require the signature of the spouse on any instrument necessary, or reasonably believed by the creditor to be necessary, under applicable state law to make the community property available to satisfy the debt in the event of default if: Applicable state law denies the applicant power to manage or control sufficient community property to qualify for the credit requested under the creditor's standards of creditworthiness; and The applicant does not have sufficient separate property to qualify for the credit requested without regard to community property. Secured Credit If an applicant requests secured credit, a creditor may require the signature of the applicant's spouse or other person on any instrument necessary, or reasonably believed by the creditor to be necessary, under applicable state law to make the property being offered as security available to satisfy the debt in the event of default, for example, an instrument to create a valid lien, pass clear title, waive inchoate rights, or assign earnings. Additional Parties If, under a creditor's standards of creditworthiness, the personal liability of an additional party is necessary to support the credit requested, a creditor may request a cosigner, guarantor, endorser, or similar party. The applicant's spouse may serve as an additional party, but the creditor shall not require that the spouse be the additional party. Rights of Additional Parties A creditor shall not impose requirements upon an additional party that the creditor is prohibited from imposing upon an applicant under this section. Insurance A creditor shall not refuse to extend credit and shall not terminate an account because credit life, health, accident, disability, or other credit-related insurance is not available on the basis of the applicant's age. Rules and Regulations for Home Equity Line of Credit Lending Page 24

28 Special Purpose Credit Programs Standards for programs Subject to certain requirements, the Act and this part permit a creditor to extend special purpose credit to applicants who meet eligibility requirements under the following types of credit programs: Any credit assistance program expressly authorized by Federal or state law for the benefit of an economically disadvantaged class of persons; Any credit assistance program offered by a not-for-profit organization, as defined under section 501(c) of the Internal Revenue Code of 1954, as amended, for the benefit of its members or for the benefit of an economically disadvantaged class of persons; or Any special purpose credit program offered by a for-profit organization, or in which such an organization participates to meet special social needs, if: o The program is established and administered pursuant to a written plan that identifies the class of persons that the program is designed to benefit and sets forth the procedures and standards for extending credit pursuant to the program; and o The program is established and administered to extend credit to a class of persons who, under the organization's customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit. All the provisions of this part apply to each of the special purpose credit programs described above except as modified by this section. Common Characteristics The programs described above including any credit assistance program offered by a not-forprofit organization, as defined under section 501(c) of the Internal Revenue Code of 1954, as amended, for the benefit of its members or for the benefit of an economically disadvantaged class of persons; or any special purpose credit program offered by a for-profit organization, or in which such an organization participates to meet special social needs qualifies as a special purpose credit program only if it was established and is administered so as not to discriminate against an applicant on any prohibited basis; however, all program participants may be required to share one or more common characteristics (for example, race, national origin, or sex) so long as the program was not established and is not administered with the purpose of evading the requirements of the Act or this part. Special Rule Concerning Requests and Use of Information If participants in a special purpose credit program described as: Any credit assistance program expressly authorized by Federal or state law for the benefit of an economically disadvantaged class of persons; Any credit assistance program offered by a not-for-profit organization, as defined under section 501(c) of the Internal Revenue Code of 1954, as amended, for the benefit of its members or for the benefit of an economically disadvantaged class of persons; or Any special purpose credit program offered by a for-profit organization, or in which such an organization participates to meet special social needs, if: o The program is established and administered pursuant to a written plan that identifies the class of persons that the program is designed to benefit and sets forth the procedures and standards for extending credit pursuant to the program; and Rules and Regulations for Home Equity Line of Credit Lending Page 25

29 o The program is established and administered to extend credit to a class of persons who, under the organization's customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit. A creditor may request and consider information regarding the common characteristic(s) in determining the applicant's eligibility for the program. Special Rule in the Case of Financial Need If financial need is one of the criteria under a special purpose credit program described above, the creditor may request and consider, in determining an applicant's eligibility for the program, information regarding the applicant's marital status; alimony, child support, and separate maintenance income; and the spouse's financial resources. In addition, a creditor may obtain the signature of an applicant's spouse or other person on an application or credit instrument relating to a special purpose credit program if the signature is required by Federal or state law Notifications Notification of Action Taken, ECOA Notice, and Statement of Specific Reasons When Notification is Required A creditor shall notify an applicant of action taken within: 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application; 30 days after taking adverse action on an incomplete application, unless proper notice is provided as discussed below; or 30 days after taking adverse action on an existing account; or 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. Content of Notification When Adverse Action is Taken A notification given to an applicant when adverse action is taken shall be in writing and shall contain a statement of the action taken; the name and address of the creditor; a statement of the provisions of section 701(a) of the Act; the name and address of the Federal agency that administers compliance with respect to the creditor; and either: A statement of specific reasons for the action taken; or A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation. Notification to Business Credit Applicants For business credit, a creditor shall comply with the notification requirements of this section in the following manner: With regard to a business that had gross revenues of $1 million or less in its preceding fiscal year (other than an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit), a creditor shall comply with the timing and content of notification requirements above except that: Rules and Regulations for Home Equity Line of Credit Lending Page 26

30 o The statement of the action taken may be given orally or in writing, when adverse action is taken; o Disclosure of an applicant's right to a statement of reasons may be given at the time of application, instead of when adverse action is taken, provided the disclosure contains the following information: A disclosure of the applicant's right to a statement of specific reasons within 30 days, if the statement is requested within 60 days of the creditor's notification. The disclosure shall include the name, address, and telephone number of the person or office from which the statement of reasons can be obtained. If the creditor chooses to provide the reasons orally, the creditor shall also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation; and The ECOA notice - The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law concerning this creditor is [name and address as specified by the appropriate agency or agencies listed in Appendix A of this regulation. o For an application made entirely by telephone, a creditor satisfies the requirements by an oral statement of the action taken and of the applicant's right to a statement of reasons for adverse action. With regard to a business that had gross revenues in excess of $1 million in its preceding fiscal year or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, a creditor shall: o Notify the applicant, within a reasonable time, orally or in writing, of the action taken; and o Provide a written statement of the reasons for adverse action and the ECOA notice if the applicant makes a written request for the reasons within 60 days of the creditor's notification. Form of ECOA Notice and Statement of Specific Reasons ECOA Notice To satisfy the disclosure requirements regarding section 701(a) of the Act, the creditor shall provide a notice that is substantially similar to the following: The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law concerning this creditor is [name and address as specified by the appropriate agency or agencies listed in appendix A of this regulation]. Statement of Specific Reasons The statement of reasons for adverse action required must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the Rules and Regulations for Home Equity Line of Credit Lending Page 27

31 creditor's internal standards or policies or that the applicant, joint applicant, or similar party failed to achieve a qualifying score on the creditor's credit scoring system are insufficient. Incomplete Applications Within 30 days after receiving an application that is incomplete regarding matters that an applicant can complete, the creditor shall notify the applicant either: Of action taken: o 30 days after receiving a completed application concerning the creditor's approval of, counteroffer to, or adverse action on the application; o 30 days after taking adverse action on an incomplete application, unless the notice below is provided to the applicant; o 30 days after taking adverse action on an existing account; or o 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. Of the incompleteness, as follows, the creditor shall send a written notice to the applicant: o Specifying the information needed; o Designating a reasonable period of time for the applicant to provide the information; and o Informing the applicant that failure to provide the information requested will result in no further consideration being given to the application; o If the applicant fails to respond within the designated time period the credit shall have no further obligation; o If the applicant supplies the requested information within the designated time period, the creditor shall take action on the application and notify the applicant as follows: 30 days after receiving a completed application concerning the creditor s approval of, counteroffer to, or adverse action on the application; 30 days after taking adverse action on an incomplete application, unless notice is provided as required above; 30 days after taking adverse action on an existing account; or 90 days after notifying the applicant of a counteroffer, if the applicant does not expressly accept or use the credit offered. Oral Request for Information At its option, a creditor may inform the applicant orally of the need for additional information. If the application remains incomplete the creditor shall send a notice of action taken or of the incompleteness as discussed above. Oral Notifications by Small-Volume Creditors In the case of a creditor that did not receive more than 150 applications during the preceding calendar year, the requirements of this section (including statements of specific reasons) are satisfied by oral notifications. Withdrawal of Approved Application When an applicant submits an application and the parties contemplate that the applicant will inquire about its status, if the creditor approves the application and the applicant has not inquired within 30 days after applying, the creditor may treat the application as withdrawn and need not provide the notification of action take. Rules and Regulations for Home Equity Line of Credit Lending Page 28

32 Multiple Applicants When an application involves more than one applicant, notification need only be given to one of them but must be given to the primary applicant where one is readily apparent. Applications Submitted Through a Third Party When an application is made on behalf of an applicant to more than one creditor and the applicant expressly accepts or uses credit offered by one of the creditors, notification of action taken by any of the other creditors is not required. If no credit is offered or if the applicant does not expressly accept or use the credit offered, each creditor taking adverse action must comply with this section, directly or through a third party. A notice given by a third party shall disclose the identity of each creditor on whose behalf the notice is given Furnishing of Credit Information A creditor that furnishes credit information shall designate: Any new account to reflect the participation of both spouses if the applicant's spouse is permitted to use or is contractually liable on the account (other than as a guarantor, surety, endorser, or similar party); and Any existing account to reflect such participation within 90 days after receiving a written request to do so from one of the spouses. If a creditor furnishes credit information to a consumer reporting agency concerning an account designated to reflect the participation of both spouses, the creditor shall furnish the information in a manner that will enable the agency to provide access to the information in the name of each spouse. If a creditor furnishes credit information in response to an inquiry, concerning an account designated to reflect the participation of both spouses, the creditor shall furnish the information in the name of the spouse about whom the information is requested Relation to State Law Inconsistent State Laws Except as otherwise provided in this section, this part alters, affects, or preempts only those state laws that are inconsistent with the Act and this part and then only to the extent of the inconsistency. A state law is not inconsistent if it is more protective of an applicant. Preempted Provisions of State Law A state law is deemed to be inconsistent with the requirements of the Act and this part and less protective of an applicant within the meaning of section 705(f) of the Act to the extent that the law: Requires or permits a practice or act prohibited by the Act or this part; Prohibits the individual extension of consumer credit to both parties to a marriage if each spouse individually and voluntarily applies for such credit; Prohibits inquiries or collection of data required to comply with the Act or this part; Prohibits asking about or considering age in an empirically derived, demonstrably and statistically sound, credit scoring system to determine a pertinent element of creditworthiness, or to favor an elderly applicant; or Prohibits inquiries necessary to establish or administer a special purpose credit program. A creditor, state, or other interested party may request that the Bureau determine whether a state law is inconsistent with the requirements of the Act and this part. Rules and Regulations for Home Equity Line of Credit Lending Page 29

33 Laws on Finance Charges, Loan Ceilings If married applicants voluntarily apply for and obtain individual accounts with the same creditor, the accounts shall not be aggregated or otherwise combined for purposes of determining permissible finance charges or loan ceilings under any Federal or state law. Permissible loan ceiling laws shall be construed to permit each spouse to become individually liable up to the amount of the loan ceilings, less the amount for which the applicant is jointly liable. This section does not alter or annul any provision of state property laws, laws relating to the disposition of decedents' estates, or Federal or state banking regulations directed only toward insuring the solvency of financial institutions. Exemption for State-Regulated Transactions A state may apply to the Bureau for an exemption from the requirements of the Act and this part for any class of credit transactions within the state. The Bureau will grant such an exemption if the Bureau determines that: The class of credit transactions is subject to state law requirements substantially similar to those of the Act and this part or that applicants are afforded greater protection under state law; and There is adequate provision for state enforcement. No exemption will extend to the civil liability provisions of section 706 of the Act or the administrative enforcement provisions of section 704 of the Act. After an exemption has been granted, the requirements of the applicable state law (except for additional requirements not imposed by Federal law) will constitute the requirements of the Act and this part Record Retention Retention of Prohibited Information A creditor may retain in its files information that is prohibited by the Act or this part for use in evaluating applications, without violating the Act or this part, if the information was obtained: From any source prior to March 23, 1977; From consumer reporting agencies, an applicant, or others without the specific request of the creditor; or As required to monitor compliance with the Act and this part or other Federal or state statutes or regulations. Preservation of Records Applications For 25 months (12 months for business credit, except as provided below under Special rule for certain business credit applications) after the date that a creditor notifies an applicant of action taken on an application or of incompleteness, the creditor shall retain in original form or a copy thereof: Any application that it receives, any information required to be obtained concerning characteristics of the applicant to monitor compliance with the Act and this part or other similar law, and any other written or recorded information used in evaluating the application and not returned to the applicant at the applicant's request; Rules and Regulations for Home Equity Line of Credit Lending Page 30

34 A copy of the following documents if furnished to the applicant in written form (or, if furnished orally, any notation or memorandum made by the creditor): o The notification of action taken; and o The statement of specific reasons for adverse action; and o Any written statement submitted by the applicant alleging a violation of the Act or this part. Existing Accounts For 25 months (12 months for business credit, except as provided below under Special rule for certain business credit applications) after the date that a creditor notifies an applicant of adverse action regarding an existing account, the creditor shall retain as to that account, in original form or a copy thereof: Any written or recorded information concerning the adverse action; and Any written statement submitted by the applicant alleging a violation of the Act or this part. Other Applications For 25 months (12 months for business credit, except as provided below under Special rule for certain business credit applications) after the date that a creditor receives an application for which the creditor is not required to comply with the notification requirements the creditor shall retain all written or recorded information in its possession concerning the applicant, including any notation of action taken. Enforcement Proceedings and Investigations A creditor shall retain the information beyond 25 months (12 months for business credit, except as provided below under Special rule for certain business credit applications) if the creditor has actual notice that it is under investigation or is subject to an enforcement proceeding for an alleged violation of the Act or this part, by the Attorney General of the United States or by an enforcement agency charged with monitoring that creditor's compliance with the Act and this part, or if it has been served with notice of an action filed pursuant to section 706 of the Act and of this regulation. The creditor shall retain the information until final disposition of the matter, unless an earlier time is allowed by order of the agency or court. Special Rule for Certain Business Credit Applications With regard to a business that had gross revenues in excess of $1 million in its preceding fiscal year, or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, the creditor shall retain records for at least 60 days after notifying the applicant of the action taken. If within that time period the applicant requests in writing the reasons for adverse action or that records be retained, the creditor shall retain records for 12 months. Self-Tests For 25 months after a self-test has been completed, the creditor shall retain all written or recorded information about the self-test. A creditor shall retain information beyond 25 months if it has actual notice that it is under investigation or is subject to an enforcement proceeding for an alleged violation, or if it has been served with notice of a civil action. In such cases, the creditor shall retain the information until final disposition of the matter, unless an earlier time is allowed by the appropriate agency or court order. Rules and Regulations for Home Equity Line of Credit Lending Page 31

35 Prescreened Solicitations For 25 months after the date on which an offer of credit is made to potential customers (12 months for business credit, except as provided above under Special rule for certain business credit applications) the creditor shall retain in original form or a copy thereof: The text of any prescreened solicitation; The list of criteria the creditor used to select potential recipients of the solicitation; and Any correspondence related to complaints (formal or informal) about the solicitation Information for Monitoring Purposes Information to be Requested A credit union that receives an application for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling, shall request as part of the application the following information regarding the applicant(s): Ethnicity, using the categories Hispanic or Latino, and not Hispanic or Latino; and race, using the categories American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, and White; Sex; Marital status, using the categories married, unmarried, and separated; and Age. Questions regarding ethnicity, race, sex, marital status, and age may be listed, at the creditor's option, on the application form or on a separate form that refers to the application. The applicant(s) shall be asked but not required to supply the requested information. If the applicant(s) chooses not to provide the information or any part of it, that fact shall be noted on the form. The creditor shall then also note on the form, to the extent possible, the ethnicity, race, and sex of the applicant(s) on the basis of visual observation or surname. The credit union shall inform the applicant(s) that the information regarding ethnicity, race, sex, marital status, and age is being requested by the Federal Government for the purpose of monitoring compliance with Federal statutes that prohibit creditors from discriminating against applicants on those bases. The creditor shall also inform the applicant(s) that if the applicant(s) chooses not to provide the information, the creditor is required to note the ethnicity, race and sex on the basis of visual observation or surname. A monitoring program required by an agency charged with administrative enforcement under section 704 of the Act may be substituted for the requirements above Rules on Providing Appraisals and Other Valuations A credit union is required to provide an applicant with a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. The credit union is also required to mail or deliver to an applicant a notice in writing of the applicant s right to receive a copy of all written appraisals developed in connection with the application. If the credit union is making home equity line of credit loans secured by a first lien on a dwelling it is required to comply with these requirements. Requirements A credit union shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling. This is required whether the credit is extended, denied or if the application is Rules and Regulations for Home Equity Line of Credit Lending Page 32

36 incomplete or withdrawn. The credit union shall provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or at account opening (for open-end credit), whichever is earlier. These copies may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C et seq). Waiver An applicant may waive the timing requirement and agree to receive any copy at or before consummation or account opening, except where otherwise prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening unless the waiver pertains solely to the applicant s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the credit union must provide these copies no later than 30 days after the credit union determines consummation will not occur or the account will not be opened. Required Disclosure A credit union shall mail or deliver to an applicant not later than the third business day after the credit union receives an application for credit that is to be secured by a first lien on a dwelling a notice in writing of the applicant s right to receive a copy of all written appraisals developed in connection with the application. In the case of an application for credit that is not to be secured by a first lien on a dwelling at the time of application, if the credit union later determines the credit will be secured by a first lien on a dwelling, the credit union shall mail or deliver the same notice in writing not later than the third business day after the credit union determines that the loan is to be secured by a first lien on a dwelling. Reimbursement A credit union shall not charge an applicant for providing a copy of appraisals and other written valuations, but may require applicants to pay a reasonable fee to reimburse the credit union for the cost of the appraisal or other written valuation, unless otherwise provided by law Incentives for Self-Testing and Self-Correction Voluntary Self-Testing and Correction The report or results of a self-test that a creditor voluntarily conducts (or authorizes) are privileged as provided in this section. Data collection required by law or by any governmental authority is not a voluntary self-test. Corrective Action Required The privilege in this section applies only if the creditor has taken or is taking appropriate corrective action. Other Privileges The privilege created by this section does not preclude the assertion of any other privilege that may also apply. Self-Test defined A self-test is any program, practice, or study that: Is designed and used specifically to determine the extent or effectiveness of a creditor's compliance with the Act or this part; and Rules and Regulations for Home Equity Line of Credit Lending Page 33

37 Creates data or factual information that is not available and cannot be derived from loan or application files or other records related to credit transactions. Types of Information - Privileged The privilege under this section applies to the report or results of the self-test, data or factual information created by the self-test, and any analysis, opinions, and conclusions pertaining to the self-test report or results. The privilege covers workpapers or draft documents as well as final documents. Types of Information - Not Privileged The privilege under this section does not apply to: Information about whether a creditor conducted a self-test, the methodology used or the scope of the self-test, the time period covered by the self-test, or the dates it was conducted; or Loan and application files or other business records related to credit transactions, and information derived from such files and records, even if the information has been aggregated, summarized, or reorganized to facilitate analysis. Appropriate Corrective Action For the privilege in this section to apply, appropriate corrective action is required when the selftest shows that it is more likely than not that a violation occurred, even though no violation has been formally adjudicated. Determining the Scope of Appropriate Corrective Action A creditor must take corrective action that is reasonably likely to remedy the cause and effect of a likely violation by: Identifying the policies or practices that are the likely cause of the violation; and Assessing the extent and scope of any violation. Types of Relief Appropriate corrective action may include both prospective and remedial relief, except that to establish a privilege under this section: A creditor is not required to provide remedial relief to a tester used in a self-test; A creditor is only required to provide remedial relief to an applicant identified by the selftest as one whose rights were more likely than not violated; and A creditor is not required to provide remedial relief to a particular applicant if the statute of limitations applicable to the violation expired before the creditor obtained the results of the self-test or the applicant is otherwise ineligible for such relief. No Admission of Violation Taking corrective action is not an admission that a violation occurred. Scope of Privilege The report or results of a privileged self-test may not be obtained or used: By a government agency in any examination or investigation relating to compliance with the Act or this part; or By a government agency or an applicant (including a prospective applicant who alleges a violation due to discouragement) in any proceeding or civil action in which a violation of the Act or this part is alleged. Rules and Regulations for Home Equity Line of Credit Lending Page 34

38 Loss of Privilege The report or results of a self-test are not privileged if the creditor or a person with lawful access to the report or results: Voluntarily discloses any part of the report or results, or any other information privileged under this section, to an applicant or government agency or to the public; Discloses any part of the report or results, or any other information privileged under this section, as a defense to charges that the creditor has violated the Act or regulation; or Fails or is unable to produce written or recorded information about the self-test when the information is needed to determine whether the privilege applies. This paragraph does not limit any other penalty or remedy that may be available for a violation of records retention requirements. Limited Use of Privileged Information The self-test report or results and any other information privileged under this section may be obtained and used by an applicant or government agency solely to determine a penalty or remedy after a violation of the Act or this part has been adjudicated or admitted. Disclosures for this limited purpose may be used only for the particular proceeding in which the adjudication or admission was made. Information disclosed under this paragraph remains privileged. Rules and Regulations for Home Equity Line of Credit Lending Page 35

39 12 C.F.R SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT, (S.A.F.E. ACT) -FEDERAL REGISTRATION OF RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G) Definitions Administrative or Clerical Tasks means the receipt, collection and distribution of information common for the processing or underwriting of a loan in the residential mortgage industry and communication with a consumer to obtain information necessary for the processing or underwriting of a residential mortgage loan. Annual Renewal Period means November 1 through December 31 of each year. Bureau means the Bureau of Consumer Financial Protection. Covered Financial Institution means any federally insured credit union and any non-federally insured credit union. Mortgage Loan Originator means an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. Mortgage Loan Originator does not include: An individual who performs purely administrative or clerical tasks on behalf of a mortgage loan originator; An individual who performs real estate brokerage activities (as defined in 12 U.S.C. 5102(4)(D)) and is licensed or registered as a real estate broker in accordance with applicable state law unless the individual is compensated by: o A lender, mortgage broker or other mortgage loan originator; or o Any agent of such lender, mortgage broker or other mortgage loan originator and meets the definition of mortgage loan originator; or An individual or entity solely involved in extensions of credit related to timeshare plans as that term is defined in 11 U.S.C.101(53D). Nationwide Mortgage Licensing System and Registry or Registry means the system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the state licensing and registration of statelicensed mortgage loan originators and the registration of mortgage loan originators pursuant to 12 U.S.C Registered Mortgage Loan Originator or Registrant means an individual who meets the definition of mortgage loan originator and is an employee of a covered financial institution and is registered pursuant to this part with, and maintains a unique identifier through the Registry. Unique Identifier means a number or other identifier that: Permanently identifies a registered mortgage loan originator; Is assigned by protocols established by the Nationwide Mortgage Licensing System and Registry and the Bureau to facilitate: o Electronic tracking of mortgage loan originators; and Rules and Regulations for Home Equity Line of Credit Lending Page 36

40 o o Uniform identification of, and public access to the employment history of, and the publicly adjudicated disciplinary actions, and enforcement actions against mortgage loan originators; and Must not be used for purposes other than those set forth under the S.A.F.E. Act. Residential Mortgage Loan means any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 103(v) of the truth in Lending Act, 15 U.S.C. 1602(v)) or residential real estate upon which is constructed or intended to be constructed a dwelling, and includes: Refinancing, Reverse mortgages, Home equity lines of credit, and Other first and additional lien loans that meet the qualifications in this definition Coverage This rule applies to any federally insured or non federally insured credit union and its employees, including volunteers who act as mortgage loan originators. A non federally insured credit union in a state identified on the National Credit Union Administration s Web site (NCUA.gov) as one where the appropriate state supervisory authority has executed a Memorandum of Understanding (MOU) with the National Credit Union Administration may register under this rule provided that: Any Nationwide Mortgage Licensing System and Registry listing of the non-federally insured credit union and its employees contains a clear and conspicuous statement that the non-federally insured credit union is not insured by the National Credit Union Share Insurance Fund; and The state supervisory authority where the non-federally insured credit union is located maintains an agreement with the National Credit Union Administration for this registration process and oversight. If the state supervisory authority where the non-federally insured credit union is located fails to maintain an agreement with the National Credit Union Administration for this registration process and oversight, the non-federally insured credit union and its employees in that state may not register or maintain registration under the Federal system. They instead must use the appropriate state licensing and registration system, or if the state does not have such a licensing and registration system, they must use the licensing and registration system established by the Bureau for mortgage loan originators and their employees. De Minimis Exception This part and the requirements of 12.U.S.C. 5103(a)(1)(A and (2) of the S.A.F.E Act do not apply to any employee of a credit union who has never been registered or licensed through the Registry as a mortgage loan originator if during the past 12 months the employee acted as a mortgage loan originator for 5 or fewer residential mortgage loans. Prior to engaging in mortgage loan origination activity that exceeds the exception limit an employee must register with the Registry. Credit unions are prohibited from engaging in any act or practice to evade the limits of the de minimis exception. Rules and Regulations for Home Equity Line of Credit Lending Page 37

41 Registration Requirements Each employee of a credit union who acts as a mortgage loan originator must register with the Registry, obtain a unique identifier, and maintain this registration in accordance with the requirements. Any employee who is not in compliance with the registration and unique identifier requirements is in violation of the S.A.F.E. Act. A credit union that employs one or more individuals who act as a residential mortgage loan originator must require each such employee to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements. A credit union must not permit an employee who is subject to the registration requirements to act as a mortgage loan originator for the credit union unless such employee is registered with the Registry pursuant to this part. If an employee of a credit union was registered or licensed through, and obtained a unique identifier from, the Registry and has maintained this registration or license before the employee becomes subject to these requirements at the current credit union, then the registration requirements of the S.A.F.E. Act are deemed to be met, provided that: The employment information is updated including: o o The principal business location address and business contact information; and The financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the credit union; and The employee registering as a mortgage loan originator or renewing or updating his or her registration and not the employing credit union or other employees of the credit union must: o o o Authorize the Registry and the employing credit union to obtain information related to sanctions or findings in any administrative, civil, or criminal action, to which the employee is party, made by any governmental jurisdiction; Attest to the correctness of the information submitted by the employee or on behalf of the employee by the credit union to the Registry; and Authorize the Registry to make available to the public the following required employee information: Name and any other names used; Principal business location address and business contact information; Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the credit union; Convictions of any criminal offense involving dishonesty, breach of trust, or money laundering against the employee or organizations controlled by the employee, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense(s); Civil judicial actions against the employee in connection with financial services-related activities, dismissals with settlements, or judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement; Actions or orders by a state or Federal regulatory agency or foreign financial regulatory authority that: Found the employee to have made a false statement or omission or been dishonest, unfair or unethical; Rules and Regulations for Home Equity Line of Credit Lending Page 38

42 Found the employee to have been involved in a violation of a financial services-related regulation or statute; or Found the employee to have been a cause of a financial servicesrelated business having its authorization to do business denied, suspended, revoked, or restricted; Are entered against the employee in connection with a financial services-related activity; Denied suspended, or revoked the employee s registration or license to engage in a financial services-related activity; Disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee s activities; or Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business. Final orders issued by a state or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct; Revocation or suspension of the employee s authorization to act as an attorney, accountant, or state or Federal contractor; Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements, or which resulted in a judgment. New fingerprints of the employee are submitted to the Registry for a background check, unless the employee has fingerprints on file with the Registry that are less than 3 years old; The credit union information is submitted to the Registry unless the credit union has previously submitted this information to the Registry including: o The name of the credit union; o The main office address; o Business contact information; o Internal revenue Service Employer Tax Identification Number (EIN); o Research Statistics Supervision and Discount (RSSD) number, as issued by the Board of Governors of the Federal Reserve System; o Identification of its primary federal regulator; o Names and contact information of the individual(s) with authority to act as the credit union s primary point of contact for the Registry; o Name(s) and contact information of the individual(s) with authority to enter the information required to the Registry and who may delegate this authority to other individuals. This individual and their delegates musts not act as mortgage loan originators unless the credit union has 10 or fewer full time or equivalent employees and is not a subsidiary; o The credit union has submitted to the Registry, confirmation that it employs the registrant; o Within 30 days of the date the registrant ceases to be an employee of the credit union, notification that it no longer employs the registrant and the date the registrant ceased being an employee; and The registration is maintained as of the date that the employee becomes subject to these requirements. Rules and Regulations for Home Equity Line of Credit Lending Page 39

43 Rule for Certain Acquisitions, Mergers, or Reorganizations When registered or licensed mortgage loan originators become credit union employees as a result of an acquisition, consolidation, merger, or reorganization, the following requirements must be met within 60 days from the effective date of the acquisition, merger, or reorganization: The employment information is updated including: o o Principal business location address and business contact information; Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the credit union. An employee registering as a mortgage loan originator or renewing or updating his or her registration and not the employing credit union or other employees of the credit union must: o o o Authorize the Registry and the employing institution to obtain information related to sanctions or findings in any administrative, civil, or criminal action, to which the employee is party, made by any governmental jurisdiction; Attest to the correctness of all information, whether submitted by the employee or on behalf of the employee by the employing credit union; and Authorize the Registry to make available to the public the following information: Name and any other names used; Principal business location address and business contact information; Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the credit union; Convictions of any criminal offense involving dishonesty, breach of trust, or money laundering against the employee or organizations controlled by the employee, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense(s); Civil judicial actions against the employee in connection with financial services-related activities, dismissals with settlements, or judicial findings that the employee violated financial services-related statutes; or regulations, except for actions dismissed without a settlement agreement; Actions or orders by a state or Federal regulatory agency or foreign financial regulatory authority that: Found the employee to have made a false statement or omission or been dishonest, unfair or unethical; Found the employee to have been involved in a violation of a financial services-related regulation or statute; or Found the employee to have been a cause of a financial servicesrelated business having its authorization to do business denied, suspended, revoked, or restricted; Are entered against the employee in connection with a financial services related activity; Denied, suspended, or revoked the employee s registration or license to engage in a financial services-related activity; Disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee s activities; or Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business; Rules and Regulations for Home Equity Line of Credit Lending Page 40

44 Final orders issued by a state or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent; manipulative, or deceptive conduct; Revocation or suspension of the employee s authorization to act as an attorney, accountant, or state or Federal contractor; Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements, or which resulted n a judgment. New fingerprints of the employee are submitted to the Registry for a background check, unless the employee has fingerprints on file with the Registry that are less than 3 years old; The following credit union information is submitted to the Registry unless this has been previously submitted: o Name, main office address and business contact information; o Internal Revenue Service Employer Tax Identification Number (EIN); o Research Statistics Supervision and Discount (RSSD) number, as issued by the Board of Governors of the Federal Reserve System; o Identification of its primary Federal regulator; o Name(s) and contact information of the individual(s) with authority to act as the credit union s primary point of contact for the Registry; and o Name(s) and contact information of the individual(s) with authority to enter the information to the Registry and who may delegate this authority to other individuals. For the purpose of providing information, this individual and their delegates must not act as mortgage loan originators unless the credit union has 10 or fewer full time or equivalent employees and is not a subsidiary; o After that the required information has been submitted to the Registry, confirmation that it employs the registrant; and The registration is maintained as of the date that the employee becomes subject to these requirement. Maintaining Registration A mortgage loan originator who is registered with the Registry must: Renew the registration during the annual renewal period unless the individual has completed his or her registration with the Registry Less than 6 months prior to the end of the annual renewal period; Confirm the responses provided remain accurate and complete; Update this information as appropriate; and Update the registration within 30 days of any of the following events: o A change in the name of the registrant; o The registrant ceases to be an employee of the credit union; or o The information required becomes inaccurate, incomplete or out of date; o Maintain his or her registration, unless the individual is no longer engaged in the activity of a mortgage loan originator. Effective Dates of Registration A registration is effective on the date the Registry transmits notification to the registrant that the registrant is registered. A renewal or update is effective on the date the Registry transmits notification to the registrant that the registration has been renewed or updated. Rules and Regulations for Home Equity Line of Credit Lending Page 41

45 Required Employee Information A credit union must require each employee who is a mortgage loan originator to submit to the Registry, or must submit on the behalf of the employee, to the extent this information is collected by the Registry the following information: Identifying information including the employee s: o Name and any other names used; o Home address and contact information; o Principal business location address and business contact information; o Social security number; o Gender; and o Date and place of birth. Financial services-related employment history for the 10 years prior to the date of registration or renewal including the date the employee became an employee of the credit union; Convictions of any criminal offense involving dishonesty, breach of trust or money laundering against the employee or organizations controlled by the employee, or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offense(s); Civil judicial actions against the employee in connection with financial services-related activities; Dismissals with settlements, or judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement; Actions or orders by a state or Federal regulatory agency or foreign financial regulatory authority that: o Found the employee to have made a false statement or omission; o Found the employee to have been dishonest unfair or unethical; o Found the employee to have been involved in a violation of a financial servicesrelated regulation or statute; or o Found the employee to have been a cause of a financial services-related business having its authorization to do business denied, suspended, revoked, or restricted; o Are entered against the employee in connection with a financial services-related activity; o Denied, suspended or revoked the employee s registration or license to engage in a financial-services related activity; o Disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee s activities; or o Barred the employee from association with an entity or its officers regulated by the agency or from engaging in a financial services-related business; Final orders issued by a state or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct; Revocation or suspension of the employee s authorization to act as an attorney, accountant, or state or Federal contractor; Customer-initiated financial services-related arbitration or civil action against the employee that required action, including settlements or which resulted in a judgment; and Rules and Regulations for Home Equity Line of Credit Lending Page 42

46 Fingerprints of the employee, in digital form if practicable, and any appropriate identifying information for submission to the Federal Bureau of Investigation and any governmental agency or entity authorized to receive such information in connection with a state and national criminal history background check; however, fingerprints provided to the Registry that are less than 3 years old may be used to satisfy this requirement. Employee Authorizations and Attestation An employee registering as a mortgage loan originator or renewing or updating his or her registration and not the employing credit union or other employees of the credit union must: Authorize the Registry and the employing institution to obtain information related to sanctions or findings in any administrative, civil or criminal action to which the employee is a party made by any government jurisdiction; Attest to the correctness of all information required whether submitted by the employee or on behalf of the employee by the employing credit union; and Authorize the registry to make available to the public the following information: o The employee s name and any other names used; o o o o o o o Principal business location address and business contact information; Financial services-related employment history for the 10 years prior to the date of registration or renewal, including the date the employee became an employee of the credit union; Convictions against the employee or organizations controlled by the employee involving dishonesty, breach of trust, or money laundering; or agreements to enter into a pretrial diversion or similar program in connection with the prosecution for such offenses; Civil judicial actions against the employee in connection with financial servicesrelated activities; Dismissals with settlements; or Judicial findings that the employee violated financial services-related statutes or regulations, except for actions dismissed without a settlement agreement; Actions or orders by a state or federal regulatory agency or foreign financial regulatory authority that: Found the employee to have made a false statement, been dishonest, unfair or unethical; Found the employee to have been involved in a violation of a financial services-related regulation or statute; or Found the employee to have been a cause of a financial services-related business having its authorization to do business denied, suspended, revoked, or restricted; Are entered against the employee in connection with a financial servicesrelated activity; Denied, suspended, or revoked the employee s registration or license to engage in a financial services-related activity; Disciplined the employee or otherwise by order prevented the employee from associating with a financial services-related business or restricted the employee s activities; or Barred the employee from association with an entity or its officers regulated by the agency or authority or from engaging in a financial services-related business; Rules and Regulations for Home Equity Line of Credit Lending Page 43

47 Final orders issued by a state or Federal regulatory agency or foreign financial regulatory authority based on violations of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct; Revocation or suspension of the employee s authorization to act as an attorney, accountant, or state or Federal contractor; Customer-initiated financial services-related arbitration or civil action against the employee that required action including settlements or which resulted in a judgment. Submission of Information A credit union may identify one or more employees of the credit union who may submit the required information to the Registry on behalf of the credit union s employees provided that this individual and any employee delegated such authority does not act as a mortgage loan originator unless the credit union has 10 or fewer full time or equivalent employees. A credit union may submit to the Registry some or all of the required information for multiple employees in bulk through batch processing in a format to be specified by the Registry to the extent such batch processing is made available by the Registry. Required Credit Union Information A credit union must submit the following categories of information to the Registry: Credit Union Record o In connection with the registration of one or more mortgage loan originators: Name, man office address, business contact information; Internal Revenue Service Employer Tax Identification Number (EIN) Business contact information; Research Statistics Supervision and Discount (RSSD) number,as issued by the Board of Governors of the Federal Reserve System; Identification of its primary Federal regulator; Names and contact information of the individuals with authority to act as the credit union s primary point of contact for the Registry identifying information as required by the Registry; Name and contact information of the individuals with authority to enter the information to the Registry and who may delegate this authority to other individuals. For purpose of providing information, this individual and their delegates must not act as mortgage loan originators unless the credit union has 10 or fewer full time or equivalent employees and is not a subsidiary. o The individual identified must comply with Registry protocols to verify their identity and must attest that they have the authority to enter data on behalf of the credit union, that the information provided to the Registry is correct and that the credit union will keep the information required current and will file accurate supplementary information on a timely basis; o A credit union must update the information within 30 days of the date that this information becomes inaccurate; o A credit union must renew the information on an annual basis. Employee Information o In connection with the registration of each employee who acts as a mortgage loan originator: After the information has been submitted to the Registry, confirmation that it employs the registrant; and Rules and Regulations for Home Equity Line of Credit Lending Page 44

48 Within 30 days of the date the registrant ceases to be an employee of the credit union, notification that it no longer employs the registrant and the date the registrant ceased being an employee Policies and Procedures A credit union that employs more than one mortgage loan originator must adopt and follow written policies designed to ensure compliance with the S.A.F.E. Act. The policies and procedures must be appropriate to the nature, size, complexity and scope of the credit union s mortgage lending activities, and apply only to those employees acting within the scope of their employment at the credit union. At a minimum these policies and procedures must: Establish a process for identifying which employees of the credit union are required to be registered mortgage loan originators; Require that all employees of the credit union who are mortgage loan originators be informed of the registration requirements of the S.A.F.E. Act and be instructed on how to comply with such requirements and procedures; Establish procedures to comply with the unique identifier requirements; Establish reasonable procedures for confirming the adequacy and accuracy of employee registrations including updates and renewals, by comparison with its own records; Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures; Provide for independent testing for compliance to be conducted at least annually by the credit union personnel or by an outside party; Provide for appropriate action in the case of any employee who fails to comply with the registration requirements of the S.A.F.E. Act, or the credit union s related policies and procedures, including prohibiting such employees from acting as mortgage loan originators or other appropriate disciplinary actions; Establish a process for reviewing employee criminal history background reports received, taking appropriate action consistent with applicable Federal law including section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829), section 206 of the Federal Credit Union Act (12 U.S.C. 1786(i)), and section 6.56(d) of the Farm Credit Act of 1971, as amended (12 U.S.C. 2277a-14(d)), and implementing regulations with respect to these reports; Maintain records of these reports and actions taken with respect to applicable employees; Establish procedures designed to ensure that any third party with which the credit union has arrangements related to mortgage loan origination has policies and procedures to comply with the S.A.F.E. Act, including appropriate licensing and / or registration of individuals acting as mortgage loan originators Use of Unique Identifier A credit union shall make the unique identifier of its registered mortgage loan originators available to consumers in a manner and method practicable to the institution. A registered mortgage loan originator shall provide his or her unique identifier to a consumer: Upon request; Before acting as a mortgage loan originator; and Through the originator s initial written communication with a consumer, if any, whether on paper or electronically. Rules and Regulations for Home Equity Line of Credit Lending Page 45

49 12 C.F.R FAIR CREDIT REPORTING (REGULATION V) Definitions Affiliate means any company that is related by common ownership or common corporate control with another company. For example, an affiliate of a Federal credit union is a credit union service corporation, as provided in 12 CFR Part 712, that is controlled by the Federal credit union. Clear and Conspicuous means reasonably understandable and designed to call attention to the nature and significance of the information presented. Combination with Other Required Disclosure means a notice required by this subpart may be concise even if it is combined with other disclosures required or authorized by Federal or state law. Common Ownership or Common Corporate Control means a relationship between two companies under which: One company has, with respect to the other company: o Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting security of a company, directly or indirectly, or acting through one or more other persons; o Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of a company; or o The power to exercise, directly or indirectly, a controlling influence over the management or policies of a company, as determined by the applicable prudential regulator (as defined in 12 U.S.C. 5481(24)) (a credit union is presumed to have a controlling influence over the management or policies of a credit union service corporation if the credit union service corporation is 67% owned by credit unions) or, where there is no prudential regulator, by the Bureau; or Any other person has, with respect to both companies: o Ownership, control, or power to vote 25 percent or more of the outstanding shares of any class of voting security of a company, directly or indirectly, or acting through one or more other persons; o Control in any manner over the election of a majority of the directors, trustees, or general partners (or individuals exercising similar functions) of a company. Company means any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization. Concise means a reasonably brief expression or statement. Consumer means an individual. Credit means the right granted by a creditor to an applicant to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment therefore. Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor's assignee, transferee, or subrogee who so participates. The term creditor also includes a person Rules and Regulations for Home Equity Line of Credit Lending Page 46

50 who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. A person is not a creditor regarding any violation of the Act or this part committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation before becoming involved in the credit transaction. The term does not include a person whose only participation in a credit transaction involves honoring a credit card. Eligibility, or Continued Eligibility, for Credit means the consumer's qualification or fitness to receive, or continue to receive, credit, including the terms on which credit is offered. The term does not include: Any determination of the consumer's qualification or fitness for employment, insurance (other than a credit insurance product), or other non-credit products or services; Authorizing, processing, or documenting a payment or transaction on behalf of the consumer in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit; or Maintaining or servicing the consumer's account in a manner that does not involve a determination of the consumer's eligibility, or continued eligibility, for credit. Eligibility Information means any information the communication of which would be a consumer report if the exclusions from the definition of consumer report in section 603(d)(2)(A) of the Act did not apply. Eligibility information does not include aggregate or blind data that does not contain personal identifiers such as account numbers, names, or addresses. Identifying Information means any name or number that may be used, alone or in conjunction with any other information, to identify a specific person, including any: Name, social security number, date of birth, official state or government issued driver's license or identification number, alien registration number, government passport number, employer or taxpayer identification number; Unique biometric data, such as fingerprint, voice print, retina or iris image, or other unique physical representation; Unique electronic identification number, address, or routing code; or Telecommunication identifying information or access device (as defined in 18 U.S.C. 1029(e)). Identity Theft means a fraud committed or attempted using the identifying information of another person without authority. Identity Theft Report means a report that: Alleges identity theft with as much specificity as the consumer can provide; Is a copy of an official, valid report filed by the consumer with a Federal, state, or local law enforcement agency, including the United States Postal Inspection Service, the filing of which subjects the person filing the report to criminal penalties relating to the filing of false information, if, in fact, the information in the report is false; and May include additional information or documentation that an information furnisher or consumer reporting agency reasonably requests for the purpose of determining the validity of the alleged identity theft, provided that the information furnisher or consumer reporting agency: o Makes such request not later than fifteen days after the date of receipt of the copy of the report form identified above or the request by the consumer for the particular service, whichever shall be the later; Rules and Regulations for Home Equity Line of Credit Lending Page 47

51 o Makes any supplemental requests for information or documentation and final determination on the acceptance of the identity theft report within another fifteen days after its initial request for information or documentation; and o Shall have five days to make a final determination on the acceptance of the identity theft report, in the event that the consumer reporting agency or information furnisher receives any such additional information or documentation on the eleventh day or later within the fifteen day period set forth above. Examples of the specificity are provided for illustrative purposes only, as follows: o Specific dates relating to the identity theft such as when the loss or theft of personal information occurred or when the fraud(s) using the personal information occurred, and how the consumer discovered or otherwise learned of the theft. o Identification information or any other information about the perpetrator, if known. o Name(s) of information furnisher(s), account numbers, or other relevant account information related to the identity theft. o Any other information known to the consumer about the identity theft. Examples of when it would or would not be reasonable to request additional information or documentation are provided for illustrative purposes only, as follows: o A law enforcement report containing detailed information about the identity theft and the signature, badge number or other identification information of the individual law enforcement official taking the report should be sufficient on its face to support a victim's request. In this case, without an identifiable concern, such as an indication that the report was fraudulent, it would not be reasonable for an information furnisher or consumer reporting agency to request additional information or documentation. o A consumer might provide a law enforcement report but certain important information such as the consumer's date of birth or Social Security number may be missing because the consumer chose not to provide it. The information furnisher or consumer reporting agency could accept this report, but it would be reasonable to require that the consumer provide the missing information. The Bureau's Identity Theft Affidavit is available on the Bureau's Web site (consumerfinance.gov/learnmore). The version of this form developed by the Federal Trade Commission, available on the FTC's Web site (ftc.gov/idtheft), remains valid and sufficient for this purpose. o A consumer might provide a law enforcement report generated by an automated system with a simple allegation that an identity theft occurred to support a request for a tradeline block or cessation of information furnishing. In such a case, it would be reasonable for an information furnisher or consumer reporting agency to ask that the consumer fill out and have notarized the Bureau's Identity Theft Affidavit or a similar form and provide some form of identification documentation. o A consumer might provide a law enforcement report generated by an automated system with a simple allegation that an identity theft occurred to support a request for an extended fraud alert. In this case, it would not be reasonable for a consumer reporting agency to require additional documentation or information, such as a notarized affidavit. Medical Information means: Information or data, whether oral or recorded, in any form or medium, created by or derived from a health care provider or the consumer, that relates to: Rules and Regulations for Home Equity Line of Credit Lending Page 48

52 o The past, present, or future physical, mental, or behavioral health or condition of an individual; o The provision of health care to an individual; or o The payment for the provision of health care to an individual. The term does not include: o The age or gender of a consumer; o Demographic information about the consumer, including a consumer's residence address or address; o Any other information about a consumer that does not relate to the physical, mental, or behavioral health or condition of a consumer, including the existence or value of any insurance policy; or o Information that does not identify a specific consumer. A Notice of Address Discrepancy means a notice sent to a user by a consumer reporting agency described in 15 U.S.C. 1681a(p) pursuant to 15 U.S.C. 1681c(h)(1), that informs the user of a substantial difference between the address for the consumer that the user provided to request the consumer report and the address(es) in the agency's file for the consumer. Person means any individual, partnership, corporation, trust, estate cooperative, association, government or governmental subdivision or agency, or other entity. Pre-existing Business Relationship means a relationship between a person, or a person's licensed agent, and a consumer based on: A financial contract between the person and the consumer which is in force on the date on which the consumer is sent a solicitation covered by this subpart; The purchase, rental, or lease by the consumer of the person's goods or services, or a financial transaction (including holding an active account or a policy in force or having another continuing relationship) between the consumer and the person, during the 18- month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart; or An inquiry or application by the consumer regarding a product or service offered by that person during the three-month period immediately preceding the date on which the consumer is sent a solicitation covered by this subpart. Examples of Pre-Existing Business Relationships If a consumer has a time deposit account, such as a certificate of deposit, at a financial institution that is currently in force, the financial institution has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services. If a consumer obtained a certificate of deposit from a financial institution, but did not renew the certificate at maturity, the financial institution has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date of maturity of the certificate of deposit. If a consumer obtains a mortgage, the mortgage lender has a pre-existing business relationship with the consumer. If the mortgage lender sells the consumer's entire loan to an investor, the mortgage lender has a pre-existing business relationship with the consumer and can use eligibility information it receives from its affiliates to make solicitations to the consumer about its products or services for 18 months after the date it sells the loan, and the investor has a pre-existing business relationship with the Rules and Regulations for Home Equity Line of Credit Lending Page 49

53 consumer upon purchasing the loan. If, however, the mortgage lender sells a fractional interest in the consumer's loan to an investor but also retains an ownership interest in the loan, the mortgage lender continues to have a pre-existing business relationship with the consumer, but the investor does not have a pre-existing business relationship with the consumer. If the mortgage lender retains ownership of the loan, but sells ownership of the servicing rights to the consumer's loan, the mortgage lender continues to have a pre-existing business relationship with the consumer. The purchaser of the servicing rights also has a pre-existing business relationship with the consumer as of the date it purchases ownership of the servicing rights, but only if it collects payments from or otherwise deals directly with the consumer on a continuing basis. If a consumer applies to a financial institution for a product or service that it offers, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the financial institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the application. If a consumer makes a telephone inquiry to a financial institution about its products or services and provides contact information to the institution, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the financial institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry. If a consumer makes an inquiry to a financial institution by about its products or services, but does not obtain a product or service from or enter into a financial contract or transaction with the institution, the financial institution has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services for three months after the date of the inquiry. If a consumer has an existing relationship with a financial institution that is part of a group of affiliated companies, makes a telephone call to the centralized call center for the group of affiliated companies to inquire about products or services offered by the insurance affiliate, and provides contact information to the call center, the call constitutes an inquiry to the insurance affiliate that offers those products or services. The insurance affiliate has a pre-existing business relationship with the consumer and can therefore use eligibility information it receives from its affiliated financial institution to make solicitations to the consumer about its products or services for three months after the date of the inquiry. Examples Where No Pre-Existing Business Relationship is Created If a consumer makes a telephone call to a centralized call center for a group of affiliated companies to inquire about the consumer's existing account at a financial institution, the call does not constitute an inquiry to any affiliate other than the financial institution that holds the consumer's account and does not establish a pre-existing business relationship between the consumer and any affiliate of the account-holding financial institution. If a consumer who has a deposit account with a financial institution makes a telephone call to an affiliate of the institution to ask about the affiliate's retail locations and hours, but does not make an inquiry about the affiliate's products or services, the call does not constitute an inquiry and does not establish a pre-existing business relationship between Rules and Regulations for Home Equity Line of Credit Lending Page 50

54 the consumer and the affiliate. Also, the affiliate's capture of the consumer's telephone number does not constitute an inquiry and does not establish a pre-existing business relationship between the consumer and the affiliate. If a consumer makes a telephone call to a financial institution in response to an advertisement that offers a free promotional item to consumers who call a toll-free number, but the advertisement does not indicate that the financial institution's products or services will be marketed to consumers who call in response, the call does not create a pre-existing business relationship between the consumer and the financial institution because the consumer has not made an inquiry about a product or service offered by the institution, but has merely responded to an offer for a free promotional item. Principal Promotional Document means the document designed to be seen first by the consumer, such as the cover letter. Simple and Easy to Understand means: A layered format; Plain language designed to be understood by ordinary consumers; and Use of clear and concise sentences, paragraphs, and sections. Examples Examples of factors to be considered in determining whether a statement is in plain language and uses clear and concise sentences, paragraphs, and sections include: Use of short explanatory sentences; Use of definite, concrete, everyday words; Use of active voice; Avoidance of multiple negatives; Avoidance of legal and technical business terminology; Avoidance of explanations that are imprecise and reasonably subject to different interpretations; and Use of language that is not misleading. Solicitation means the marketing of a product or service initiated by a person to a particular consumer that is based on eligibility information communicated to that person by its affiliate and intended to encourage the consumer to purchase or obtain such product or service. Exclusion of Marketing Directed at the General Public A solicitation does not include marketing communications that are directed at the general public. For example, television, general circulation magazine, and billboard advertisements do not constitute solicitations, even if those communications are intended to encourage consumers to purchase products and services from the person initiating the communications. Examples of Solicitations A solicitation would include, for example, a telemarketing call, direct mail, , or other form of marketing communication directed to a particular consumer that is based on eligibility information received from an affiliate. You means any person that uses information from its affiliates for the purpose of marketing solicitations, or provides information to its affiliates for that purpose, other than a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of Rules and Regulations for Home Equity Line of Credit Lending Page 51

55 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat Affiliate Marketing Opt-Out and Exceptions Initial Notice and Opt-Out Requirement You may not use eligibility information about a consumer that you receive from an affiliate to make a solicitation for marketing purposes to the consumer, unless: It is clearly and conspicuously disclosed to the consumer in writing or, if the consumer agrees, electronically, in a concise notice that you may use eligibility information about that consumer received from an affiliate to make solicitations for marketing purposes to the consumer; The consumer is provided a reasonable opportunity and a reasonable and simple method to opt out, or prohibit you from using eligibility information to make solicitations for marketing purposes to the consumer; and The consumer has not opted out. Example A consumer has a homeowner's insurance policy with an insurance company. The insurance company furnishes eligibility information about the consumer to its affiliated creditor. Based on that eligibility information, the creditor wants to make a solicitation to the consumer about its home equity loan products. The creditor does not have a pre-existing business relationship with the consumer and none of the other exceptions apply. The creditor is prohibited from using eligibility information received from its insurance affiliate to make solicitations to the consumer about its home equity loan products unless the consumer is given a notice and opportunity to opt out and the consumer does not opt out. Affiliates Who May Provide the Notice The notice required must be provided: By an affiliate that has or has previously had a pre-existing business relationship with the consumer; or As part of a joint notice from two or more members of an affiliated group of companies, provided that at least one of the affiliates on the joint notice has or has previously had a pre-existing business relationship with the consumer. Making Solicitations For purposes of this part, you make a solicitation for marketing purposes if you receive eligibility information from an affiliate that you use to do one or more of the following: Identify the consumer or type of consumer to receive a solicitation; Establish criteria used to select the consumer to receive a solicitation; or Decide which of your products or services to market to the consumer or tailor your solicitation to that consumer; and As a result of your use of the eligibility information, the consumer is provided a solicitation. Receiving Eligibility Information from an Affiliate, Including Through a Common Database You may receive eligibility information from an affiliate in various ways, including when the affiliate places that information into a common database that you may access. Rules and Regulations for Home Equity Line of Credit Lending Page 52

56 Receipt or Use of Eligibility Information by Your Service Provider Except as provided below, you receive or use an affiliate's eligibility information if a service provider acting on your behalf (whether an affiliate or a nonaffiliated third party) receives or uses that information to do one or more of the following: Identify the consumer or type of consumer to receive a solicitation; Establish criteria used to select the consumer to receive a solicitation; or Decide which of your products or services to market to the consumer or tailor your solicitation to that consumer. All relevant facts and circumstances will determine whether a person is acting as your service provider when it receives or uses an affiliate's eligibility information in connection with marketing your products and services. Use by an Affiliate of its Own Eligibility Information Unless you have used eligibility information that you receive from an affiliate to: Identify the consumer or type of consumer to receive a solicitation; Establish criteria used to select the consumer to receive a solicitation; or Decide which of your products or services to market to the consumer or tailor your solicitation to that consumer; You do not make a solicitation subject to this subpart if your affiliate: Uses its own eligibility information that it obtained in connection with a pre-existing business relationship it has or had with the consumer to market your products or services to the consumer; or Directs its service provider to use the affiliate's own eligibility information that it obtained in connection with a pre-existing business relationship it has or had with the consumer to market your products or services to the consumer and you do not communicate directly with the service provider regarding that use. Use of Eligibility Information by a Service Provider You do not make a solicitation subject to this part if a service provider (including an affiliated or third-party service provider that maintains or accesses a common database that you may access) receives eligibility information from your affiliate that your affiliate obtained in connection with a pre-existing business relationship it has or had with the consumer and uses that eligibility information to market your products or services to the consumer, so long as: Your affiliate controls access to and use of its eligibility information by the service provider (including the right to establish the specific terms and conditions under which the service provider may use such information to market your products or services); Your affiliate establishes specific terms and conditions under which the service provider may access and use the affiliate's eligibility information to market your products and services (or those of affiliates generally) to the consumer, such as the identity of the affiliated companies whose products or services may be marketed to the consumer by the service provider, the types of products or services of affiliated companies that may be marketed, and the number of times the consumer may receive marketing materials, and periodically evaluates the service provider's compliance with those terms and conditions; Your affiliate requires the service provider to implement reasonable policies and procedures designed to ensure that the service provider uses the affiliate's eligibility information in accordance with the terms and conditions established by the affiliate relating to the marketing of your products or services; Rules and Regulations for Home Equity Line of Credit Lending Page 53

57 Your affiliate is identified on or with the marketing materials provided to the consumer; and You do not directly use your affiliate's eligibility information to: o Identify the consumer or type of consumer to receive a solicitation; o Establish criteria used to select the consumer to receive a solicitation; or o Decide which of your products or services to market to the consumer or tailor your solicitation to that consumer. Writing Requirements The following requirements must be set forth in a written agreement between your affiliate and the service provider: Your affiliate controls access to and use of its eligibility information by the service provider (including the right to establish the specific terms and conditions under which the service provider may use such information to market your products or services);and Your affiliate requires the service provider to implement reasonable policies and procedures designed to ensure that the service provider uses the affiliate's eligibility information in accordance with the terms and conditions established by the affiliate relating to the marketing of your products or services; The specific terms and conditions established by your affiliate as provided below must be set forth in writing: Your affiliate establishes specific terms and conditions under which the service provider may access and use the affiliate's eligibility information to market your products and services (or those of affiliates generally) to the consumer, such as the identity of the affiliated companies whose products or services may be marketed to the consumer by the service provider, the types of products or services of affiliated companies that may be marketed, and the number of times the consumer may receive marketing materials, and periodically evaluates the service provider's compliance with those terms and conditions. Examples of Making Solicitations A consumer has a deposit account with a financial institution, which is affiliated with an insurance company. The insurance company receives eligibility information about the consumer from the financial institution. The insurance company uses that eligibility information to identify the consumer to receive a solicitation about insurance products, and, as a result, the insurance company provides a solicitation to the consumer about its insurance products. In this case the insurance company has made a solicitation to the consumer. The same facts as above, except that after using the eligibility information to identify the consumer to receive a solicitation about insurance products, the insurance company asks the financial institution to send the solicitation to the consumer and the financial institution does so. In this case, the insurance company has made a solicitation to the consumer because it used eligibility information about the consumer that it received from an affiliate to identify the consumer to receive a solicitation about its products or services, and, as a result, a solicitation was provided to the consumer about the insurance company's products. The same facts as the first example, except that eligibility information about consumers that have deposit accounts with the financial institution is placed into a common database that all members of the affiliated group of companies may independently access and use. Without using the financial institution's eligibility information, the Rules and Regulations for Home Equity Line of Credit Lending Page 54

58 insurance company develops selection criteria and provides those criteria, marketing materials, and related instructions to the financial institution. The financial institution reviews eligibility information about its own consumers using the selection criteria provided by the insurance company to determine which consumers should receive the insurance company's marketing materials and sends marketing materials about the insurance company's products to those consumers. Even though the insurance company has received eligibility information through the common database, it did not use that information to identify consumers or establish selection criteria; instead, the financial institution used its own eligibility information. Therefore, the insurance company has not made a solicitation to the consumer. The same facts as the first example except that the financial institution provides the insurance company's criteria to the financial institution's service provider and directs the service provider to use the financial institution's eligibility information to identify financial institution consumers who meet the criteria and to send the insurance company's marketing materials to those consumers. The insurance company does not communicate directly with the service provider regarding the use of the financial institution's information to market its products to the financial institution's consumers. In this case, the insurance company has not made a solicitation to the consumer. An affiliated group of companies includes a financial institution, an insurance company, and a service provider. Each affiliate in the group places information about its consumers into a common database. The service provider has access to all information in the common database. The financial institution controls access to and use of its eligibility information by the service provider. This control is set forth in a written agreement between the financial institution and the service provider. The written agreement also requires the service provider to establish reasonable policies and procedures designed to ensure that the service provider uses the financial institution's eligibility information in accordance with specific terms and conditions established by the financial institution relating to the marketing of the products and services of all affiliates, including the insurance company. In a separate written communication, the financial institution specifies the terms and conditions under which the service provider may use the financial institution's eligibility information to market the insurance company's products and services to the financial institution's consumers. The specific terms and conditions are: a list of affiliated companies (including the insurance company) whose products or services may be marketed to the financial institution's consumers by the service provider; the specific products or types of products that may be marketed to the financial institution's consumers by the service provider; the categories of eligibility information that may be used by the service provider in marketing products or services to the financial institution's consumers; the types or categories of the financial institution's consumers to whom the service provider may market products or services of financial institution affiliates; the number and/or types of marketing communications that the service provider may send to the financial institution's consumers; and the length of time during which the service provider may market the products or services of the financial institution's affiliates to its consumers. The financial institution periodically evaluates the service provider's compliance with these terms and conditions. The insurance company asks the service provider to market insurance products to certain consumers who have deposit accounts with the financial institution. Without using the financial institution's eligibility information, the insurance company develops selection criteria and provides those criteria, marketing materials, and related instructions to the service provider. The service provider uses the financial institution's eligibility information from the common database to identify the financial institution's consumers to whom insurance products will be marketed. When the insurance company's marketing Rules and Regulations for Home Equity Line of Credit Lending Page 55

59 materials are provided to the identified consumers, the name of the financial institution is displayed on the insurance marketing materials, an introductory letter that accompanies the marketing materials, an account statement that accompanies the marketing materials, or the envelope containing the marketing materials. In this case the insurance company has not made a solicitation to the consumer. The same facts as above, except that the terms and conditions permit the service provider to use the financial institution's eligibility information to market the products and services of other affiliates to the financial institution's consumers whenever the service provider deems it appropriate to do so. The service provider uses the financial institution's eligibility information in accordance with the discretion afforded to it by the terms and conditions. Because the terms and conditions are not specific, a solicitation has been made. Exceptions The provisions of this subpart do not apply to you if you use eligibility information that you receive from an affiliate: To make a solicitation for marketing purposes to a consumer with whom you have a preexisting business relationship; To facilitate communications to an individual for whose benefit you provide employee benefit or other services pursuant to a contract with an employer related to and arising out of the current employment relationship or status of the individual as a participant or beneficiary of an employee benefit plan; To perform services on behalf of an affiliate, except that this subparagraph shall not be construed as permitting you to send solicitations on behalf of an affiliate if the affiliate would not be permitted to send the solicitation as a result of the election of the consumer to opt out under this subpart; In response to a communication about your products or services initiated by the consumer; In response to an authorization or request by the consumer to receive solicitations; or If your compliance with this subpart would prevent you from complying with any provision of state insurance laws pertaining to unfair discrimination in any state in which you are lawfully doing business. Examples of Exceptions Example of the Pre-Existing Business Relationship Exception A consumer has a deposit account with a financial institution. The consumer also has a relationship with the financial institution's securities affiliate for management of the consumer's securities portfolio. The financial institution receives eligibility information about the consumer from its securities affiliate and uses that information to make a solicitation to the consumer about the financial institution's wealth management services. The financial institution may make this solicitation even if the consumer has not been given a notice and opportunity to opt out because the financial institution has a preexisting business relationship with the consumer. Examples of Service Provider Exception A consumer has an insurance policy issued by an insurance company. The insurance company furnishes eligibility information about the consumer to its affiliated financial institution. Based on that eligibility information, the financial institution wants to make a solicitation to the consumer about its deposit products. The financial institution does not have a pre-existing business relationship with the consumer and none of the other Rules and Regulations for Home Equity Line of Credit Lending Page 56

60 exceptions apply. The consumer has been given an opt-out notice and has elected to opt out of receiving such solicitations. The financial institution asks a service provider to send the solicitation to the consumer on its behalf. The service provider may not send the solicitation on behalf of the financial institution because, as a result of the consumer's opt-out election, the financial institution is not permitted to make the solicitation. The same facts as above except the consumer has been given an opt-out notice, but has not elected to opt out. The financial institution asks a service provider to send the solicitation to the consumer on its behalf. The service provider may send the solicitation on behalf of the financial institution because, as a result of the consumer's not opting out, the financial institution is permitted to make the solicitation. Examples of Consumer-Initiated Communications A consumer who has a deposit account with a financial institution initiates a communication with the financial institution's credit card affiliate to request information about a credit card. The credit card affiliate may use eligibility information about the consumer it obtains from the financial institution or any other affiliate to make solicitations regarding credit card products in response to the consumer-initiated communication. A consumer who has a deposit account with a financial institution contacts the institution to request information about how to save and invest for a child's college education without specifying the type of product in which the consumer may be interested. Information about a range of different products or services offered by the financial institution and one or more affiliates of the institution may be responsive to that communication. Such products or services may include the following: mutual funds offered by the institution's mutual fund affiliate; section 529 plans offered by the institution, its mutual fund affiliate, or another securities affiliate; or trust services offered by a different financial institution in the affiliated group. Any affiliate offering investment products or services that would be responsive to the consumer's request for information about saving and investing for a child's college education may use eligibility information to make solicitations to the consumer in response to this communication. A credit card issuer makes a marketing call to the consumer without using eligibility information received from an affiliate. The issuer leaves a voic message that invites the consumer to call a toll-free number to apply for the issuer's credit card. If the consumer calls the toll-free number to inquire about the credit card, the call is a consumer-initiated communication about a product or service and the credit card issuer may now use eligibility information it receives from its affiliates to make solicitations to the consumer. A consumer calls a financial institution to ask about retail locations and hours, but does not request information about products or services. The institution may not use eligibility information it receives from an affiliate to make solicitations to the consumer about its products or services because the consumer-initiated communication does not relate to the financial institution's products or services. Thus, the use of eligibility information received from an affiliate would not be responsive to the communication and the exception does not apply. A consumer calls a financial institution to ask about retail locations and hours. The customer service representative asks the consumer if there is a particular product or service about which the consumer is seeking information. The consumer responds that the consumer wants to stop in and find out about certificates of deposit. The customer service representative offers to provide that information by telephone and mail additional Rules and Regulations for Home Equity Line of Credit Lending Page 57

61 information and application materials to the consumer. The consumer agrees and provides or confirms contact information for receipt of the materials to be mailed. The financial institution may use eligibility information it receives from an affiliate to make solicitations to the consumer about certificates of deposit because such solicitations would respond to the consumer-initiated communication about products or services. Examples of Consumer Authorization or Request for Solicitations A consumer who obtains a mortgage from a mortgage lender authorizes or requests information about homeowner's insurance offered by the mortgage lender's insurance affiliate. Such authorization or request, whether given to the mortgage lender or to the insurance affiliate, would permit the insurance affiliate to use eligibility information about the consumer it obtains from the mortgage lender or any other affiliate to make solicitations to the consumer about homeowner's insurance. A consumer completes an online application to apply for a credit card from a credit card issuer. The issuer's online application contains a blank check box that the consumer may check to authorize or request information from the credit card issuer's affiliates. The consumer checks the box. The consumer has authorized or requested solicitations from the card issuer's affiliates. A consumer completes an online application to apply for a credit card from a credit card issuer. The issuer's online application contains a pre-selected check box indicating that the consumer authorizes or requests information from the issuer's affiliates. The consumer does not deselect the check box. The consumer has not authorized or requested solicitations from the card issuer's affiliates. The terms and conditions of a credit card account agreement contain preprinted boilerplate language stating that by applying to open an account the consumer authorizes or requests to receive solicitations from the credit card issuer's affiliates. The consumer has not authorized or requested solicitations from the card issuer's affiliates. Relation to Affiliate-Sharing Notice and Opt-Out Nothing in this subpart limits the responsibility of a person to comply with the notice and opt-out provisions of section 603(d)(2)(A)(iii) of the Act where applicable Scope and Duration of Opt-Out. Scope of Opt-Out Except as otherwise provided in this section, the consumer's election to opt out prohibits any affiliate covered by the opt-out notice from using eligibility information received from another affiliate as described in the notice to make solicitations to the consumer. Continuing Relationship If the consumer establishes a continuing relationship with you or your affiliate, an opt-out notice may apply to eligibility information obtained in connection with: A single continuing relationship or multiple continuing relationships that the consumer establishes with you or your affiliates, including continuing relationships established subsequent to delivery of the opt-out notice, so long as the notice adequately describes the continuing relationships covered by the opt-out; or Any other transaction between the consumer and you or your affiliates as described in the notice. Rules and Regulations for Home Equity Line of Credit Lending Page 58

62 Examples of Continuing Relationships A consumer has a continuing relationship with you or your affiliate if the consumer: Opens a deposit or investment account with you or your affiliate; Obtains a loan for which you or your affiliate owns the servicing rights; Purchases an insurance product from you or your affiliate; Holds an investment product through you or your affiliate, such as when you act or your affiliate acts as a custodian for securities or for assets in an individual retirement arrangement; Enters into an agreement or understanding with you or your affiliate whereby you or your affiliate undertakes to arrange or broker a home mortgage loan for the consumer; Enters into a lease of personal property with you or your affiliate; or Obtains financial, investment, or economic advisory services from you or your affiliate for a fee. No Continuing Relationship If there is no continuing relationship between a consumer and you or your affiliate, and you or your affiliate obtain eligibility information about a consumer in connection with a transaction with the consumer, such as an isolated transaction or a credit application that is denied, an opt-out notice provided to the consumer only applies to eligibility information obtained in connection with that transaction. Examples of Isolated Transactions An isolated transaction occurs if: The consumer uses your, or your affiliate's ATM to withdraw cash from an account at another financial institution; or You or your affiliate sells the consumer a cashier's check or money order, airline tickets, travel insurance, or traveler's checks in isolated transactions. Menu of Alternatives A consumer may be given the opportunity to choose from a menu of alternatives when electing to prohibit solicitations, such as by electing to prohibit solicitations from certain types of affiliates covered by the opt-out notice but not other types of affiliates covered by the notice, electing to prohibit solicitations based on certain types of eligibility information but not other types of eligibility information, or electing to prohibit solicitations by certain methods of delivery but not other methods of delivery. However, one of the alternatives must allow the consumer to prohibit all solicitations from all of the affiliates that are covered by the notice. Special Rule for a Notice Following Termination of All Continuing Relationships A consumer must be given a new opt-out notice if, after all continuing relationships with you or your affiliate(s) are terminated, the consumer subsequently establishes another continuing relationship with you or your affiliate(s) and the consumer's eligibility information is to be used to make a solicitation. The new opt-out notice must apply, at a minimum, to eligibility information obtained in connection with the new continuing relationship. The consumer's decision not to opt out after receiving the new opt-out notice would not override a prior opt-out election by the consumer that applies to eligibility information obtained in connection with a terminated relationship, regardless of whether the new opt-out notice applies to eligibility information obtained in connection with the terminated relationship. Rules and Regulations for Home Equity Line of Credit Lending Page 59

63 Example A consumer has a checking account with a financial institution that is part of an affiliated group. The consumer closes the checking account. One year after closing the checking account, the consumer opens a savings account with the same financial institution. The consumer must be given a new notice and opportunity to opt out before the financial institution's affiliates may make solicitations to the consumer using eligibility information obtained by the financial institution in connection with the new savings account relationship, regardless of whether the consumer opted out in connection with the checking account. Duration of Opt-Out The election of a consumer to opt out must be effective for a period of at least five years (the opt-out period ) beginning when the consumer's opt-out election is received and implemented, unless the consumer subsequently revokes the opt-out in writing or, if the consumer agrees, electronically. An opt-out period of more than five years may be established, including an optout period that does not expire unless revoked by the consumer. A consumer may opt out at any time Contents of Opt-Out Notice; Consolidated and Equivalent Notices Contents of Opt-Out Notice A notice must be clear, conspicuous, and concise, and must accurately disclose: The name of the affiliate(s) providing the notice. If the notice is provided jointly by multiple affiliates and each affiliate shares a common name, such as ABC, then the notice may indicate that it is being provided by multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by all of the ABC companies, the ABC banking, credit card, insurance, and securities companies, or by listing the name of each affiliate providing the notice. But if the affiliates providing the joint notice do not all share a common name, then the notice must either separately identify each affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice is provided by all of the ABC and XYZ companies or by the ABC banking and credit card companies and the XYZ insurance companies; A list of the affiliates or types of affiliates whose use of eligibility information is covered by the notice, which may include companies that become affiliates after the notice is provided to the consumer. If each affiliate covered by the notice shares a common name, such as ABC, then the notice may indicate that it applies to multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by all of the ABC companies, the ABC banking, credit card, insurance, and securities companies, or by listing the name of each affiliate providing the notice. But if the affiliates covered by the notice do not all share a common name, then the notice must either separately identify each covered affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice applies to all of the ABC and XYZ companies or to the ABC banking and credit card companies and the XYZ insurance companies; A general description of the types of eligibility information that may be used to make solicitations to the consumer; That the consumer may elect to limit the use of eligibility information to make solicitations to the consumer; That the consumer's election will apply for the specified period of time stated in the notice and, if applicable, that the consumer will be allowed to renew the election once that period expires; Rules and Regulations for Home Equity Line of Credit Lending Page 60

64 If the notice is provided to consumers who may have previously opted out, such as if a notice is provided to consumers annually, that the consumer who has chosen to limit solicitations does not need to act again until the consumer receives a renewal notice; and A reasonable and simple method for the consumer to opt out. Joint Relationships If two or more consumers jointly obtain a product or service, a single opt-out notice may be provided to the joint consumers. Any of the joint consumers may exercise the right to opt out. The opt-out notice must explain how an opt-out direction by a joint consumer will be treated. An opt-out direction by a joint consumer may be treated as applying to all of the associated joint consumers, or each joint consumer may be permitted to opt out separately. If each joint consumer is permitted to opt out separately, one of the joint consumers must be permitted to opt out on behalf of all of the joint consumers and the joint consumers must be permitted to exercise their separate rights to opt out in a single response. It is impermissible to require all joint consumers to opt out before implementing any optout direction. Alternative Contents If the consumer is afforded a broader right to opt out of receiving marketing than is required by this subpart, the requirements of this section may be satisfied by providing the consumer with a clear, conspicuous, and concise notice that accurately discloses the consumer's opt-out rights. Coordinated and Consolidated Notices A notice required by this subpart may be coordinated and consolidated with any other notice or disclosure required to be issued under any other provision of law by the entity providing the notice, including but not limited to the notice described in section 603(d)(2)(A)(iii) of the Act and the Gramm-Leach-Bliley Act privacy notice. Equivalent Notices A notice or other disclosure that is equivalent to the notice required by this subpart, and that is provided to a consumer together with disclosures required by any other provision of law, satisfies the requirements of this section Reasonable Opportunity to Opt Out You must not use eligibility information about a consumer that you receive from an affiliate to make a solicitation to the consumer about your products or services, unless the consumer is provided a reasonable opportunity to opt out as required. Examples of a Reasonable Opportunity to Opt Out The consumer is given a reasonable opportunity to opt out if: The opt-out notice is mailed to the consumer. The consumer is given 30 days from the date the notice is mailed to elect to opt out by any reasonable means. The opt-out notice is provided electronically to the consumer, such as by posting the notice at a Web site at which the consumer has obtained a product or service. The consumer acknowledges receipt of the electronic notice. The consumer is given 30 days after the date the consumer acknowledges receipt to elect to opt out by any reasonable means. Rules and Regulations for Home Equity Line of Credit Lending Page 61

65 The opt-out notice is provided to the consumer by where the consumer has agreed to receive disclosures by from the person sending the notice. The consumer is given 30 days after the is sent to elect to opt out by any reasonable means. The opt-out notice is provided to the consumer at the time of an electronic transaction, such as a transaction conducted on a Web site. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction. There is a simple process that the consumer may use to opt out at that time using the same mechanism through which the transaction is conducted. The opt-out notice is provided to the consumer in writing at the time of an in-person transaction. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction, and is not permitted to complete the transaction without making a choice. There is a simple process that the consumer may use during the course of the in-person transaction to opt out, such as completing a form that requires consumers to write a yes or no to indicate their opt-out preference or that requires the consumer to check one of two blank check boxes; one that allows consumers to indicate that they want to opt out and one that allows consumers to indicate that they do not want to opt out. The opt-out notice is included in a Gramm-Leach-Bliley Act privacy notice. The consumer is allowed to exercise the opt-out within a reasonable period of time and in the same manner as the opt-out under that privacy notice Reasonable and Simple Methods of Opting Out You must not use eligibility information about a consumer that you receive from an affiliate to make a solicitation to the consumer about your products or services, unless the consumer is provided a reasonable and simple method to opt out. Examples of Reasonable and Simple Opt-Out Methods Reasonable and simple methods for exercising the opt-out right include: Designating a check-off box in a prominent position on the opt-out form; Including a reply form and a self-addressed envelope together with the opt-out notice; Providing an electronic means to opt out, such as a form that can be electronically mailed or processed at a Web site, if the consumer agrees to the electronic delivery of information; Providing a toll-free telephone number that consumers may call to opt out; or Allowing consumers to exercise all of their opt-out rights described in a consolidated optout notice that includes the privacy opt-out under the Gramm-Leach-Bliley Act, 15 U.S.C et seq., the affiliate sharing opt-out under the Act, and the affiliate marketing optout under the Act, by a single method, such as by calling a single toll-free telephone number. Examples of Opt-Out Methods that are not Reasonable and Simple Reasonable and simple methods for exercising an opt-out right do not include: Requiring the consumer to write his or her own letter; Requiring the consumer to call or write to obtain a form for opting out, rather than including the form with the opt-out notice; Requiring the consumer who receives the opt-out notice in electronic form only, such as through posting at a Web site, to opt out solely by paper mail or by visiting a different Web site without providing a link to that site. Rules and Regulations for Home Equity Line of Credit Lending Page 62

66 Specific opt-out means Each consumer may be required to opt out through a specific means, as long as that means is reasonable and simple for that consumer Delivery of Opt-Out Notices The opt-out notice must be provided so that each consumer can reasonably be expected to receive actual notice. For opt-out notices provided electronically, the notice may be provided in compliance with either the electronic disclosure provisions in this subpart or the provisions in section 101 of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C et seq. Examples of Reasonable Expectation of Actual Notice A consumer may reasonably be expected to receive actual notice if the affiliate providing the notice: Hand-delivers a printed copy of the notice to the consumer; Mails a printed copy of the notice to the last known mailing address of the consumer; Provides a notice by to a consumer who has agreed to receive electronic disclosures by from the affiliate providing the notice; or Posts the notice on the Web site at which the consumer obtained a product or service electronically and requires the consumer to acknowledge receipt of the notice. Examples of No Reasonable Expectation of Actual Notice A consumer may not reasonably be expected to receive actual notice if the affiliate providing the notice: Only posts the notice on a sign in a branch or office or generally publishes the notice in a newspaper; Sends the notice via to a consumer who has not agreed to receive electronic disclosures by from the affiliate providing the notice; or Posts the notice on a Web site without requiring the consumer to acknowledge receipt of the notice Renewal of Opt-Out Renewal Notice and Opt-Out Requirement After the opt-out period expires, you may not make solicitations based on eligibility information you receive from an affiliate to a consumer who previously opted out, unless: The consumer has been given a renewal notice that: o Provides the consumer a reasonable opportunity to opt out; o o Provides the consumer a reasonable and simple method to opt out; Each consumer can reasonably be expected to receive actual notice. For opt-out notices provided electronically, the notice may be provided in compliance with either the electronic disclosure provisions in this subpart or the provisions in section 101 of the Electronic Signatures in Global and National Commerce Act, 15 U.S.C et seq.; and A reasonable opportunity and a reasonable and simple method to renew the opt-out, and the consumer does not renew the opt-out; or Any of the following exceptions apply: o You make a solicitation for marketing purposes to a consumer with whom you have a pre-existing business relationship; o You facilitate communications to an individual for whose benefit you provide employee benefit or other services pursuant to a contract with an employer Rules and Regulations for Home Equity Line of Credit Lending Page 63

67 o o o o related to and arising out of the current employment relationship or status of the individual as a participant or beneficiary of an employee benefit plan; You perform services on behalf of an affiliate, except that this subparagraph shall not be construed as permitting you to send solicitations on behalf of an affiliate if the affiliate would not be permitted to send the solicitation as a result of the election of the consumer to opt out under this subpart; You respond to a communication about your products or services initiated by the consumer; You respond to an authorization or request by the consumer to receive solicitations; or If your compliance with this subpart would prevent you from complying with any provision of state insurance laws pertaining to unfair discrimination in any state in which you are lawfully doing business. Renewal Period Each opt-out renewal must be effective for a period of at least five years. Affiliates Who May Provide the Notice The notice required by this paragraph must be provided: By the affiliate that provided the previous opt-out notice, or its successor; As part of a joint renewal notice from two or more members of an affiliated group of companies, or their successors, that jointly provided the previous opt-out notice. Contents of Renewal Notice The renewal notice must be clear, conspicuous, and concise, and must accurately disclose: The name of the affiliate(s) providing the notice. If the notice is provided jointly by multiple affiliates and each affiliate shares a common name, such as ABC, then the notice may indicate that it is being provided by multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by all of the ABC companies, the ABC banking, credit card, insurance, and securities companies, or by listing the name of each affiliate providing the notice. But if the affiliates providing the joint notice do not all share a common name, then the notice must either separately identify each affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice is provided by all of the ABC and XYZ companies or by the ABC banking and credit card companies and the XYZ insurance companies ; A list of the affiliates or types of affiliates whose use of eligibility information is covered by the notice, which may include companies that become affiliates after the notice is provided to the consumer. If each affiliate covered by the notice shares a common name, such as ABC, then the notice may indicate that it applies to multiple companies with the ABC name or multiple companies in the ABC group or family of companies, for example, by stating that the notice is provided by all of the ABC companies, the ABC banking, credit card, insurance, and securities companies, or by listing the name of each affiliate providing the notice. But if the affiliates covered by the notice do not all share a common name, then the notice must either separately identify each covered affiliate by name or identify each of the common names used by those affiliates, for example, by stating that the notice applies to all of the ABC and XYZ companies or to the ABC banking and credit card companies and the XYZ insurance companies; A general description of the types of eligibility information that may be used to make solicitations to the consumer; Rules and Regulations for Home Equity Line of Credit Lending Page 64

68 That the consumer previously elected to limit the use of certain information to make solicitations to the consumer; That the consumer's election has expired or is about to expire; That the consumer may elect to renew the consumer's previous election; If applicable, that the consumer's election to renew will apply for the specified period of time stated in the notice and that the consumer will be allowed to renew the election once that period expires; and A reasonable and simple method for the consumer to opt out. Timing of the Renewal Notice A renewal notice may be provided to the consumer either: A reasonable period of time before the expiration of the opt-out period; or Any time after the expiration of the opt-out period but before solicitations that would have been prohibited by the expired opt-out are made to the consumer. Combination with Annual Privacy Notice If you provide an annual privacy notice under the Gramm-Leach-Bliley Act, 15 U.S.C et seq., providing a renewal notice with the last annual privacy notice provided to the consumer before expiration of the opt-out period is a reasonable period of time before expiration of the opt-out in all cases. No Effect on Opt-Out Period An opt-out period may not be shortened by sending a renewal notice to the consumer before expiration of the opt-out period, even if the consumer does not renew the opt out Obtaining or Using Medical Information in Connection with a Determination of Eligibility for Credit. Scope This section applies to any person that participates as a creditor in a transaction, except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat General Prohibition on Obtaining or Using Medical Information A creditor may not obtain or use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit, except as provided in this section. Rule of Construction for Obtaining and Using Unsolicited Medical Information A creditor does not obtain medical information in violation of the prohibition if it receives medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit without specifically requesting medical information. Use of Unsolicited Medical Information A creditor that receives unsolicited medical information without specifically requesting it may use that information in connection with any determination of the consumer's eligibility, or continued eligibility, for credit to the extent the creditor can rely on at least one of the following: The information is the type of information routinely used in making credit eligibility determinations, such as information relating to debts, expenses, income, benefits, assets, collateral, or the purpose of the loan, including the use of proceeds; Rules and Regulations for Home Equity Line of Credit Lending Page 65

69 The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and The creditor does not take the consumer's physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of any such determination; or To determine whether the use of a power of attorney or legal representative that is triggered by a medical condition or event is necessary and appropriate or whether the consumer has the legal capacity to contract when a person seeks to exercise a power of attorney or act as legal representative for a consumer based on an asserted medical condition or event; To comply with applicable requirements of local, state, or Federal laws; To determine, at the consumer's request, whether the consumer qualifies for a legally permissible special credit program or credit-related assistance program that is designed to meet the special needs of consumers with medical conditions and established and administered pursuant to a written plan that: o o Identifies the class of persons that the program is designed to benefit; and Sets forth the procedures and standards for extending credit or providing other credit-related assistance under the program; To the extent necessary for purposes of fraud prevention or detection; In the case of credit for the purpose of financing medical products or services, to determine and verify the medical purpose of a loan and the use of proceeds; Consistent with safe and sound practices, if the consumer or the consumer's legal representative specifically requests that the creditor use medical information in determining the consumer's eligibility, or continued eligibility, for credit, to accommodate the consumer's particular circumstances, and such request is documented by the creditor; Consistent with safe and sound practices, to determine whether the provisions of a forbearance practice or program that is triggered by a medical condition or event apply to a consumer; To determine the consumer's eligibility for, the triggering of, or the reactivation of a debt cancellation contract or debt suspension agreement if a medical condition or event is a triggering event for the provision of benefits under the contract or agreement; or To determine the consumer's eligibility for, the triggering of, or the reactivation of a credit insurance product if a medical condition or event is a triggering event for the provision of benefits under the product. Examples A creditor does not obtain medical information in violation of the prohibition if, for example: In response to a general question regarding a consumer's debts or expenses, the creditor receives information that the consumer owes a debt to a hospital; In a conversation with the creditor's loan officer, the consumer informs the creditor that the consumer has a particular medical condition; In connection with a consumer's application for an extension of credit, the creditor requests a consumer report from a consumer reporting agency and receives medical information in the consumer report furnished by the agency even though the creditor did not specifically request medical information from the consumer reporting agency. Rules and Regulations for Home Equity Line of Credit Lending Page 66

70 Financial Information Exception for Obtaining and Using Medical Information A creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit so long as: The information is the type of information routinely used in making credit eligibility determinations, such as information relating to debts, expenses, income, benefits, assets, collateral, or the purpose of the loan, including the use of proceeds; The creditor uses the medical information in a manner and to an extent that is no less favorable than it would use comparable information that is not medical information in a credit transaction; and The creditor does not take the consumer's physical, mental, or behavioral health, condition or history, type of treatment, or prognosis into account as part of any such determination. Examples of the Types of Information Routinely Used in Making Credit Eligibility Determinations To obtain and use information about: The dollar amount, repayment terms, repayment history, and similar information regarding medical debts to calculate, measure, or verify the repayment ability of the consumer, the use of proceeds, or the terms for granting credit; The value, condition, and lien status of a medical device that may serve as collateral to secure a loan; The dollar amount and continued eligibility for disability income, workers' compensation income, or other benefits related to health or a medical condition that is relied on as a source of repayment; or The identity of creditors to whom outstanding medical debts are owed in connection with an application for credit, including but not limited to, a transaction involving the consolidation of medical debts. Examples of Uses of Medical Information Consistent with the Exception A consumer includes on an application for credit information about two $20,000 debts. One debt is to a hospital; the other debt is to a retailer. The creditor contacts the hospital and the retailer to verify the amount and payment status of the debts. The creditor learns that both debts are more than 90 days past due. Any two debts of this size that are more than 90 days past due would disqualify the consumer under the creditor's established underwriting criteria. The creditor denies the application on the basis that the consumer has a poor repayment history on outstanding debts. The creditor has used medical information in a manner and to an extent no less favorable than it would use comparable non-medical information. A consumer indicates on an application for a $200,000 mortgage loan that she receives $15,000 in long-term disability income each year from her former employer and has no other income. Annual income of $15,000, regardless of source, would not be sufficient to support the requested amount of credit. The creditor denies the application on the basis that the projected debt-to-income ratio of the consumer does not meet the creditor's underwriting criteria. The creditor has used medical information in a manner and to an extent that is no less favorable than it would use comparable non-medical information. A consumer includes on an application for a $10,000 home equity loan that he has a $50,000 debt to a medical facility that specializes in treating a potentially terminal disease. The creditor contacts the medical facility to verify the debt and obtain the repayment history and current status of the loan. The creditor learns that the debt is Rules and Regulations for Home Equity Line of Credit Lending Page 67

71 current. The applicant meets the income and other requirements of the creditor's underwriting guidelines. The creditor grants the application. The creditor has used medical information in accordance with the exception. Examples of Uses of Medical Information Inconsistent with the Exception A consumer applies for $25,000 of credit and includes on the application information about a $50,000 debt to a hospital. The creditor contacts the hospital to verify the amount and payment status of the debt, and learns that the debt is current and that the consumer has no delinquencies in her repayment history. If the existing debt were instead owed to a retail department store, the creditor would approve the application and extend credit based on the amount and repayment history of the outstanding debt. The creditor, however, denies the application because the consumer is indebted to a hospital. The creditor has used medical information, here the identity of the medical creditor, in a manner and to an extent that is less favorable than it would use comparable non-medical information. A consumer meets with a loan officer of a creditor to apply for a mortgage loan. While filling out the loan application, the consumer informs the loan officer orally that she has a potentially terminal disease. The consumer meets the creditor's established requirements for the requested mortgage loan. The loan officer recommends to the credit committee that the consumer be denied credit because the consumer has that disease. The credit committee follows the loan officer's recommendation and denies the application because the consumer has a potentially terminal disease. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer's physical, mental, or behavioral health, condition, or history, type of treatment, or prognosis as part of a determination of eligibility or continued eligibility for credit. A consumer who has an apparent medical condition, such as a consumer who uses a wheelchair or an oxygen tank, meets with a loan officer to apply for a home equity loan. The consumer meets the creditor's established requirements for the requested home equity loan and the creditor typically does not require consumers to obtain a debt cancellation contract, debt suspension agreement, or credit insurance product in connection with such loans. However, based on the consumer's apparent medical condition, the loan officer recommends to the credit committee that credit be extended to the consumer only if the consumer obtains a debt cancellation contract, debt suspension agreement, or credit insurance product from a nonaffiliated third party. The credit committee agrees with the loan officer's recommendation. The loan officer informs the consumer that the consumer must obtain a debt cancellation contract, debt suspension agreement, or credit insurance product from a nonaffiliated third party to qualify for the loan. The consumer obtains one of these products and the creditor approves the loan. The creditor has used medical information in a manner inconsistent with the exception by taking into account the consumer's physical, mental, or behavioral health, condition, or history, type of treatment, or prognosis in setting conditions on the consumer's eligibility for credit. Specific Exceptions for Obtaining and Using Medical Information A creditor may obtain and use medical information pertaining to a consumer in connection with any determination of the consumer's eligibility, or continued eligibility, for credit: To determine whether the use of a power of attorney or legal representative that is triggered by a medical condition or event is necessary and appropriate or whether the consumer has the legal capacity to contract when a person seeks to exercise a power of Rules and Regulations for Home Equity Line of Credit Lending Page 68

72 attorney or act as legal representative for a consumer based on an asserted medical condition or event; To comply with applicable requirements of local, state, or Federal laws; To determine, at the consumer's request, whether the consumer qualifies for a legally permissible special credit program or credit-related assistance program that is designed to meet the special needs of consumers with medical conditions and established and administered pursuant to a written plan that: o Identifies the class of persons that the program is designed to benefit; and o Sets forth the procedures and standards for extending credit or providing other credit-related assistance under the program; To the extent necessary for purposes of fraud prevention or detection; In the case of credit for the purpose of financing medical products or services, to determine and verify the medical purpose of a loan and the use of proceeds; Consistent with safe and sound practices, if the consumer or the consumer's legal representative specifically requests that the creditor use medical information in determining the consumer's eligibility, or continued eligibility, for credit, to accommodate the consumer's particular circumstances, and such request is documented by the creditor; Consistent with safe and sound practices, to determine whether the provisions of a forbearance practice or program that is triggered by a medical condition or event apply to a consumer; To determine the consumer's eligibility for, the triggering of, or the reactivation of a debt cancellation contract or debt suspension agreement if a medical condition or event is a triggering event for the provision of benefits under the contract or agreement; or To determine the consumer's eligibility for, the triggering of, or the reactivation of a credit insurance product if a medical condition or event is a triggering event for the provision of benefits under the product. Example of Determining Eligibility for a Special Credit Program or Credit Assistance Program A not-for-profit organization establishes a credit assistance program pursuant to a written plan that is designed to assist disabled veterans in purchasing homes by subsidizing the down payment for the home purchase mortgage loans of qualifying veterans. The organization works through mortgage lenders and requires mortgage lenders to obtain medical information about the disability of any consumer that seeks to qualify for the program, use that information to verify the consumer's eligibility for the program, and forward that information to the organization. A consumer who is a veteran applies to a creditor for a home purchase mortgage loan. The creditor informs the consumer about the credit assistance program for disabled veterans and the consumer seeks to qualify for the program. Assuming that the program complies with all applicable laws, including applicable fair lending laws, the creditor may obtain and use medical information about the medical condition and disability, if any, of the consumer to determine whether the consumer qualifies for the credit assistance program. Examples of verifying the Medical Purpose of the Loan or the Use of Proceeds If a consumer applies for $10,000 of credit for the purpose of financing vision correction surgery, the creditor may verify with the surgeon that the procedure will be performed. If the surgeon reports that surgery will not be performed on the consumer, the creditor may use that medical information to deny the consumer's application for credit, because the loan would not be used for the stated purpose. Rules and Regulations for Home Equity Line of Credit Lending Page 69

73 If a consumer applies for $10,000 of credit for the purpose of financing cosmetic surgery, the creditor may confirm the cost of the procedure with the surgeon. If the surgeon reports that the cost of the procedure is $5,000, the creditor may use that medical information to offer the consumer only $5,000 of credit. A creditor has an established medical loan program for financing particular elective surgical procedures. The creditor receives a loan application from a consumer requesting $10,000 of credit under the established loan program for an elective surgical procedure. The consumer indicates on the application that the purpose of the loan is to finance an elective surgical procedure not eligible for funding under the guidelines of the established loan program. The creditor may deny the consumer's application because the purpose of the loan is not for a particular procedure funded by the established loan program. Examples of Obtaining and Using Medical Information at the Request of the Consumer If a consumer applies for a loan and specifically requests that the creditor consider the consumer's medical disability at the relevant time as an explanation for adverse payment history information in his credit report, the creditor may consider such medical information in evaluating the consumer's willingness and ability to repay the requested loan to accommodate the consumer's particular circumstances, consistent with safe and sound practices. The creditor may also decline to consider such medical information to accommodate the consumer, but may evaluate the consumer's application in accordance with its otherwise applicable underwriting criteria. The creditor may not deny the consumer's application or otherwise treat the consumer less favorably because the consumer specifically requested a medical accommodation, if the creditor would have extended the credit or treated the consumer more favorably under the creditor's otherwise applicable underwriting criteria; If a consumer applies for a loan by telephone and explains that his income has been and will continue to be interrupted on account of a medical condition and that he expects to repay the loan by liquidating assets, the creditor may, but is not required to, evaluate the application using the sale of assets as the primary source of repayment, consistent with safe and sound practices, provided that the creditor documents the consumer's request by recording the oral conversation or making a notation of the request in the consumer's file; If a consumer applies for a loan and the application form provides a space where the consumer may provide any other information or special circumstances, whether medical or non-medical, that the consumer would like the creditor to consider in evaluating the consumer's application, the creditor may use medical information provided by the consumer in that space on that application to accommodate the consumer's application for credit, consistent with safe and sound practices, or may disregard that information; If a consumer specifically requests that the creditor use medical information in determining the consumer's eligibility, or continued eligibility, for credit and provides the creditor with medical information for that purpose, and the creditor determines that it needs additional information regarding the consumer's circumstances, the creditor may request, obtain, and use additional medical information about the consumer as necessary to verify the information provided by the consumer or to determine whether to make an accommodation for the consumer. The consumer may decline to provide additional information, withdraw the request for an accommodation, and have the application considered under the creditor's otherwise applicable underwriting criteria. If a consumer completes and signs a credit application that is not for medical purpose credit and the application contains boilerplate language that routinely requests medical Rules and Regulations for Home Equity Line of Credit Lending Page 70

74 information from the consumer or that indicates that by applying for credit the consumer authorizes or consents to the creditor obtaining and using medical information in connection with a determination of the consumer's eligibility, or continued eligibility, for credit, the consumer has not specifically requested that the creditor obtain and use medical information to accommodate the consumer's particular circumstances. Example of a Forbearance Practice or Program After an appropriate safety and soundness review, a creditor institutes a program that allows consumers who are or will be hospitalized to defer payments as needed for up to three months, without penalty, if the credit account has been open for more than one year and has not previously been in default, and the consumer provides confirming documentation at an appropriate time. A consumer is hospitalized and does not pay her bill for a particular month. This consumer has had a credit account with the creditor for more than one year and has not previously been in default. The creditor attempts to contact the consumer and speaks with the consumer's adult child, who is not the consumer's legal representative. The adult child informs the creditor that the consumer is hospitalized and is unable to pay the bill at that time. The creditor defers payments for up to three months, without penalty, for the hospitalized consumer and sends the consumer a letter confirming this practice and the date on which the next payment will be due. The creditor has obtained and used medical information to determine whether the provisions of a medically-triggered forbearance practice or program apply to a consumer Limits on Redisclosure of Information Scope This section applies to any person, except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat Limits on Redisclosure If a person described above of this section receives medical information about a consumer from a consumer reporting agency or its affiliate, the person must not disclose that information to any other person, except as necessary to carry out the purpose for which the information was initially disclosed, or as otherwise permitted by statute, regulation, or order Sharing Medical Information with Affiliates Scope This section applies to any person, except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat The exclusions from the term consumer report in section 603(d)(2) of the Act that allow the sharing of information with affiliates do not apply to a person described above if that person communicates to an affiliate: Medical information; An individualized list or description based on the payment transactions of the consumer for medical products or services; or An aggregate list of identified consumers based on payment transactions for medical products or services. Rules and Regulations for Home Equity Line of Credit Lending Page 71

75 Exceptions A person described above may rely on the exclusions from the term consumer report in section 603(d)(2) of the Act to communicate to an affiliate: Medical information; An individualized list or description based on the payment transactions of the consumer for medical products or services; or An aggregate list of identified consumers based on payment transactions for medical products or services to an affiliate o o o o o o In connection with the business of insurance or annuities (including the activities described in section 18B of the model Privacy of Consumer Financial and Health Information Regulation issued by the National Association of Insurance Commissioners, as in effect on January 1, 2003); For any purpose permitted without authorization under the regulations promulgated by the Department of Health and Human Services pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA); For any purpose referred to in section 1179 of HIPAA; For any purpose described in section 502(e) of the Gramm-Leach-Bliley Act; In connection with a determination of the consumer's eligibility, or continued eligibility, for credit consistent with of this part; or As otherwise permitted by order of the Bureau Reasonable Policies and Procedures Concerning the Accuracy and Integrity of Furnished Information Policies and Procedures Each furnisher must establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a consumer reporting agency. The policies and procedures must be appropriate to the nature, size, complexity, and scope of each furnisher's activities. Guidelines Each furnisher must consider the guidelines in appendix E of this regulation in developing its policies and procedures required by this section, and incorporate those guidelines that are appropriate. Reviewing and Updating Policies and Procedures Each furnisher must review its policies and procedures required by this section periodically and update them as necessary to ensure their continued effectiveness Direct Disputes Except as otherwise provided in this section, a furnisher must conduct a reasonable investigation of a direct dispute if it relates to: The consumer's liability for a credit account or other debt with the furnisher, such as direct disputes relating to whether there is or has been identity theft or fraud against the consumer, whether there is individual or joint liability on an account, or whether the consumer is an authorized user of a credit account; The terms of a credit account or other debt with the furnisher, such as direct disputes relating to the type of account, principal balance, scheduled payment amount on an account, or the amount of the credit limit on an open-end account; The consumer's performance or other conduct concerning an account or other relationship with the furnisher, such as direct disputes relating to the current payment Rules and Regulations for Home Equity Line of Credit Lending Page 72

76 status, high balance, date a payment was made, the amount of a payment made, or the date an account was opened or closed; or Any other information contained in a consumer report regarding an account or other relationship with the furnisher that bears on the consumer's creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. The requirements above do not apply to a furnisher if The direct dispute relates to: o The consumer's identifying information (other than a direct dispute relating to a consumer's liability for a credit account or other debt with the furnisher, such as name(s), date of birth, Social Security number, telephone number(s), or address(es); o The identity of past or present employers; o Inquiries or requests for a consumer report; o Information derived from public records, such as judgments, bankruptcies, liens, and other legal matters (unless provided by a furnisher with an account or other relationship with the consumer); o Information related to fraud alerts or active duty alerts; or o Information provided to a consumer reporting agency by another furnisher; or The furnisher has a reasonable belief that the direct dispute is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization, as defined in 15 U.S.C. 1679a(3), or an entity that would be a credit repair organization, but for 15 U.S.C. 1679a(3)(B)(i). Direct Dispute Address A furnisher is required to investigate a direct dispute only if a consumer submits a dispute notice to the furnisher at: The address of a furnisher provided by a furnisher and set forth on a consumer report relating to the consumer; An address clearly and conspicuously specified by the furnisher for submitting direct disputes that is provided to the consumer in writing or electronically (if the consumer has agreed to the electronic delivery of information from the furnisher); or Any business address of the furnisher if the furnisher has not so specified and provided an address for submitting direct disputes. Direct Dispute Notice Contents A dispute notice must include: Sufficient information to identify the account or other relationship that is in dispute, such as an account number and the name, address, and telephone number of the consumer, if applicable; The specific information that the consumer is disputing and an explanation of the basis for the dispute; and All supporting documentation or other information reasonably required by the furnisher to substantiate the basis of the dispute. This documentation may include, for example: a copy of the relevant portion of the consumer report that contains the allegedly inaccurate information; a police report; a fraud or identity theft affidavit; a court order; or account statements. Rules and Regulations for Home Equity Line of Credit Lending Page 73

77 Duty of Furnisher After Receiving a Direct Dispute Notice After receiving a dispute notice from a consumer the furnisher must: Conduct a reasonable investigation with respect to the disputed information Review all relevant information provided by the consumer with the dispute notice; Complete its investigation of the dispute and report the results of the investigation to the consumer before the expiration of the period under section 611(a)(1) of the FCRA (15 U.S.C. 1681i(a)(1)) within which a consumer reporting agency would be required to complete its action if the consumer had elected to dispute the information under that section; and If the investigation finds that the information reported was inaccurate, promptly notify each consumer reporting agency to which the furnisher provided inaccurate information of that determination and provide to the consumer reporting agency any correction to that information that is necessary to make the information provided by the furnisher accurate. Frivolous or Irrelevant Disputes A furnisher is not required to investigate a direct dispute if the furnisher has reasonably determined that the dispute is frivolous or irrelevant. A dispute qualifies as frivolous or irrelevant if: The consumer did not provide sufficient information to investigate the disputed information; The direct dispute is substantially the same as a dispute previously submitted by or on behalf of the consumer, either directly to the furnisher or through a consumer reporting agency, with respect to which the furnisher has already satisfied the applicable requirements of the Act or this section; provided, however, that a direct dispute is not substantially the same as a dispute previously submitted if the dispute includes the following information that had not previously been provided to the furnisher: o Sufficient information to identify the account or other relationship that is in dispute, such as an account number and the name, address, and telephone number of the consumer, if applicable; o The specific information that the consumer is disputing and an explanation of the basis for the dispute; and o All supporting documentation or other information reasonably required by the furnisher to substantiate the basis of the dispute. This documentation may include, for example: A copy of the relevant portion of the consumer report that contains the allegedly inaccurate information; A police report; A fraud or identity theft affidavit; A court order; or Account statements The furnisher is not required to investigate the direct dispute when: o The direct dispute relates to: The consumer's identifying information (other than a direct dispute relating to a consumer's liability for a credit account or other debt with the furnisher), such as name(s), date of birth, Social Security number, telephone number(s), or address(es); The identity of past or present employers; Inquiries or requests for a consumer report; Rules and Regulations for Home Equity Line of Credit Lending Page 74

78 o Information derived from public records, such as judgments, bankruptcies, liens, and other legal matters (unless provided by a furnisher with an account or other relationship with the consumer); Information related to fraud alerts or active duty alerts; or Information provided to a consumer reporting agency by another furnisher; or The furnisher has a reasonable belief that the direct dispute is submitted by, is prepared on behalf of the consumer by, or is submitted on a form supplied to the consumer by, a credit repair organization, as defined in 15 U.S.C. 1679a(3), or an entity that would be a credit repair organization, but for 15 U.S.C. 1679a(3)(B)(i). Notice of Determination Upon making a determination that a dispute is frivolous or irrelevant, the furnisher must notify the consumer of the determination not later than five business days after making the determination, by mail or, if authorized by the consumer for that purpose, by any other means available to the furnisher. Contents of Notice of Determination that a Dispute is Frivolous or Irrelevant A notice of determination that a dispute is frivolous or irrelevant must include the reasons for such determination and identify any information required to investigate the disputed information, which notice may consist of a standardized form describing the general nature of such information Duties of Users Making Written Firm Offers of Credit or Insurance Based on Information Contained in Consumer Files Scope This subpart applies to any person who uses a consumer report on any consumer in connection with any credit or insurance transaction that is not initiated by the consumer, and that is provided to that person under section 604(c)(1)(B) of the FCRA (15 U.S.C. 1681b(c)(1)(B)), except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat Prescreen Opt-Out Notice Any person who uses a consumer report on any consumer in connection with any credit or insurance transaction that is not initiated by the consumer, and that is provided to that person under section 604(c)(1)(B) of the FCRA (15 U.S.C. 1681b(c)(1)(B)), shall, with each written solicitation made to the consumer about the transaction, provide the consumer with the following statement, consisting of a short portion and a long portion, which shall be in the same language as the offer of credit or insurance: Short Notice The short notice shall be a clear and conspicuous, and simple and easy to understand statement as follows: The short notice shall state that the consumer has the right to opt out of receiving prescreened solicitations, and shall provide the toll-free number the consumer can call to exercise that right. The short notice also shall direct the consumer to the existence and location of the long notice, and shall state the heading for the long notice. The short notice shall not contain any other information; Rules and Regulations for Home Equity Line of Credit Lending Page 75

79 In a type size that is larger than the type size of the principal text on the same page, but in no event smaller than 12 point type, or if provided by electronic means, then reasonable steps shall be taken to ensure that the type size is larger than the type size of the principal text on the same page; On the front side of the first page of the principal promotional document in the solicitation, or, if provided electronically, on the same page and in close proximity to the principal marketing message; Located on the page and in a format so that the statement is distinct from other text, such as inside a border; and In a type style that is distinct from the principal type style used on the same page, such as bolded, italicized, underlined, and/or in a color that contrasts with the color of the principal text on the page, if the solicitation is in more than one color. Long Notice The long notice shall be a clear and conspicuous, and simple and easy to understand statement as follows: The long notice shall state the information required by section 615(d) of the Fair Credit Reporting Act (15 U.S.C. 1681m(d)). The long notice shall not include any other information that interferes with, detracts from, contradicts, or otherwise undermines the purpose of the notice. Appear in the solicitation; Be in a type size that is no smaller than the type size of the principal text on the same page, and, for solicitations provided other than by electronic means, the type size shall in no event be smaller than 8 point type; Begin with a heading in capital letters and underlined, and identifying the long notice as the PRESCREEN&OPT-OUT NOTICE; Be in a type style that is distinct from the principal type style used on the same page, such as bolded, italicized, underlined, and/or in a color that contrasts with the color of the principal text on the page, if the solicitation is in more than one color; and Be set apart from other text on the page, such as by including a blank line above and below the statement, and by indenting both the left and right margins from other text on the page Duties of Users Regarding Risk-Based Pricing Scope This subpart applies to any person, except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat. 137, that both: Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to a consumer that is primarily for personal, family, or household purposes; and Based in whole or in part on the consumer report, grants, extends, or otherwise provides credit to the consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person. Business Credit Excluded This subpart does not apply to an application for, or a grant, extension, or other provision of, credit to a consumer or to any other applicant primarily for a business purpose. Rules and Regulations for Home Equity Line of Credit Lending Page 76

80 Enforcement The provisions of this subpart will be enforced in accordance with the enforcement authority set forth in sections 621(a) and (b) of the FCRA General Requirements for Risk-Based Pricing Notices. Except as otherwise provided in this subpart, a person must provide to a consumer a notice ( risk-based pricing notice ) in the form and manner required by this subpart if the person both: Uses a consumer report in connection with an application for, or a grant, extension, or other provision of, credit to that consumer that is primarily for personal, family, or household purposes; and Based in whole or in part on the consumer report, grants, extends, or otherwise provides credit to that consumer on material terms that are materially less favorable than the most favorable material terms available to a substantial proportion of consumers from or through that person. Determining Which Consumers Must Receive a Notice A person may determine whether the requirements apply by directly comparing the material terms offered to each consumer and the material terms offered to other consumers for a specific type of credit product. For purposes of this section, a specific type of credit product means one or more credit products with similar features that are designed for similar purposes. Examples of a specific type of credit product include student loans, unsecured credit cards, secured credit cards, new automobile loans, used automobile loans, fixed-rate mortgage loans, and variablerate mortgage loans. As an alternative to making this direct comparison, a person may make the determination by using one of the following methods: Credit Score Proxy Method A person that sets the material terms of credit granted, extended, or otherwise provided to a consumer, based in whole or in part on a credit score, may comply with these requirements by: o Determining the credit score (hereafter referred to as the cutoff score ) that represents the point at which approximately 40 percent of the consumers to whom it grants, extends, or provides credit have higher credit scores and approximately 60 percent of the consumers to whom it grants, extends, or provides credit have lower credit scores; and o Providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit whose credit score is lower than the cutoff score. Alternative to the 40/60 Cutoff Score Determination In the case of credit that has been granted, extended, or provided on the most favorable material terms to more than 40 percent of consumers, a person may, at its option, set its cutoff score at a point at which the approximate percentage of consumers who historically have been granted, extended, or provided credit on material terms other than the most favorable terms would receive risk-based pricing notices under this section. Determining the Cutoff Score Sampling Approach A person that currently uses risk-based pricing with respect to the credit products it offers must calculate the cutoff score by considering the credit scores of all or a representative sample of the consumers to whom it has granted, extended, or provided credit for a specific type of credit product. Secondary Source Approach in Limited Circumstances Rules and Regulations for Home Equity Line of Credit Lending Page 77

81 A person that is a new entrant into the credit business, introduces new credit products, or starts to use risk-based pricing with respect to the credit products it currently offers may initially determine the cutoff score based on information derived from appropriate market research or relevant third-party sources for a specific type of credit product, such as research or data from companies that develop credit scores. A person that acquires a credit portfolio as a result of a merger or acquisition may determine the cutoff score based on information from the party which it acquired, with which it merged, or from which it acquired the portfolio. Recalculation of Cutoff Scores A person using the credit score proxy method must recalculate its cutoff score(s) no less than every two years. A person using the credit score proxy method using market research, thirdparty data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio generally must calculate a cutoff score(s) based on the scores of its own consumers within one year after it begins using a cutoff score derived from market research, third-party data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio. If such a person does not grant, extend, or provide credit to new consumers during that one-year period such that it lacks sufficient data with which to recalculate a cutoff score based on the credit scores of its own consumers, the person may continue to use a cutoff score derived from market research, third-party data, or information from a party which it acquired, with which it merged, or from which it acquired the portfolio until it obtains sufficient data on which to base the recalculation. However, the person must recalculate its cutoff score(s) within two years, if it has granted, extended, or provided credit to some new consumers during that two-year period. Use of Two or More Credit Scores A person that generally uses two or more credit scores in setting the material terms of credit granted, extended, or provided to a consumer must determine the cutoff score using the same method the person uses to evaluate multiple scores when making credit decisions. These evaluation methods may include, but are not limited to, selecting the low, median, high, most recent, or average credit score of each consumer to whom it grants, extends, or provides credit. If a person that uses two or more credit scores does not consistently use the same method for evaluating multiple credit scores (e.g., if the person sometimes chooses the median score and other times calculates the average score), the person must determine the cutoff score using a reasonable means. In such cases, use of any one of the methods that the person regularly uses or the average credit score of each consumer to whom it grants, extends, or provides credit is deemed to be a reasonable means of calculating the cutoff score. Credit Score Not Available For purposes of this section, a person using the credit score proxy method who grants, extends, or provides credit to a consumer for whom a credit score is not available must assume that the consumer receives credit on material terms that are materially less favorable than the most favorable credit terms offered to a substantial proportion of consumers from or through that person and must provide a risk-based pricing notice to the consumer. Examples A credit card issuer engages in risk-based pricing and the annual percentage rates it offers to consumers are based in whole or in part on a credit score. The credit card issuer takes a representative sample of the credit scores of consumers to whom it issued credit cards within the preceding three months. The credit card issuer determines that approximately 40 percent of the sampled consumers have a credit score at or above 720 (on a scale of 350 to 850) and approximately 60 percent of the sampled consumers Rules and Regulations for Home Equity Line of Credit Lending Page 78

82 have a credit score below 720. Thus, the card issuer selects 720 as its cutoff score. A consumer applies to the credit card issuer for a credit card. The card issuer obtains a credit score for the consumer. The consumer's credit score is 700. Since the consumer's 700 credit score falls below the 720 cutoff score, the credit card issuer must provide a risk-based pricing notice to the consumer. A credit card issuer engages in risk-based pricing, and the annual percentage rates it offers to consumers are based in whole or in part on a credit score. The credit card issuer takes a representative sample of the consumers to whom it issued credit cards over the preceding six months. The credit card issuer determines that approximately 80 percent of the sampled consumers received credit at its lowest annual percentage rate, and 20 percent received credit at a higher annual percentage rate. Approximately 80 percent of the sampled consumers have a credit score at or above 750 (on a scale of 350 to 850), and 20 percent have a credit score below 750. Thus, the card issuer selects 750 as its cutoff score. A consumer applies to the credit card issuer for a credit card. The card issuer obtains a credit score for the consumer. The consumer's credit score is 740. Since the consumer's 740 credit score falls below the 750 cutoff score, the credit card issuer must provide a risk-based pricing notice to the consumer. An auto lender engages in risk-based pricing, obtains credit scores from one of the nationwide consumer reporting agencies, and uses the credit score proxy method to determine which consumers must receive a risk-based pricing notice. A consumer applies to the auto lender for credit to finance the purchase of an automobile. A credit score about that consumer is not available from the consumer reporting agency from which the lender obtains credit scores. The lender nevertheless grants, extends, or provides credit to the consumer. The lender must provide a risk-based pricing notice to the consumer. Tiered Pricing Method A person that sets the material terms of credit granted, extended, or provided to a consumer by placing the consumer within one of a discrete number of pricing tiers for a specific type of credit product, based in whole or in part on a consumer report, may comply with the requirements of paragraph (a) of this section by providing a risk-based pricing notice to each consumer who is not placed within the top pricing tier or tiers, as described below. Four or Fewer Pricing Tiers If a person using the tiered pricing method has four or fewer pricing tiers, the person complies with the requirements of paragraph (a) of this section by providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who does not qualify for the top tier (that is, the lowest-priced tier). For example, a person that uses a tiered pricing structure with annual percentage rates of 8, 10, 12, and 14 percent would provide the risk-based pricing notice to each consumer to whom it grants, extends, or provides credit at annual percentage rates of 10, 12, and 14 percent. Five or More Pricing Tiers If a person using the tiered pricing method has five or more pricing tiers, the person complies by providing a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who does not qualify for the top two tiers (that is, the two lowest-priced tiers) and any other tier that, together with the top tiers, comprise no less than the top 30 percent but no more than the top 40 percent of the total number of tiers. Each consumer placed within the remaining tiers must receive a risk-based pricing notice. For example, if a person has nine pricing tiers, the top three tiers (that is, the three lowest-priced tiers) comprise no less than the Rules and Regulations for Home Equity Line of Credit Lending Page 79

83 top 30 percent but no more than the top 40 percent of the tiers. Therefore, a person using this method would provide a risk-based pricing notice to each consumer to whom it grants, extends, or provides credit who is placed within the bottom six tiers Content, Form, and Timing of Risk-Based Pricing Notices Content of the Notice The risk-based pricing notice must include: A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that history; A statement that the terms offered, such as the annual percentage rate, have been set based on information from a consumer report; A statement that the terms offered may be less favorable than the terms offered to consumers with better credit histories; A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; The identity of each consumer reporting agency that furnished a consumer report used in the credit decision; A statement that Federal law gives the consumer the right to obtain a copy of a consumer report from the consumer reporting agency or agencies identified in the notice without charge for 60 days after receipt of the notice; A statement informing the consumer how to obtain a consumer report from the consumer reporting agency or agencies identified in the notice and providing contact information (including a toll-free telephone number, where applicable) specified by the consumer reporting agency or agencies; A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports; and If a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of credit: o A statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history; o The credit score used by the person in making the credit decision; o The range of possible credit scores under the model used to generate the credit score; o All of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquiries made with respect to the consumer report, the number of key factors shall not exceed five; o The date on which the credit score was created; and o The name of the consumer reporting agency or other person that provided the credit score. Account Review The required risk-based pricing notice must include: A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that credit history; A statement that the person has conducted a review of the account using information from a consumer report; Rules and Regulations for Home Equity Line of Credit Lending Page 80

84 A statement that as a result of the review, the annual percentage rate on the account has been increased based on information from a consumer report A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; The identity of each consumer reporting agency that furnished a consumer report used in the account review; A statement that Federal law gives the consumer the right to obtain a copy of a consumer report from the consumer reporting agency or agencies identified in the notice without charge for 60 days after receipt of the notice; A statement informing the consumer how to obtain a consumer report from the consumer reporting agency or agencies identified in the notice and providing contact information (including a toll-free telephone number, where applicable) specified by the consumer reporting agency or agencies; A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports; and If a credit score of the consumer whose extension of credit is under review is used in increasing the annual percentage rate: o A statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history; o The credit score used by the person in making the credit decision; o The range of possible credit scores under the model used to generate the credit score; o All of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquires made with respect to the consumer report, the number of key factors shall not exceed five; o The date on which the credit score was created; and o The name of the consumer reporting agency or other person that provided the credit score. Form of the Notice The required risk-based pricing notice must be clear and conspicuous and provided to the consumer in oral, written, or electronic form. Model Forms Model forms of the risk-based pricing notice are contained in appendices H-1 and H-6 of the regulation. Appropriate use of Model Form H-1 or H-6 is deemed to comply with the requirements of (a) and (c). Model forms of the risk-based pricing notice required by (d) are contained in appendices H-2 and H-7 of the regulation. Appropriate use of Model Form H-2 or H-7 is deemed to comply with the requirements of (d). Use of the model forms is optional. Timing A risk-based pricing notice must be provided to the consumer: In the case of a grant, extension, or other provision of closed-end credit, before consummation of the transaction, but not earlier than the time the decision to approve an Rules and Regulations for Home Equity Line of Credit Lending Page 81

85 application for, or a grant, extension, or other provision of, credit, is communicated to the consumer by the person required to provide the notice; In the case of credit granted, extended, or provided under an open-end credit plan, before the first transaction is made under the plan, but not earlier than the time the decision to approve an application for, or a grant, extension, or other provision of, credit is communicated to the consumer by the person required to provide the notice; or In the case of a review of credit that has been extended to the consumer, at the time the decision to increase the annual percentage rate based on a consumer report is communicated to the consumer by the person required to provide the notice, or if no notice of the increase in the annual percentage rate is provided to the consumer prior to the effective date of the change in the annual percentage rate (to the extent permitted by law), no later than five days after the effective date of the change in the annual percentage rate. Application to Certain Automobile Lending Transactions When a person to whom a credit obligation is initially payable grants, extends, or provides credit to a consumer for the purpose of financing the purchase of an automobile from an auto dealer or other party that is not affiliated with the person, any requirement to provide a risk-based pricing notice is satisfied if the person: Provides a notice to the consumer within the time periods required; or Arranges to have the auto dealer or other party provide a notice to the consumer on its behalf within the time periods required, and maintains reasonable policies and procedures to verify that the auto dealer or other party provides such notice to the consumer within the applicable time periods. If the person arranges to have the auto dealer or other party provide a notice the person's obligation is satisfied if the consumer receives a notice containing a credit score obtained by the dealer or other party, even if a different credit score is obtained and used by the person on whose behalf the notice is provided. Timing Requirements for Contemporaneous Purchase Credit When credit under an open-end credit plan is granted, extended, or provided to a consumer in person or by telephone for the purpose of financing the contemporaneous purchase of goods or services, any risk-based pricing notice required to be made may be provided at the earlier of: The time of the first mailing by the person to the consumer after the decision is made to approve the grant, extension, or other provision of open-end credit, such as in a mailing containing the account agreement or a credit card; or Within 30 days after the decision to approve the grant, extension, or other provision of credit. Multiple Credit Score When a person obtains or creates two or more credit scores and uses one of those credit scores in setting the material terms of credit, for example, by using the low, middle, high, or most recent score, the notices must include that credit score and information relating to that credit score. When a person obtains or creates two or more credit scores and uses multiple credit scores in setting the material terms of credit by, for example, computing the average of all the credit scores obtained or created, the notices must include one of those credit scores and information relating to credit scores The notice may, at the person's option, include more than one credit Rules and Regulations for Home Equity Line of Credit Lending Page 82

86 score, along with the additional information specified in the regulation for each credit score disclosed. Examples A person that uses consumer reports to set the material terms of credit cards granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies and uses the low score when determining the material terms it will offer to the consumer. That person must disclose the low score in the notices. A person that uses consumer reports to set the material terms of automobile loans granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies, each of which it uses in an underwriting program in order to determine the material terms it will offer to the consumer. That person may choose one of these scores to include in the notices Exceptions Application for Specific Terms A person is not required to provide a risk-based pricing notice to the consumer if the consumer applies for specific material terms and is granted those terms, unless those terms were specified by the person using a consumer report after the consumer applied for or requested credit and after the person obtained the consumer report. For purposes of this section, specific material terms means a single material term, or set of material terms, such as an annual percentage rate of 10 percent, and not a range of alternatives, such as an annual percentage rate that may be 8, 10, or 12 percent, or between 8 and 12 percent. Example A consumer receives a firm offer of credit from a credit card issuer. The terms of the firm offer are based in whole or in part on information from a consumer report that the credit card issuer obtained under the FCRA's firm offer of credit provisions. The solicitation offers the consumer a credit card with a single purchase annual percentage rate of 12 percent. The consumer applies for and receives a credit card with an annual percentage rate of 12 percent. Other customers with the same credit card have a purchase annual percentage rate of 10 percent. The exception applies because the consumer applied for specific material terms and was granted those terms. Although the credit card issuer specified the annual percentage rate in the firm offer of credit based in whole or in part on a consumer report, the credit card issuer specified that material term before, not after, the consumer applied for or requested credit. Adverse Action Notice A person is not required to provide a risk-based pricing notice to the consumer if the person provides an adverse action notice to the consumer under section 615(a) of the FCRA. Prescreened Solicitations A person is not required to provide a risk-based pricing notice to the consumer under if the person: Obtains a consumer report that is a prescreened list as described in section 604(c)(2) of the FCRA; and Uses the consumer report for the purpose of making a firm offer of credit to the consumer. Rules and Regulations for Home Equity Line of Credit Lending Page 83

87 More Favorable Material Terms This exception applies to any firm offer of credit offered by a person to a consumer, even if the person makes other firm offers of credit to other consumers on more favorable material terms. Example A credit card issuer obtains two prescreened lists from a consumer reporting agency. One list includes consumers with high credit scores. The other list includes consumers with low credit scores. The issuer mails a firm offer of credit to the high credit score consumers with a single purchase annual percentage rate of 10 percent. The issuer also mails a firm offer of credit to the low credit score consumers with a single purchase annual percentage rate of 14 percent. The credit card issuer is not required to provide a risk-based pricing notice to the low credit score consumers who receive the 14 percent offer because use of a consumer report to make a firm offer of credit does not trigger the risk-based pricing notice requirement. Loans Secured by Residential Real Property Credit Score Disclosure A person is not required to provide a risk-based pricing notice to a consumer if: The consumer requests from the person an extension of credit that is or will be secured by one to four units of residential real property; and The person provides to each consumer that requests an extension of credit that is or will be secured by one to four units of residential real property, a notice that contains the following: o A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; o A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; o A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; o The information required to be disclosed to the consumer pursuant to section 609(g) of the FCRA; o The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph is deemed to comply with this requirement; o A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; o A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Rules and Regulations for Home Equity Line of Credit Lending Page 84

88 o o Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. Form of the Notice The notice described above must be: Clear and conspicuous; Provided on or with the notice required by section 609(g) of the FCRA; Segregated from other information provided to the consumer, except for the notice required by section 609(g) of the FCRA; and Provided to the consumer in writing and in a form that the consumer may keep. Timing The notice must be provided to the consumer at the time the disclosure required by section 609(g) of the FCRA is provided to the consumer, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan. Multiple Credit Scores When a person obtains two or more credit scores from consumer reporting agencies and uses one of those credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by using the low, middle, high, or most recent score, the real estate notice must include: That credit score; and A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; The information required to be disclosed to the consumer pursuant to section 609(g) of the FCRA; The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph is deemed to comply with this requirement; A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report Rules and Regulations for Home Equity Line of Credit Lending Page 85

89 from each of the nationwide consumer reporting agencies once during any 12-month period; Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. When a person obtains two or more credit scores from consumer reporting agencies and uses multiple credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by computing the average of all the credit scores obtained, the notice must include: One of those credit scores; and A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; The information required to be disclosed to the consumer pursuant to section 609(g) of the FCRA; The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph is deemed to comply with this requirement; A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. The notice may, at the person's option, include more than one credit score, along with the additional information above for each credit score disclosed. Examples A person that uses consumer reports to set the material terms of mortgage credit granted, extended, or provided to consumers regularly requests credit scores from Rules and Regulations for Home Equity Line of Credit Lending Page 86

90 several consumer reporting agencies and uses the low score when determining the material terms it will offer to the consumer. That person must disclose the low score in the required notice. A person that uses consumer reports to set the material terms of mortgage credit granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies, each of which it uses in an underwriting program in order to determine the material terms it will offer to the consumer. That person may choose one of these scores to include in the notice. Model Form A model form of the notice described in the regulation consolidated with the notice required by section 609(g) of the FCRA is contained in appendix H-3 of this regulation. Appropriate use of Model Form H-3 is deemed to comply with the requirements. Use of the model form is optional. Other Extensions of Credit Credit Score Disclosure A person is not required to provide a risk-based pricing notice to a consumer if: The consumer requests from the person an extension of credit other than credit that is or will be secured by one to four units of residential real property; and The person provides to each consumer a notice that contains the following: o A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; o A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; o A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; o The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit; o The range of possible credit scores under the model used to generate the credit score; o The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar, or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score is deemed to comply with this requirement; o The date on which the credit score was created; o The name of the consumer reporting agency or other person that provided the credit score; o A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; o A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including Rules and Regulations for Home Equity Line of Credit Lending Page 87

91 o o a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. Form of the Notice The notice must be: Clear and conspicuous; Segregated from other information provided to the consumer; and Provided to the consumer in writing and in a form that the consumer may keep. Timing The notice must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan. Multiple Credit Scores When a person obtains two or more credit scores from consumer reporting agencies and uses one of those credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by using the low, middle, high, or most recent score, the notice must include: That credit score; and A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit; The range of possible credit scores under the model used to generate the credit score; The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar, or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph is deemed to comply with this requirement; The date on which the credit score was created; The name of the consumer reporting agency or other person that provided the credit score; Rules and Regulations for Home Equity Line of Credit Lending Page 88

92 A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. When a person obtains two or more credit scores from consumer reporting agencies and uses multiple credit scores in setting the material terms of credit granted, extended, or otherwise provided to a consumer, for example, by computing the average of all the credit scores obtained, the notice must include: One of those credit scores; and A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit; The range of possible credit scores under the model used to generate the credit score; The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar, or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score that meets the requirements of this paragraph is deemed to comply with this requirement; The date on which the credit score was created; The name of the consumer reporting agency or other person that provided the credit score; A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Rules and Regulations for Home Equity Line of Credit Lending Page 89

93 Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. The notice may, at the person's option, include more than one credit score, along with the additional information specified above for each credit score disclosed. Examples The manner in which multiple credit scores are to be disclosed under this section are substantially identical to the manner set forth in the examples contained in paragraph (d)(4)(ii) of this section. Model Form A model form of the notice discussed above is contained in appendix H-4 of the regulation. Appropriate use of Model Form H-4 is deemed to comply with the requirements of the regulation. Use of the model form is optional. Credit Score Not Available A person is not required to provide a risk-based pricing notice if the person: Regularly obtains credit scores from a consumer reporting agency and provides credit score disclosures to consumers, but a credit score is not available from the consumer reporting agency from which the person regularly obtains credit scores for a consumer to whom the person grants, extends, or provides credit; Does not obtain a credit score from another consumer reporting agency in connection with granting, extending, or providing credit to the consumer; and Provides to the consumer a notice that contains the following: o A statement that a consumer report (or credit report) includes information about the consumer's credit history and the type of information included in that history; o A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time in response to changes in the consumer's credit history; o A statement that credit scores are important because consumers with higher credit scores generally obtain more favorable credit terms; o A statement that not having a credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; o A statement that a credit score about the consumer was not available from a consumer reporting agency, which must be identified by name, generally due to insufficient information regarding the consumer's credit history; o A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the consumer report; o A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free consumer report from each of the nationwide consumer reporting agencies once during any 12-month period; o The contact information for the centralized source from which consumers may obtain their free annual consumer reports; and o A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. Rules and Regulations for Home Equity Line of Credit Lending Page 90

94 Example A person that uses consumer reports to set the material terms of non-mortgage credit granted, extended, or provided to consumers regularly requests credit scores from a particular consumer reporting agency and provides those credit scores and additional information to consumers to satisfy the requirements of this regulation. That consumer reporting agency provides to the person a consumer report on a particular consumer that contains one trade line, but does not provide the person with a credit score on that consumer. If the person does not obtain a credit score from another consumer reporting agency and, based in whole or in part on information in a consumer report, grants, extends, or provides credit to the consumer, the person may provide the notice described in paragraph above. If, however, the person obtains a credit score from another consumer reporting agency, the person may not rely upon this exception, but may satisfy the requirements by providing to each consumer a notice that contains the following: A statement that a consumer report (or credit report) is a record of the consumer's credit history and includes information about whether the consumer pays his or her obligations on time and how much the consumer owes to creditors; A statement that a credit score is a number that takes into account information in a consumer report and that a credit score can change over time to reflect changes in the consumer's credit history; A statement that the consumer's credit score can affect whether the consumer can obtain credit and what the cost of that credit will be; The current credit score of the consumer or the most recent credit score of the consumer that was previously calculated by the consumer reporting agency for a purpose related to the extension of credit; The range of possible credit scores under the model used to generate the credit score; The distribution of credit scores among consumers who are scored under the same scoring model that is used to generate the consumer's credit score using the same scale as that of the credit score that is provided to the consumer, presented in the form of a bar graph containing a minimum of six bars that illustrates the percentage of consumers with credit scores within the range of scores reflected in each bar, or by other clear and readily understandable graphical means, or a clear and readily understandable statement informing the consumer how his or her credit score compares to the scores of other consumers. Use of a graph or statement obtained from the person providing the credit score is deemed to comply with this requirement; The date on which the credit score was created; The name of the consumer reporting agency or other person that provided the credit score; A statement that the consumer is encouraged to verify the accuracy of the information contained in the consumer report and has the right to dispute any inaccurate information in the report; A statement that Federal law gives the consumer the right to obtain copies of his or her consumer reports directly from the consumer reporting agencies, including a free report from each of the nationwide consumer reporting agencies once during any 12-month period; Contact information for the centralized source from which consumers may obtain their free annual consumer reports; and A statement directing consumers to the Web site of the Bureau to obtain more information about consumer reports. Rules and Regulations for Home Equity Line of Credit Lending Page 91

95 Form of the Notice The notice must be: Clear and conspicuous; Segregated from other information provided to the consumer; and Provided to the consumer in writing and in a form that the consumer may keep. Timing The notice of this section must be provided to the consumer as soon as reasonably practicable after the person has requested the credit score, but in any event not later than consummation of a transaction in the case of closed-end credit or when the first transaction is made under an open-end credit plan. Model Form A model form of the notice to be used when a credit score is not available is contained in appendix H-5 of the regulation. Appropriate use of Model Form H-5 is deemed to comply with the requirements of the regulation. Use of the model form is optional Duties of Users Regarding Address Discrepancies Scope This section applies to a user of consumer reports (user) that receives a notice of address discrepancy from a consumer reporting agency described in 15 U.S.C. 1681a(p), except for a person excluded from coverage of this part by section 1029 of the Consumer Financial Protection Act of 2010, title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law , 124 Stat Requirement to Form a Reasonable Belief A user must develop and implement reasonable policies and procedures designed to enable the user to form a reasonable belief that a consumer report relates to the consumer about whom it has requested the report, when the user receives a notice of address discrepancy. Examples of Reasonable Policies and Procedures Comparing the information in the consumer report provided by the consumer reporting agency with information the user: o Obtains and uses to verify the consumer's identity in accordance with the requirements of the Customer Identification Program (CIP) rules implementing 31 U.S.C. 5318(l) (31 CFR ); o Maintains in its own records, such as applications, change of address notifications, other customer account records, or retained CIP documentation; or o o Obtains from third-party sources; or Verifying the information in the consumer report provided by the consumer reporting agency with the consumer. Consumer's Address - Requirement to Furnish Consumer's Address to a Consumer Reporting Agency A user must develop and implement reasonable policies and procedures for furnishing an address for the consumer that the user has reasonably confirmed is accurate to the consumer reporting agency described in 15 U.S.C. 1681a(p) from whom it received the notice of address discrepancy when the user: Can form a reasonable belief that the consumer report relates to the consumer about whom the user requested the report; Rules and Regulations for Home Equity Line of Credit Lending Page 92

96 Establishes a continuing relationship with the consumer; and Regularly and in the ordinary course of business furnishes information to the consumer reporting agency from which the notice of address discrepancy relating to the consumer was obtained. Examples of Confirmation Methods The user may reasonably confirm an address is accurate by: Verifying the address with the consumer about whom it has requested the report; Reviewing its own records to verify the address of the consumer; Verifying the address through third-party sources; or Using other reasonable means. Timing The policies and procedures developed must provide that the user will furnish the consumer's address that the user has reasonably confirmed is accurate to the consumer reporting agency described in 15 U.S.C. 1681a(p) as part of the information it regularly furnishes for the reporting period in which it establishes a relationship with the consumer. Rules and Regulations for Home Equity Line of Credit Lending Page 93

97 12 C.F.R REAL ESTATE SETTLEMENT PROCEDURES Act (RESPA) Definitions Affiliated Business Arrangement means an arrangement in which: A person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person, has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of settlement services; and Either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider. Affiliate Relationship means the relationship among business entities where one entity has effective control over the other by virtue of a partnership or other agreement, or is under common control with the other by a third entity, or where an entity is a corporation related to another corporation as parent to subsidiary by an identity of stock ownership. Aggregate (or) Composite Analysis, Hereafter Called Aggregate Analysis, means an accounting method a servicer uses in conducting an escrow account analysis by computing the sufficiency of escrow account funds by analyzing the account as a whole. Appendix E to this regulation sets forth examples of aggregate escrow account analyses. Application means the submission of a borrower's financial information in anticipation of a credit decision relating to a federally related mortgage loan, which shall include the borrower's name, the borrower's monthly income, the borrower's social security number to obtain a credit report, the property address, an estimate of the value of the property, the mortgage loan amount sought, and any other information deemed necessary by the loan originator. An application may either be in writing or electronically submitted, including a written record of an oral application. Associate means one who has one or more of the following relationships with a person in a position to refer settlement business: A spouse, parent, or child of such person; A corporation or business entity that controls, is controlled by, or is under common control with such person; An employer, officer, director, partner, franchisor, or franchisee of such person; or Anyone who has an agreement, arrangement, or understanding, with such person, the purpose or substantial effect of which is to enable the person in a position to refer settlement business to benefit financially from the referrals of such business. Annual Escrow Account Statement means a statement of account history, reflecting the activity in the escrow account during the escrow account computation year, and a projection of the activity in the account for the next year. In preparing the statement, the servicer may assume scheduled payments and disbursements will be made for the final 2 months of the escrow account computation year. A servicer shall submit an annual escrow account statement to the borrower within 30 calendar days of the end of the escrow account computation year, after conducting an escrow account analysis. Balloon Payment is defined as a payment that is more than two times a regular periodic payment. Bureau means the Bureau of Consumer Financial Protection. Rules and Regulations for Home Equity Line of Credit Lending Page 94

98 Business Day means a day on which the offices of the business entity are open to the public for carrying on substantially all of the entity's business functions. Changed Circumstances means: Acts of God, war, disaster, or other emergency; Information particular to the borrower or transaction that was relied on in providing the GFE, and that changes or is found to be inaccurate after the GFE has been provided. This may include information about the credit quality of the borrower, the amount of the loan, the estimated value of the property, or any other information that was used in providing the GFE; New information particular to the borrower or transaction that was not relied on in providing the GFE; or Other circumstances that are particular to the borrower or transaction, including boundary disputes, the need for flood insurance, or environmental problems. Changed Circumstances Does Not Include: The borrower s name; The borrower s monthly income; The property address; An estimate of value of the property; The mortgage loan amount sought; and Any information contained in any credit report obtained by the loan originator prior to providing the GFE, unless the information changes or is found to be inaccurate after the GFE has been provided; or Market price fluctuations by themselves. Cushion or Reserve (hereafter cushion) means funds that a servicer may require a borrower to pay into an escrow account to cover unanticipated disbursements or disbursements made before the borrower's payments are available in the account. Dealer means, in the case of property improvement loans, a seller, contractor, or supplier of goods or services. In the case of manufactured home loans, dealer means one who engages in the business of manufactured home retail sales. Dealer Loan or Dealer Consumer Credit Contract means, generally, any arrangement in which a dealer assists the borrower in obtaining a federally related mortgage loan from the funding lender and then assigns the dealer's legal interests to the funding lender and receives the net proceeds of the loan. The funding lender is the lender for the purposes of the disclosure requirements of this part. If a dealer is a creditor as defined under the definition of federally related mortgage loan in this part, the dealer is the lender for purposes of this part. Deficiency is the amount of a negative balance in an escrow account. Delivery means the placing of a document in the United States mail, first-class postage paid, addressed to the last known address of the recipient. Hand delivery also constitutes delivery. Disbursement Date means the date on which the servicer actually pays an escrow item from the escrow account. Rules and Regulations for Home Equity Line of Credit Lending Page 95

99 Effective Date of Transfer is defined as the date on which the mortgage payment of a borrower is first due to the transferee servicer of a mortgage loan pursuant to the assignment, sale, or transfer of the servicing of the mortgage loan. In the case of a home equity conversion mortgage or a reverse mortgage, the effective date of transfer is the transfer date agreed upon by the transferee servicer and the transferor servicer. Escrow Account means any account that a servicer establishes or controls on behalf of a borrower to pay taxes, insurance premiums (including flood insurance), or other charges with respect to a federally related mortgage loan, including charges that the borrower and servicer have voluntarily agreed that the servicer should collect and pay. The definition encompasses any account established for this purpose, including a trust account, reserve account, impound account, or other term in different localities. An escrow account includes any arrangement where the servicer adds a portion of the borrower's payments to principal and subsequently deducts from principal the disbursements for escrow account items. For purposes of this section, the term escrow account excludes any account that is under the borrower's total control. Escrow Account Analysis means the accounting that a servicer conducts in the form of a trial running balance for an escrow account to: Determine the appropriate target balances; Compute the borrower's monthly payments for the next escrow account computation year and any deposits needed to establish or maintain the account; and Determine whether shortages, surpluses or deficiencies exist. Escrow Account Computation Year is a 12-month period that a servicer establishes for the escrow account beginning with the borrower's initial payment date. The term includes each 12- month period thereafter, unless a servicer chooses to issue a short year statement. Escrow Account Item or Separate Item means any separate expenditure category, such as taxes or insurance, for which funds are collected in the escrow account for disbursement. An escrow account item with installment payments, such as local property taxes, remains one escrow account item regardless of multiple disbursement dates to the tax authority. Federally Related Mortgage Loan means: Any loan (other than temporary financing, such as a construction loan) that is secured by a first or subordinate lien on residential real property, including a refinancing of any secured loan on residential real property, upon which there is either: Located or, following settlement, will be constructed using proceeds of the loan, a structure or structures designed principally for occupancy of from one to four families (including individual units of condominiums and cooperatives and including any related interests, such as a share in the cooperative or right to occupancy of the unit); or Located or, following settlement, will be placed using proceeds of the loan, a manufactured home; and For which one of the following paragraphs applies: o The loan is made in whole or in part by any lender that is either regulated by or whose deposits or accounts are insured by any agency of the Federal Government; o The loan is made in whole or in part, or is insured, guaranteed, supplemented, or assisted in any way: Rules and Regulations for Home Equity Line of Credit Lending Page 96

100 o o o o By the Secretary of the Department of Housing and Urban Development (HUD) or any other officer or agency of the Federal Government; or Under or in connection with a housing or urban development program administered by the Secretary of HUD or a housing or related program administered by any other officer or agency of the Federal Government; Is intended to be sold by the originating lender to the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation (or its successors), or a financial institution from which the loan is to be purchased by the Federal Home Loan Mortgage Corporation (or its successors); Is made in whole or in part by a creditor, as defined in section 103(g) of the Consumer Credit Protection Act (15 U.S.C. 1602(g)), that makes or invests in residential real estate loans aggregating more than $1,000,000 per year. For purposes of this definition, the term creditor does not include any agency or instrumentality of any State, and the term residential real estate loan means any loan secured by residential real property, including single-family and multifamily residential property; Is originated either by a dealer or, if the obligation is to be assigned to any maker of mortgage loans specified above in this definition, by a mortgage broker; or Is the subject of a home equity conversion mortgage, also frequently called a reverse mortgage, issued by any maker of mortgage loans specified above in this definition. Any installment sales contract, land contract, or contract for deed on otherwise qualifying residential property is a federally related mortgage loan if the contract is funded in whole or in part by proceeds of a loan made by any maker of mortgage loans specified above in this definition. If the residential real property securing a mortgage loan is not located in a State, the loan is not a federally related mortgage loan. Force-Placed Insurance means hazard insurance obtained by a servicer on behalf of the owner or assignee of a mortgage loan that insures the property securing such loan. The following insurance does not constitute force-placed insurance : Hazard insurance required by the Flood Disaster Protection Act of 1973; Hazard insurance obtained by a borrower but renewed by the borrower s servicer as described in the regulation; Hazard insurance obtained by a borrower but renewed by the borrower s servicer at its discretion, if the borrower agrees. Good Faith Estimate or GFE means an estimate of settlement charges a borrower is likely to incur, as a dollar amount, and related loan information, based upon common practice and experience in the locality of the mortgaged property, as provided on the good faith estimate and prepared in accordance with the Instructions in appendix C to this regulation. HUD means the Department of Housing and Urban Development. HUD-1 or HUD-1A Settlement Statement (also HUD-1 or HUD-1A) means the statement that is prescribed in this part for setting forth settlement charges in connection with either the Rules and Regulations for Home Equity Line of Credit Lending Page 97

101 purchase or the refinancing (or other subordinate lien transaction) of 1- to 4-family residential property. Initial Escrow Account Statement means the first disclosure statement that the servicer delivers to the borrower concerning the borrower's escrow account. The initial escrow account statement shall meet certain requirements and be in substantially the format set forth in the regulation. Installment Payment means one of two or more payments payable on an escrow account item during an escrow account computation year. An example of an installment payment is where a jurisdiction bills quarterly for taxes. Lender means, generally, the secured creditor or creditors named in the debt obligation and document creating the lien. For loans originated by a mortgage broker that closes a federally related mortgage loan in its own name in a table funding transaction, the lender is the person to whom the obligation is initially assigned at or after settlement. A lender, in connection with dealer loans, is the lender to whom the loan is assigned, unless the dealer meets the definition of creditor as defined under federally related mortgage loan in this regulation. See also (b)(7), secondary market transactions. Loan Originator means a lender or mortgage broker Manufactured Home means a structure, transportable in one or more sections, which in the traveling mode is 8 body feet or more in width or 40 body feet or more in length or which when erected on-site is 320 or more square feet, and which is built on a permanent chassis and designed to be used as a dwelling with or without a permanent foundation when connected to the required utilities, and includes the plumbing, heating, air-conditioning, and electrical systems contained in the structure. This term includes all structures that meet the above requirements except the size requirements and with respect to which the manufacturer voluntarily files a certification and complies with HUD s construction and safety standards. Manufactured Home does not include any self-propelled recreational vehicle. Calculations used to determine the number of square feet in a structure will include the total of square feet for each transportable section comprising the completed structure and will be based on the structure s exterior dimensions measured at the largest horizontal projections when erected on site. These dimensions will include all expandable rooms, cabinets, and other projections containing interior space, but do not include bay windows. Nothing in this definition should be interpreted to mean that a manufactured home necessarily meets the requirements of HUD s Minimum Property Standards (HUD Handbook ) or that it is automatically eligible for financing under 12 U.S.C. 1709(b). Mortgage Broker means a person (other than an employee of a lender) that renders origination services and serves as an intermediary between a borrower and a lender in a transaction involving a federally related mortgage loan, including such a person that closes the loan in its own name in a table-funded transaction. Mortgaged Property means the real property that is security for the federally related mortgage loan. Rules and Regulations for Home Equity Line of Credit Lending Page 98

102 Origination Service means any service involved in the creation of a federally related mortgage loan, including but not limited to the taking of the loan application, loan processing, the underwriting and funding of the loan, and the processing and administrative services required to perform these functions. Payment Due Date means the date each month when the borrower's monthly payment to an escrow account is due to the servicer. The initial payment date is the borrower's first payment due date to an escrow account. Penalty means a late charge imposed by the payee for paying after the disbursement is due. It does not include any additional charge or fee imposed by the payee associated with choosing installment payments as opposed to annual payments or for choosing one installment plan over another. Pre-Accrual is a practice some servicers use to require borrowers to deposit funds, needed for disbursement and maintenance of a cushion, in the escrow account some period before the disbursement date. Referral includes any oral or written action directed to a person which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service or business incident to or part of a settlement service when such person will pay for such settlement service or business incident thereto or pay a charge attributable in whole or in part to such settlement service or business. A referral also occurs whenever a person paying for a settlement service or business incident thereto is required to use a particular provider of a settlement service or business incident thereto. Refinancing means a transaction in which an existing obligation that was subject to a secured lien on residential real property is satisfied and replaced by a new obligation undertaken by the same borrower and with the same or a new lender. The following shall not be treated as a refinancing, even when the existing obligation is satisfied and replaced by a new obligation with the same lender (this definition of refinancing as to transactions with the same lender is similar to Regulation Z, 12 CFR (a)): A renewal of a single payment obligation with no change in the original terms; A reduction in the annual percentage rate as computed under the Truth in Lending Act with a corresponding change in the payment schedule; An agreement involving a court proceeding; A workout agreement, in which a change in the payment schedule or change in collateral requirements is agreed to as a result of the consumer's default or delinquency, unless the rate is increased or the new amount financed exceeds the unpaid balance plus earned finance charges and premiums for continuation of allowable insurance; and The renewal of optional insurance purchased by the consumer that is added to an existing transaction, if disclosures relating to the initial purchase were provided. Required Use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are Rules and Regulations for Home Equity Line of Credit Lending Page 99

103 otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process. Servicer means a person responsible for the servicing of a federally related mortgage loan (including the person who makes or holds such loan if such person also services the loan). The term does not include: The Federal Deposit Insurance Corporation (FDIC), in connection with assets acquired, assigned, sold, or transferred pursuant to section 13(c) of the Federal Deposit Insurance Act or as receiver or conservator of an insured depository institution; The National Credit Union Administration (NCUA), in connection with assets acquired, assigned, sold, or transferred pursuant to section 208 of the Federal Credit Union Act or as conservator or liquidating agent of an insured credit union; and The Federal National Mortgage Corporation (FNMA); the Federal Home Loan Mortgage Corporation (Freddie Mac); the FDIC; HUD, including the Government National Mortgage Association (GNMA) and the Federal Housing Administration (FHA) (including cases in which a mortgage insured under the National Housing Act (12 U.S.C et seq.) is assigned to HUD); the NCUA; the Farm Service Agency; and the Department of Veterans Affairs (VA), in any case in which the assignment, sale, or transfer of the servicing of the federally related mortgage loan is preceded by termination of the contract for servicing the loan for cause, commencement of proceedings for bankruptcy of the servicer, commencement of proceedings by the FDIC for conservatorship or receivership of the servicer (or an entity by which the servicer is owned or controlled), or commencement of proceedings by the NCUA for appointment of a conservator or liquidating agent of the servicer (or an entity by which the servicer is owned or controlled). Servicing means receiving any scheduled periodic payments from a borrower pursuant to the terms of any federally related mortgage loan, including amounts for escrow accounts under section 10 of RESPA (12 U.S.C. 2609), and making the payments to the owner of the loan or other third parties of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the mortgage servicing loan documents or servicing contract. In the case of a home equity conversion mortgage or reverse mortgage as referenced in this section, servicing includes making payments to the borrower. Settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may also be called closing or escrow in different jurisdictions. Settlement Service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following: Origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans); Rendering of services by a mortgage broker (including counseling, taking of applications, obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender); Provision of any services related to the origination, processing or funding of a federally related mortgage loan; Rules and Regulations for Home Equity Line of Credit Lending Page 100

104 Provision of title services, including title searches, title examinations, abstract preparation, insurability determinations, and the issuance of title commitments and title insurance policies; Rendering of services by an attorney; Preparation of documents, including notarization, delivery, and recordation; Rendering of credit reports and appraisals; Rendering of inspections, including inspections required by applicable law or any inspections required by the sales contract or mortgage documents prior to transfer of title; Conducting of settlement by a settlement agent and any related services; Provision of services involving mortgage insurance; Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties; Provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan; Provision of services involving real property taxes or any other assessments or charges on the real property; Rendering of services by a real estate agent or real estate broker; and Provision of any other services for which a settlement service provider requires a borrower or seller to pay. Shortage means an amount by which a current escrow account balance falls short of the target balance at the time of escrow analysis. Single-Item Analysis means an accounting method servicers use in conducting an escrow account analysis by computing the sufficiency of escrow account funds by considering each escrow item separately. Appendix E to this regulation sets forth examples of single-item analysis. Special Information Booklet means the booklet adopted pursuant to section 5 of RESPA (12 U.S.C. 2604) to help persons understand the nature and costs of settlement services. The Bureau publishes the form of the special information booklet in the FEDERAL REGISTER or by other public notice. The Bureau may issue or approve additional booklets or alternative booklets by publication of a Notice in the FEDERAL REGISTER. State means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. Submission (of an escrow account statement) means the delivery of the statement. Surplus means an amount by which the current escrow account balance exceeds the target balance for the account. System of Recordkeeping means the servicer's method of keeping information that reflects the facts relating to that servicer's handling of the borrower's escrow account, including, but not limited to, the payment of amounts from the escrow account and the submission of initial and annual escrow account statements to borrowers. Rules and Regulations for Home Equity Line of Credit Lending Page 101

105 Table Funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. A table-funded transaction is not a secondary market transaction (see (b)(7)). Target Balance means the estimated month end balance in an escrow account that is just sufficient to cover the remaining disbursements from the escrow account in the escrow account computation year, taking into account the remaining scheduled periodic payments, and a cushion, if any. Thing of value includes, without limitation, monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person's expenses, or reduction in credit against an existing obligation. The term payment is used throughout and as synonymous with the giving or receiving of any thing of value and does not require transfer of money. Third Party means a settlement service provider other than a loan originator. Title Company means any institution, or its duly authorized agent, that is qualified to issue title insurance. Title Service means any service involved in the provision of title insurance (lender's or owner's policy), including but not limited to: title examination and evaluation; preparation and issuance of title commitment; clearance of underwriting objections; preparation and issuance of a title insurance policy or policies; and the processing and administrative services required to perform these functions. The term also includes the service of conducting a settlement. Tolerance means the maximum amount by which the charge for a category or categories of settlement costs may exceed the amount of the estimate for such category or categories on a GFE. Trial Running Balance means the accounting process that derives the target balances over the course of an escrow account computation year. The regulation provides a description of the steps involved in performing a trial running balance Coverage of RESPA RESPA and this part apply to all federally related mortgage loans, except for the exemptions provided below. Exemptions: A loan on property of 25 acres or more; An extension of credit primarily for a business, commercial, or agricultural purpose, as defined by 12 CFR (a)(1) of Regulation Z. Persons may rely on Regulation Z in determining whether the exemption applies; Rules and Regulations for Home Equity Line of Credit Lending Page 102

106 Temporary financing, such as a construction loan. The exemption for temporary financing does not apply to a loan made to finance construction of 1- to 4-family residential property if the loan is used as, or may be converted to, permanent financing by the same lender or is used to finance transfer of title to the first user. If a lender issues a commitment for permanent financing, with or without conditions, the loan is covered by this part. Any construction loan for new or rehabilitated 1- to 4-family residential property, other than a loan to a bona fide builder (a person who regularly constructs 1- to 4-family residential structures for sale or lease), is subject to this part if its term is for two years or more. A bridge loan or swing loan in which a lender takes a security interest in otherwise covered 1- to 4-family residential property is not covered by RESPA and this part; Any loan secured by vacant or unimproved property, unless within two years from the date of the settlement of the loan, a structure or a manufactured home will be constructed or placed on the real property using the loan proceeds. If a loan for a structure or manufactured home to be placed on vacant or unimproved property will be secured by a lien on that property, the transaction is covered by this part. Any assumption in which the lender does not have the right expressly to approve a subsequent person as the borrower on an existing federally related mortgage loan. Any assumption in which the lender's permission is both required and obtained is covered by RESPA and this part, whether or not the lender charges a fee for the assumption. Any conversion of a federally related mortgage loan to different terms that are consistent with provisions of the original mortgage instrument, as long as a new note is not required, even if the lender charges an additional fee for the conversion. A bona fide transfer of a loan obligation in the secondary market is not covered by RESPA and this part, except with respect to RESPA (12 U.S.C. 2605) and subpart C of this part ( ). In determining what constitutes a bona fide transfer, the Bureau will consider the real source of funding and the real interest of the funding lender. Mortgage broker transactions that are table-funded are not secondary market transactions. Neither the creation of a dealer loan or dealer consumer credit contract, nor the first assignment of such loan or contract to a lender, is a secondary market transaction (see ) Special Information Booklet at Time of Loan Application The credit union shall provide a copy of the special information booklet to a person from whom the credit union receives, or for whom the credit union prepares a written application for a federally related mortgage loan. When two or more persons apply together for a loan, the credit union is in compliance if it provides a copy of the booklet to one of the persons applying. The credit union shall provide the special information booklet by delivering it or placing it in the mail to the applicant not later than three business days after the application is received or prepared. However, if the lender denies the borrower s application for credit before the end of the three-business-day period, then the credit union need not provide the booklet to the borrower. If a borrower uses a mortgage broker, the mortgage broker shall distribute the special information booklet and the credit union need not do so. The intent of this provision is that the applicant receives the special information booklet at the earliest possible date. In the case of a federally related mortgage loan involving an open-ended credit plan, a credit union or broker that provides the borrower with a copy of the brochure entitled When Your Home is On the Line: What You Should Know About Home Equity Lines of Credit or any successor brochure issued by the Bureau, is deemed to be in compliance with this section. Rules and Regulations for Home Equity Line of Credit Lending Page 103

107 The special information booklet may be reproduced in any form, provided that no change is made other than one that is permissible. The special information booklet may not be made a part of a larger document for purposes of distribution under RESPA. Any color, size, and quality of paper, type of print, and method of reproduction may be used so long as the booklet is clearly legible. Permissible Changes No changes to, deletions from, or additions to the special information booklet currently prescribed by the Bureau shall be made other than the following permissible changes: In the Complaints section of the booklet, it is a permissible change to substitute the Bureau of Consumer Financial Protection for Hud s Office of RESPA and the RESPA office. In the Avoiding Foreclosure section of the booklet, it is a permissible change to inform homeowners that they may find information on and assistance in avoiding foreclosures at The deletion of the reference to the HUD web page, in the Avoiding Foreclosure section of the booklet is not a permissible change. In the appendix to the booklet, it is a permissible change to substitute the Bureau of Consumer Financial Protection for the reference to the board of Governors of the Federal Reserve System in the No Discrimination section of the appendix to the booklet. In the contact Information section of the appendix to the booklet, it is a permissible change to add the following contact information for the Bureau: Bureau of Consumer Financial Protection, 1700 G Street NW., Washington, DC 20006, It is also a permissible change to remove the contact information for HUD s Office of RESPA and Interstate Land Sales from the Contact Information section of the appendix to the booklet. The cover of the booklet may be in any form and may contain any drawings, pictures or artwork, provided that the words settlement costs are used in the title. Names, addresses and telephone numbers of the credit union or others and similar information may appear on the cover, but no discussion of the matters covered in the booklet shall appear on the cover. References to HUD on the cover of the booklet may be changed to references to the Bureau. The special information booklet may be translated into languages other than English No Fee No fee shall be imposed or charge made upon any other person, as part of settlement costs or otherwise, by a lender in connection with a federally related mortgage loan made by it (or a loan for the purchase of a manufactured home), or by a servicer for or on account of the preparation and distribution of the HUD-1 or HUD-1A settlement statement, escrow account statements required or statements required by the truth in Lending Act (15 U.S.C 1601 et seq.) Prohibition Against Kickbacks and Unearned Fees No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except for: A payment to an attorney at law for services actually rendered; A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance; Rules and Regulations for Home Equity Line of Credit Lending Page 104

108 A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (The statutory exemption restated in this paragraph refers only to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.); Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or An employer's payment to its own employees for any referral activities. A company may not pay any other company or the employees of any other company for the referral of settlement service business. No Split of Charges Except for Actual Services Performed No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section. The source of the payment does not determine whether or not a service is compensable. Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee. Agreement or Understanding An agreement or understanding for the referral of business incident to or part of a settlement service need not be written or verbalized but may be established by a practice, pattern or course of conduct. When a thing of value is received repeatedly and is connected in any way with the volume or value of the business referred, the receipt of the thing of value is evidence that it is made pursuant to an agreement or understanding for the referral of business Referral The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited. Multiple Services When a person in a position to refer settlement service business, such as an attorney, mortgage lender, real estate broker or agent, or developer or builder, receives a payment for providing Rules and Regulations for Home Equity Line of Credit Lending Page 105

109 additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing. Recordkeeping Any documents provided pursuant to this section shall be retained for five (5) years from the date of execution. Additional Guidance on the Meaning and Coverage of the Provisions of RESPA The following illustrations provide additional guidance on the meaning and coverage of the provisions of RESPA. Other provisions of Federal or state law may also be applicable to the practices and payments discussed in the following illustrations. 1. Facts - A, a provider of settlement services, provides settlement services at abnormally low rates or at no charge at all to B, a builder, in connection with a subdivision being developed by B. B agrees to refer purchasers of the completed homes in the subdivision to A for the purchase of settlement services in connection with the sale of individual lots by B. Comments - The rendering of services by A to B at little or no charge constitutes a thing of value given by A to B in return for the referral of settlement services business, and both A and B are in violation of section 8 of RESPA. 2. Facts - B, a lender, encourages persons who receive federally related mortgage loans from it to employ A, an attorney, to perform title searches and related settlement services in connection with their transaction. B and A have an understanding that in return for the referral of this business A provides legal services to B or B's officers or employees at abnormally low rates or for no charge. Comments - Both A and B are in violation of section 8 of RESPA. Similarly, if an attorney gives a portion of his or her fees to another attorney, a lender, a real estate broker or any other provider of settlement services, who had referred prospective clients to the attorney, section 8 would be violated by both persons. 3. Facts - A, a real estate broker, obtains all necessary licenses under state law to act as a title insurance agent. A refers individuals who are purchasing homes in transactions in which A participates as a broker to B, an unaffiliated title company, for the purchase of title insurance services. A performs minimal, if any, title services in connection with the issuance of the title insurance policy (such as placing an application with the title company). B pays A a commission (or A retains a portion of the title insurance premium) for the transactions or alternatively B receives a portion of the premium paid directly from the purchaser. Comments - The payment of a commission or portion of the title insurance premium by B to A, or receipt of a portion of the payment for title insurance under circumstances where no substantial services are being performed by A, is a violation of section 8 of RESPA. It makes no difference whether the payment comes from B or the purchaser. The amount of the payment Rules and Regulations for Home Equity Line of Credit Lending Page 106

110 must bear a reasonable relationship to the services rendered. Here A really is being compensated for a referral of business to B. 4. Facts - A is an attorney who, as a part of his legal representation of clients in residential real estate transactions, orders and reviews title insurance policies for his clients. A enters into a contract with B, a title company, to be an agent of B under a program set up by B. Under the agreement, A agrees to prepare and forward title insurance applications to B, to re-examine the preliminary title commitment for accuracy and if he chooses to attempt to clear exceptions to the title policy before closing. A agrees to assume liability for waiving certain exceptions to title, but never exercises this authority. B performs the necessary title search and examination work, determines insurability of title, prepares documents containing substantive information in title commitments, handles closings for A's clients and issues title policies. A receives a fee from his client for legal services and an additional fee for his title agent services from the client's title insurance premium to B. Comments - A and B are violating section 8 of RESPA. Here, A's clients are being double billed because the work A performs as a title agent is that which he already performs for his client in his capacity as an attorney. For A to receive a separate payment as a title agent, A must perform necessary core title work and may not contract out the work. To receive additional compensation as a title agent for this transaction, A must provide his client with core title agent services for which he assumes liability, and which includes at a minimum, the evaluation of the title search to determine insurability of the title, and the issuance of a title commitment where customary, the clearance of underwriting objections, and the actual issuance of the policy or policies on behalf of the title company. A may not be compensated for the mere re-examination of work performed by B. Here, A is not performing these services and may not be compensated as a title agent under section 8(c)(1)(B). Referral fees or splits of fees may not be disguised as title agent commissions when the core title agent work is not performed. Further, because B created the program and gave A the opportunity to collect fees (a thing of value) in exchange for the referral of settlement service business, it has violated section 8 of RESPA. 5. Facts - A, a mortgage originator, receives loan applications, funds the loans with its own money or with a wholesale line of credit for which A is liable, and closes the loans in A's own name. Subsequently, B, a mortgage lender, purchases the loans and compensates A for the value of the loans, as well as for any mortgage servicing rights. Comments - Compensation for the sale of a mortgage loan and servicing rights constitutes a secondary market transaction, rather than a referral fee, and is beyond the scope of section 8 of RESPA. For purposes of section 8, in determining whether a bona fide transfer of the loan obligation has taken place, the Bureau examines the real source of funding, and the real interest of the named settlement lender. 6. Facts - A, a credit reporting company, places a facsimile transmission machine (FAX) in the office of B, a mortgage lender, so that B can easily transmit requests for credit reports and A can respond. A supplies the FAX machine at no cost or at a reduced rental rate based on the number of credit reports ordered. Comments - Either situation violates section 8 of RESPA. The FAX machine is a thing of value that A provides in exchange for the referral of business from B. Copying machines, computer terminals, printers, or other like items which have general use to the recipient and which are given in exchange for referrals of business also violate RESPA. Rules and Regulations for Home Equity Line of Credit Lending Page 107

111 7. Facts - A, a real estate broker, refers title business to B, a company that is a licensed title agent for C, a title insurance company. A owns more than 1% of B. B performs the title search and examination, makes determinations of insurability, issues the commitment, clears underwriting objections, and issues a policy of title insurance on behalf of C, for which C pays B a commission. B pays annual dividends to its owners, including A, based on the relative amount of business each of its owners refers to B. Comments - The facts involve an affiliated business arrangement. The payment of a commission by C to B is not a violation of section 8 of RESPA if the amount of the commission constitutes reasonable compensation for the services performed by B for C. The payment of a dividend or the giving of any other thing of value by B to A that is based on the amount of business referred to B by A does not meet the affiliated business agreement exemption provisions and such actions violate section 8. Similarly, if the amount of stock held by A in B (or, if B were a partnership, the distribution of partnership profits by B to A) varies based on the amount of business referred or expected to be referred, or if B retained any funds for subsequent distribution to A where such funds were generally in proportion to the amount of business A referred to B relative to the amount referred by other owners, such arrangements would violate section 8. The exemption for controlled business arrangements would not be available because the payments here would not be considered returns on ownership interests. Further, the required disclosure of the affiliated business arrangement and estimated charges have not been provided. 8. Facts - Same as illustration 7, but B pays annual dividends in proportion to the amount of stock held by its owners, including A, and the distribution of annual dividends is not based on the amount of business referred or expected to be referred. Comments - If A and B meet the requirements of the affiliated business arrangement exemption there is not a violation of RESPA. Since the payment is a return on ownership interests, A and B will be exempt from section 8 if (1) A also did not require anyone to use the services of B, and (2) A disclosed its ownership interest in B on a separate disclosure form and provided an estimate of B's charges to each person referred by A to B (see appendix D of this part), and (3) B makes no payment (nor is there any other thing of value exchanged) to A other than dividends. 9. Facts - A, a franchisor for franchised real estate brokers, owns B, a provider of settlement services. C, a franchisee of A, refers business to B. Comments - This is an affiliated business arrangement. A, B and C will all be exempt from section 8 if C discloses its franchise relationship with the owner of B on a separate disclosure form and provides an estimate of B's charges to each person referred to B (see appendix D of this part) and C does not require anyone to use B's services and A gives no thing a value to C under the franchise agreement (such as an adjusted level of franchise payment based on the referrals), and B makes no payments to A other than dividends representing a return on ownership interest (rather than, e.g., an adjusted level of payment being based on the referrals). Nor may B pay C anything of value for the referral. 10. Facts - A is a real estate broker who refers business to its affiliate title company B. A makes all required written disclosures to the homebuyer of the arrangement and estimated charges and the homebuyer is not required to use B. B refers or contracts out business to C who does Rules and Regulations for Home Equity Line of Credit Lending Page 108

112 all the title work and splits the fee with B. B passes its fee to A in the form of dividends, a return on ownership interest. Comments - The relationship between A and B is an affiliated business arrangement. However, the affiliated business arrangement exemption does not provide exemption between an affiliated entity, B, and a third party, C. Here, B is a mere shell and provides no substantive services for its portion of the fee. The arrangement between B and C would be in violation of section 8(a) and (b). Even if B had an affiliate relationship with C, the required exemption criteria have not been met and the relationship would be subject to section Facts - A, a mortgage lender is affiliated with B, a title company, and C, an escrow company and offers consumers a package of mortgage title and escrow services at a discount from the prices at which such services would be sold if purchased separately. Neither A, B, nor C requires consumers to purchase the services of their sister companies and each company sells such services separately and as part of the package. A also pays its employees (e.g., loan officers, secretaries, etc.) a bonus for each loan, title insurance or closing that A's employees generate for A, B, or C respectively. A pays such employee bonuses out of its own funds and receives no payments or reimbursements for such bonuses from B or C. At or before the time that customers are told by A or its employees about the services offered by B and C and/or the package of services that is available, the customers are provided with an affiliated business disclosure form. Comments - A's selling of a package of settlement services at a discount to a settlement service purchaser does not violate section 8 of RESPA. A's employees are making appropriate affiliated business disclosures and since the services are available separately and as part of a package, there is not required use of the additional services. A's payments of bonuses to its employees for the referral of business to A or A's affiliates, B and C, are exempt from section 8 under (g)(1). However, if B or C reimbursed A for any bonuses that A paid to its employees for referring business to B or C, such reimbursements would violate section 8. Similarly, if B or C paid bonuses to A's employees directly for generating business for them, such payments would violate section Facts - A is a mortgage broker who provides origination services to submit a loan to a Lender for approval. The mortgage broker charges the borrower a uniform fee for the total origination services, as well as a direct up-front charge for reimbursement of credit reporting, appraisal services or similar charges. Comment - The mortgage broker's fee must be itemized in the Good Faith Estimate and on the HUD-1 Settlement Statement. Other charges which are paid for by the borrower and paid in advance are listed as P.O.C. on the HUD-1 Settlement Statement, and reflect the actual provider charge for such services. Also, any other fee or payment received by the mortgage broker from either the lender or the borrower arising from the initial funding transaction, including a servicing release premium or yield spread premium, is to be noted on the Good Faith Estimate and listed in the 800 series of the HUD-1 Settlement Statement. 13. Facts - A is a dealer in home improvements who has established funding arrangements with several lenders. Customers for home improvements receive a proposed contract from A. The proposal requires that customers both execute forms authorizing a credit check and employment verification, and frequently, execute a dealer consumer credit contract secured by a lien on the customer's (borrower's) 1- to 4-family residential property. Simultaneously with the Rules and Regulations for Home Equity Line of Credit Lending Page 109

113 completion and certification of the home improvement work, the note is assigned by the dealer to a funding lender. Comments - The loan that is assigned to the funding lender is a loan covered by RESPA, when a lien is placed on the borrower's 1- to 4-family residential structure. The dealer loan or consumer credit contract originated by a dealer is also a RESPA-covered transaction, except when the dealer is not a creditor under the definition of federally related mortgage loan in The lender to whom the loan will be assigned is responsible for assuring that the lender or the dealer delivers to the borrower a Good Faith Estimate of closing costs consistent with Regulation X, and that the HUD-1 or HUD-1A Settlement Statement is used in conjunction with the settlement of the loan to be assigned. A dealer who, under , is covered by RESPA as a creditor is responsible for the Good Faith Estimate of Closing Costs and the use of the appropriate settlement statement in connection with the loan Affiliated Business Arrangements Violation and Exemption An affiliated business arrangement is not a violation of section 8 of RESPA (12 U.S.C. 2607) and of if the conditions set forth in this section are satisfied: The person making each referral has provided to each person whose business is referred a written disclosure, in the format of the Affiliated Business Arrangement Disclosure Statement set forth in appendix D of this regulation, of the nature of the relationship (explaining the ownership and financial interest) between the provider of settlement services (or business incident thereto) and the person making the referral and of an estimated charge or range of charges generally made by such provider (which describes the charge using the same terminology, as far as practical, as section L of the HUD-1 settlement statement). The disclosures must be provided on a separate piece of paper no later than the time of each referral or, if the lender requires use of a particular provider, the time of loan application, except that: o Where a lender makes the referral to a borrower, the condition contained above may be satisfied at the time that the good faith estimate is provided; and o Whenever an attorney or law firm requires a client to use a particular title insurance agent, the attorney or law firm shall provide the disclosures no later than the time the attorney or law firm is engaged by the client; o Failure to comply with the disclosure requirements of this section may be overcome if the person making a referral can prove by a preponderance of the evidence that procedures reasonably adopted to result in compliance with these conditions have been maintained and that any failure to comply with these conditions was unintentional and the result of a bona fide error. An error of legal judgment with respect to a person's obligations under RESPA is not a bona fide error. Administrative and judicial interpretations of section 130(c) of the Truth in Lending Act shall not be binding interpretations of the preceding sentence or section 8(d)(3) of RESPA (12 U.S.C. 2607(d)(3)). No person making a referral has required any person to use any particular provider of settlement services or business incident thereto, except: o If such person is a lender, for requiring a buyer, borrower or seller to pay for the services of an attorney, credit reporting agency, or real estate appraiser chosen by the lender to represent the lender's interest in a real estate transaction; or o If such person is an attorney or law firm for arranging for issuance of a title insurance policy for a client, directly as agent or through a separate corporate title insurance Rules and Regulations for Home Equity Line of Credit Lending Page 110

114 agency that may be operated as an adjunct to the law practice of the attorney or law firm, as part of representation of that client in a real estate transaction. The following are allowed by RESPA: o A payment to an attorney at law for services actually rendered; o A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance; o A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; o A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; o A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (The statutory exemption restated in this paragraph refers only to a fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity, and has no applicability to any fee arrangements between real estate brokers and mortgage brokers or between mortgage brokers.); o Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or o An employer's payment to its own employees for any referral activities. The Bureau may investigate high prices to see if they are the result of a referral fee or a split of a fee. If the payment of a thing of value bears no reasonable relationship to the market value of the goods or services provided, then the excess is not for services or goods actually performed or provided. These facts may be used as evidence of a violation of section 8 and may serve as a basis for a RESPA investigation. High prices standing alone are not proof of a RESPA violation. The value of a referral (i.e., the value of any additional business obtained thereby) is not to be taken into account in determining whether the payment exceeds the reasonable value of such goods, facilities or services. The fact that the transfer of the thing of value does not result in an increase in any charge made by the person giving the thing of value is irrelevant in determining whether the act is prohibited. When a person in a position to refer settlement service business, such as an attorney, mortgage lender, real estate broker or agent, or developer or builder, receives a payment for providing additional settlement services as part of a real estate transaction, such payment must be for services that are actual, necessary and distinct from the primary services provided by such person. For example, for an attorney of the buyer or seller to receive compensation as a title agent, the attorney must perform core title agent services (for which liability arises) separate from attorney services, including the evaluation of the title search to determine the insurability of the title, the clearance of underwriting objections, the actual issuance of the policy or policies on behalf of the title insurance company, and, where customary, issuance of the title commitment, and the conducting of the title search and closing. The only thing of value that is received from the arrangement is a return on an ownership interest or franchise relationship other than the items above allowed by RESPA In an affiliated business arrangement: o Bona fide dividends, and capital or equity distributions, related to ownership interest or franchise relationship, between entities in an affiliate relationship, are permissible; and Rules and Regulations for Home Equity Line of Credit Lending Page 111

115 o Bona fide business loans, advances, and capital or equity contributions between entities in an affiliate relationship (in any direction), are not prohibited-so long as they are for ordinary business purposes and are not fees for the referral of settlement service business or unearned fees. A return on an ownership interest does not include: o Any payment which has as a basis of calculation no apparent business motive other than distinguishing among recipients of payments on the basis of the amount of their actual, estimated or anticipated referrals; o Any payment which varies according to the relative amount of referrals by the different recipients of similar payments; or o A payment based on an ownership, partnership or joint venture share which has been adjusted on the basis of previous relative referrals by recipients of similar payments. Neither the mere labeling of a thing of value, nor the fact that it may be calculated pursuant to a corporate or partnership organizational document or a franchise agreement, will determine whether it is a bona fide return on an ownership interest or franchise relationship. Whether a thing of value is such a return will be determined by analyzing facts and circumstances on a case by case basis. A return on franchise relationship may be a payment to or from a franchisee but it does not include any payment which is not based on the franchise agreement, nor any payment which varies according to the number or amount of referrals by the franchisor or franchisee or which is based on a franchise agreement which has been adjusted on the basis of a previous number or amount of referrals by the franchiser or franchisees. A franchise agreement may not be constructed to insulate against kickbacks or referral fees Escrow Accounts This section sets out the requirements for an escrow account that a lender establishes in connection with a federally related mortgage loan. It sets limits for escrow accounts using calculations based on monthly payments and disbursements within a calendar year. If an escrow account involves biweekly or any other payment period, the requirements in this section shall be modified accordingly. A Public Guidance Document entitled Biweekly Payments Example provides examples of biweekly accounting and a Public Guidance Document entitled Annual Escrow Account Disclosure Statement Example provides examples of a 3-year accounting cycle that may be used in accordance with this section. A Public Guidance Document entitled Consumer Disclosure for Voluntary Escrow Account Payments provides a model disclosure format that originators and servicers are encouraged, but not required, to provide to consumers when the originator or servicer anticipates a substantial increase in disbursements from the escrow account after the first year of the loan. The disclosures in that model format may be combined with or included in the Initial Escrow Account Statement. Limits on Payments to Escrow Accounts A lender or servicer (hereafter servicer) shall not require a borrower to deposit into any escrow account, created in connection with a federally related mortgage loan, more than the following amounts: Charges at Settlement or Upon Creation of an Escrow Account - At the time a servicer creates an escrow account for a borrower, the servicer may charge the borrower an amount sufficient to pay the charges respecting the mortgaged property, such as taxes and insurance, which are attributable to the period from the date such payment(s) were last paid until the initial payment date. The amount sufficient to pay is Rules and Regulations for Home Equity Line of Credit Lending Page 112

116 computed so that the lowest month end target balance projected for the escrow account computation year is zero (-0-). In addition, the servicer may charge the borrower a cushion that shall be no greater than one-sixth ( 1 6 ) of the estimated total annual payments from the escrow account. Charges During the Life of the Escrow Account - Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth ( 1 12 ) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than one-sixth ( 1 6 ) of the estimated total annual payments from the account. However, if a servicer determines through an escrow account analysis that there is a shortage or deficiency, the servicer may require the borrower to pay additional deposits to make up the shortage or eliminate the deficiency, subject to the following limitations: o If the deficiency is less than one month s escrow account payment, then the servicer: May allow the deficiency to exist and do nothing to change it; May require the borrower to repay the deficiency within 30 days; or May require the borrower to repay the deficiency in 2 or more equal monthly payments. o If the deficiency is greater than or equal to 1 month s escrow payment the servicer: May allow the deficiency to exist and do nothing to change it; or May require the borrower to repay the deficiency in two or more equal monthly payments. o These provisions regarding deficiencies apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower s payments within 30 days of the payment due date. If the servicer does not receive the borrower s payment within 30 days of the payment due date, then the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents. Escrow Analysis at Creation of Escrow Account Before establishing an escrow account, the servicer must conduct an escrow account analysis to determine the amount the borrower must deposit into the escrow account (subject to the limitations above), and the amount of the borrower's periodic payments into the escrow account (subject to the limitations above). In conducting the escrow account analysis, the servicer must estimate the disbursement amounts according to the following: If the servicer knows the charge for an escrow item in the next computation year, the servicer shall use that amount in estimating disbursement amounts; If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year's charge, or the preceding year's charge as modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items); In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area. The servicer must use a date on or before the deadline to avoid a penalty as the disbursement date for the escrow item and comply with the following to ensure timely payments: Pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower's payment is not more than 30 days overdue; Rules and Regulations for Home Equity Line of Credit Lending Page 113

117 Advance funds to make disbursements in a timely manner as long as the borrower's payment is not more than 30 days overdue. Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for the deficiency. For the payment of property taxes from the escrow account, if a taxing jurisdiction offers a servicer a choice between annual and installment disbursements, the servicer must also comply with this paragraph. If the taxing jurisdiction neither offers a discount for disbursements on a lump sum annual basis nor imposes any additional charge or fee for installment disbursements, the servicer must make disbursements on an installment basis. If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with the requirements above. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer. A servicer and borrower may mutually agree, on an individual case basis, to a different disbursement basis (installment or annual) or disbursement date for property taxes, so long as the agreement meets the requirements above. The borrower must voluntarily agree; neither loan approval nor any term of the loan may be conditioned on the borrower's agreeing to a different disbursement basis or disbursement date. With respect to a borrower whose mortgage payment is more than 30 days overdue, but who has established an escrow account for the payment for hazard insurance, a servicer, unless they are a small servicer, may not purchase force-placed insurance, unless a servicer is unable to disburse funds from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner. o o o o A servicer is considered unable to disburse funds from a borrower s escrow account to ensure that the borrower s hazard insurance premiums are paid in a timely manner only if the servicer has a reasonable basis to believe either that the borrower s hazard insurance has been canceled (or was not renewed) for reasons other than nonpayment of premium charges or that the borrower s property is vacant. A servicer shall not be considered unable to disburse funds from the borrower's escrow account because the escrow account contains insufficient funds for paying hazard insurance premium charges. If a servicer advances funds to an escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner, a servicer may seek repayment from the borrower for the funds the servicer advanced, unless otherwise prohibited by applicable law. Notwithstanding the requirements above, a servicer that qualifies as a small servicer may purchase force-placed insurance and charge the cost of that insurance to the borrower if the cost to the borrower of the force-placed insurance is less than the amount the small servicer would need to disburse from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges were paid in a timely manner. Upon completing the initial escrow account analysis, the servicer must prepare and deliver an initial escrow account statement to the borrower. The servicer must use the escrow account Rules and Regulations for Home Equity Line of Credit Lending Page 114

118 analysis to determine whether a surplus, shortage, or deficiency exists and must make any adjustments to the account as required. Subsequent Escrow Account Analyses For each escrow account, the servicer must conduct an escrow account analysis at the completion of the escrow account computation year to determine the borrower's monthly escrow account payments for the next computation year, subject to the following limitations: Throughout the life of an escrow account, the servicer may charge the borrower a monthly sum equal to one-twelfth ( 1 12 ) of the total annual escrow payments which the servicer reasonably anticipates paying from the account. In addition, the servicer may add an amount to maintain a cushion no greater than onesixth ( 1 6 ) of the estimated total annual payments from the account. However, if a servicer determines through an escrow account analysis that there is a shortage or deficiency, the servicer may require the borrower to pay additional deposits to make up the shortage or eliminate the deficiency, subject to the following limitations: o If an escrow account analysis discloses a shortage of less than one month's escrow account payment, then the servicer has three possible courses of action: The servicer may allow a shortage to exist and do nothing to change it; The servicer may require the borrower to repay the shortage amount within 30 days; or The servicer may require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period. o If an escrow account analysis discloses a shortage that is greater than or equal to one month s escrow account payment, the servicer has two possible courses of action; The servicer may allow a shortage to exist and do nothing to change it; or The servicer may require the borrower to repay the shortage in equal monthly payments over at least a 12-month period. o If the escrow account analysis confirms a deficiency, then the servicer may require the borrower to pay additional monthly deposits to the account to eliminate the deficiency. o If the deficiency is less than one month's escrow account payment, then the servicer may: Allow the deficiency to exist and do nothing to change it; Require the borrower to repay the deficiency within 30 days; or Require the borrower to repay the deficiency in 2 or more equal monthly payments. o If the deficiency is greater than or equal to 1 month s escrow payment, the servicer may: Allow the deficiency to exist and do nothing to change it: or Require the borrower to repay the deficiency in two or more equal monthly payments. o These provisions regarding deficiencies apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower's payments within 30 days of the payment due date. If the servicer does not receive the borrower's payment within 30 days of the payment due date, then the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents. In conducting the escrow account analysis, the servicer must estimate the disbursement amounts as follows: Rules and Regulations for Home Equity Line of Credit Lending Page 115

119 The servicer shall estimate the amount of escrow account items to be disbursed; If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts; If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year's charge, or the preceding year's charge as modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items); In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area. The servicer must use a date on or before the deadline to avoid a penalty as the disbursement date for the escrow item and comply with the following requirements: Pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower's payment is not more than 30 days overdue; Advance funds to make disbursements in a timely manner as long as the borrower's payment is not more than 30 days overdue. Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for the deficiency. For the payment of property taxes from the escrow account, if a taxing jurisdiction offers a servicer a choice between annual and installment disbursements, the servicer must also comply with this paragraph. If the taxing jurisdiction neither offers a discount for disbursements on a lump sum annual basis nor imposes any additional charge or fee for installment disbursements, the servicer must make disbursements on an installment basis. If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with the requirements above. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer. A servicer and borrower may mutually agree, on an individual case basis, to a different disbursement basis (installment or annual) or disbursement date for property taxes, so long as the agreement meets the requirements above. The borrower must voluntarily agree; neither loan approval nor any term of the loan may be conditioned on the borrower's agreeing to a different disbursement basis or disbursement date. With respect to a borrower whose mortgage payment is more than 30 days overdue, but who has established an escrow account for the payment for hazard insurance, a servicer, unless they are a small servicer, may not purchase force-placed insurance, unless a servicer is unable to disburse funds from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner. o A servicer is considered unable to disburse funds from a borrower s escrow account to ensure that the borrower s hazard insurance premiums are paid in a timely manner only if the servicer has a reasonable basis to believe either that the borrower s hazard insurance has been canceled (or was not renewed) for reasons other than nonpayment of premium charges or that the borrower s property is vacant. o A servicer shall not be considered unable to disburse funds from the borrower's escrow account because the escrow account contains insufficient funds for paying hazard insurance premium charges. Rules and Regulations for Home Equity Line of Credit Lending Page 116

120 o o If a servicer advances funds to an escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner, a servicer may seek repayment from the borrower for the funds the servicer advanced, unless otherwise prohibited by applicable law. Notwithstanding the requirements above, a servicer that qualifies as a small servicer may purchase force-placed insurance and charge the cost of that insurance to the borrower if the cost to the borrower of the force-placed insurance is less than the amount the small servicer would need to disburse from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges were paid in a timely manner. The servicer must use the escrow account analysis to determine whether a surplus, shortage, or deficiency exists, and must make any adjustments to the account as follows: If an escrow account analysis discloses a surplus, the servicer shall, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year's escrow payments. These provisions regarding surpluses apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower's payments within 30 days of the payment due date. If the servicer does not receive the borrower's payment within 30 days of the payment due date, then the servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents; If an escrow account analysis discloses a shortage of less than one month's escrow account payment, then the servicer has three possible courses of action, the servicer may: o Allow a shortage to exist and do nothing to change it; o Require the borrower to repay the shortage amount within 30 days; or o Require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period. If an escrow account analysis discloses a shortage that is greater than or equal to one month's escrow account payment, then the servicer has two possible courses of action, the servicer may: o Allow a shortage to exist and do nothing to change it; or o Require the borrower to repay the shortage in equal monthly payments over at least a 12-month period. If the escrow account analysis confirms a deficiency, then the servicer may require the borrower to pay additional monthly deposits to the account to eliminate the deficiency. If the deficiency is less than one month's escrow account payment, then the servicer may: o Allow the deficiency to exist and do nothing to change it; o Require the borrower to repay the deficiency within 30 days; or o Require the borrower to repay the deficiency in 2 or more equal monthly payments. If the deficiency is greater than or equal to 1 month's escrow payment, the servicer may: o o Allow the deficiency to exist and do nothing to change it; or Require the borrower to repay the deficiency in two or more equal monthly payments. Rules and Regulations for Home Equity Line of Credit Lending Page 117

121 These provisions regarding deficiencies apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower s payments within 30 days of the payment due date. If the servicer does not receive the borrower s payment within 30 days of the payment due date, then the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents. The servicer shall notify the borrower at least once during the escrow account computation year if there is a shortage or deficiency in the escrow account. The notice may be part of the annual escrow account statement or it may be a separate document. Upon completing an escrow account analysis, the servicer must prepare and submit an annual escrow account statement to the borrower. Aggregate Accounting Required All servicers must use the aggregate accounting method in conducting escrow account analyses. Cushion The cushion must be no greater than one-sixth ( 1 6 ) of the estimated total annual disbursements from the escrow account. Restrictions on Pre-Accrual A servicer must not practice pre-accrual. Servicer Estimates of Disbursement Amounts To conduct an escrow account analysis, the servicer shall estimate the amount of escrow account items to be disbursed. If the servicer knows the charge for an escrow item in the next computation year, then the servicer shall use that amount in estimating disbursement amounts. If the charge is unknown to the servicer, the servicer may base the estimate on the preceding year's charge, or the preceding year's charge as modified by an amount not exceeding the most recent year's change in the national Consumer Price Index for all urban consumers (CPI, all items). In cases of unassessed new construction, the servicer may base an estimate on the assessment of comparable residential property in the market area. Provisions in Federally Related Mortgage Documents The servicer must examine the federally related mortgage loan documents to determine the applicable cushion for each escrow account. If any such documents provide for lower cushion limits, then the terms of the loan documents apply. Where the terms of any such documents allow greater payments to an escrow account than allowed by this section, then this section controls the applicable limits. Where such documents do not specifically establish an escrow account, whether a servicer may establish an escrow account for the loan is a matter for determination by other Federal or State law. If such documents are silent on the escrow account limits and a servicer establishes an escrow account under other Federal or State law, then the limitations of this section apply unless applicable Federal or State law provides for a lower amount. If such documents provide for escrow accounts up to the RESPA limits, then the servicer may require the maximum amounts consistent with this section, unless an applicable Federal or State law sets a lesser amount. Assessments for Periods Longer than One Year Some escrow account items may be billed for periods longer than one year. For example, servicers may need to collect flood insurance or water purification escrow funds for payment Rules and Regulations for Home Equity Line of Credit Lending Page 118

122 every three years. In such cases, the servicer shall estimate the borrower's payments for a full cycle of disbursements. For a flood insurance premium payable every 3 years, the servicer shall collect the payments reflecting 36 equal monthly amounts. For two out of the three years, however, the account balance may not reach its low monthly balance because the low point will be on a three-year cycle, as compared to an annual one. The annual escrow account statement shall explain this situation (see example in the Public Guidance Document entitled Annual Escrow Account Disclosure Statement Example, available in accordance with ). Methods of Escrow Account Analysis The following sets forth the steps servicers must use to determine whether their use of aggregate analysis conforms within the limitations in RESPA. The steps set forth in this section result in maximum limits. Servicers may use accounting procedures that result in lower target balances. In particular, servicers may use a cushion less than the permissible cushion or no cushion at all. This section does not require the use of a cushion. Aggregate Analysis In conducting the escrow account analysis using aggregate analysis, the target balances may not exceed the balances computed according to the following arithmetic operations: The servicer first projects a trial balance for the account as a whole over the next computation year (a trial running balance). In doing so the servicer assumes that it will make estimated disbursements on or before the earlier of the deadline to take advantage of discounts, if available, or the deadline to avoid a penalty. The servicer does not use pre-accrual on these disbursement dates. The servicer also assumes that the borrower will make monthly payments equal to one-twelfth of the estimated total annual escrow account disbursements; The servicer then examines the monthly trial balances and adds to the first monthly balance an amount just sufficient to bring the lowest monthly trial balance to zero, and adjusts all other monthly balances accordingly; The servicer then adds to the monthly balances the permissible cushion. The cushion is two months of the borrower's escrow payments to the servicer or a lesser amount specified by state law or the mortgage document (net of any increases or decreases because of prior year shortages or surpluses, respectively). Lowest Monthly Balance Under aggregate analysis, the lowest monthly target balance for the account shall be less than or equal to one-sixth of the estimated total annual escrow account disbursements or a lesser amount specified by state law or the mortgage document. The target balances that the servicer derives using these steps yield the maximum limit for the escrow account. Appendix E to this regulation illustrates these steps. Transfer of Servicing If the new servicer changes either the monthly payment amount or the accounting method used by the transferor (old) servicer, then the new servicer shall provide the borrower with an initial escrow account statement within 60 days of the date of servicing transfer. Where a new servicer provides an initial escrow account statement upon the transfer of servicing, the new servicer shall use the effective date of the transfer of servicing to establish the new escrow account computation year. Where the new servicer retains the monthly payments and accounting method used by the transferor servicer, then the new servicer may continue to use the escrow account computation year established by the transferor servicer or may choose to establish a different computation year using a short-year statement. At the completion of the escrow account computation year or any short year, the new servicer shall perform an escrow analysis Rules and Regulations for Home Equity Line of Credit Lending Page 119

123 and provide the borrower with an annual escrow account statement. The new servicer shall treat shortages, surpluses and deficiencies in the transferred escrow account according to the procedures set forth below. Shortages, Surpluses, and Deficiencies Requirements Escrow Account Analysis - For each escrow account, the servicer shall conduct an escrow account analysis to determine whether a surplus, shortage or deficiency exists. The servicer shall conduct an escrow account analysis upon establishing an escrow account and at completion of the escrow account computation year. The servicer may conduct an escrow account analysis at other times during the escrow computation year. If a servicer advances funds in paying a disbursement, which is not the result of a borrower's payment default under the underlying mortgage document, then the servicer shall conduct an escrow account analysis to determine the extent of the deficiency before seeking repayment of the funds from the borrower. Surpluses If an escrow account analysis discloses a surplus, the servicer shall: Within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50); If the surplus is less than 50 dollars ($50), the servicer may refund such amount to the borrower, or credit such amount against the next year's escrow payments; These provisions regarding surpluses apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower's payments within 30 days of the payment due date; If the servicer does not receive the borrower's payment within 30 days of the payment due date, then the servicer may retain the surplus in the escrow account pursuant to the terms of the federally related mortgage loan documents. After an initial or annual escrow analysis has been performed, the servicer and the borrower may enter into a voluntary agreement for the forthcoming escrow accounting year for the borrower to deposit funds into the escrow account for that year greater than the limits established above. Such an agreement shall cover only one escrow accounting year, but a new voluntary agreement may be entered into after the next escrow analysis is performed. The voluntary agreement may not alter how surpluses are to be treated when the next escrow analysis is performed at the end of the escrow accounting year covered by the voluntary agreement. Shortages If an escrow account analysis discloses a shortage of less than one month's escrow account payment, then the servicer has three possible courses of action, the servicer may Allow a shortage to exist and do nothing to change it; Require the borrower to repay the shortage amount within 30 days; or Require the borrower to repay the shortage amount in equal monthly payments over at least a 12-month period. If an escrow account analysis discloses a shortage that is greater than or equal to one month's escrow account payment, then the servicer has two possible courses of action, the servicer may: Allow a shortage to exist and do nothing to change it; or Rules and Regulations for Home Equity Line of Credit Lending Page 120

124 Require the borrower to repay the shortage in equal monthly payments over at least a 12-month period. Deficiency If the escrow account analysis confirms a deficiency, then the servicer may require the borrower to pay additional monthly deposits to the account to eliminate the deficiency. If the deficiency is less than one month's escrow account payment, then the servicer, may: Allow the deficiency to exist and do nothing to change it; Require the borrower to repay the deficiency within 30 days; or Require the borrower to repay the deficiency in 2 or more equal monthly payments. If the deficiency is greater than or equal to 1 month's escrow payment, the servicer may: Allow the deficiency to exist and do nothing to change it; or Require the borrower to repay the deficiency in two or more equal monthly payments. These provisions regarding deficiencies apply if the borrower is current at the time of the escrow account analysis. A borrower is current if the servicer receives the borrower's payments within 30 days of the payment due date. If the servicer does not receive the borrower's payment within 30 days of the payment due date, then the servicer may recover the deficiency pursuant to the terms of the federally related mortgage loan documents. Notice of Shortage or Deficiency in Escrow Account The servicer shall notify the borrower at least once during the escrow account computation year if there is a shortage or deficiency in the escrow account. The notice may be part of the annual escrow account statement or it may be a separate document. Initial Escrow Account Statement The servicer shall conduct an escrow account analysis before establishing an escrow account to determine the amount the borrower shall deposit into the escrow account, subject to limitations. After conducting the escrow account analysis for each escrow account, the servicer shall submit an initial escrow account statement to the borrower at settlement or within 45 calendar days of settlement for escrow accounts that are established as a condition of the loan. The initial escrow account statement shall include the amount of the borrower's monthly mortgage payment and the portion of the monthly payment going into the escrow account and shall itemize the estimated taxes, insurance premiums, and other charges that the servicer reasonably anticipates to be paid from the escrow account during the escrow account computation year and the anticipated disbursement dates of those charges. The initial escrow account statement shall indicate the amount that the servicer selects as a cushion. The statement shall include a trial running balance for the account. The servicer may incorporate the initial escrow account statement into the HUD-1 or HUD-1A settlement statement. If the servicer does not incorporate the initial escrow account statement into the HUD-1 or HUD-1A settlement statement, then the servicer shall submit the initial escrow account statement to the borrower as a separate document. Rules and Regulations for Home Equity Line of Credit Lending Page 121

125 Time of Submission of Initial Escrow Account Statement for an Escrow Account Established after Settlement For escrow accounts established after settlement (and which are not a condition of the loan), a servicer shall submit an initial escrow account statement to a borrower within 45 calendar days of the date of establishment of the escrow account. Format for Initial Escrow Account Statement The format and a completed example for an initial escrow account statement are set out in Public Guidance Documents entitled Initial Escrow Account Disclosure Statement Format and Initial Escrow Account Disclosure Statement Example. Incorporation of Initial Escrow Account Statement into HUD-1 or HUD-1A Settlement Statement A servicer may add the initial escrow account statement to the HUD-1 or HUD-1A settlement statement. The servicer may include the initial escrow account statement in the basic text or may attach the initial escrow account statement as an additional page to the HUD-1 or HUD-1A settlement statement. Identification of Payees The initial escrow account statement need not identify a specific payee by name if it provides sufficient information to identify the use of the funds. For example, appropriate entries include: county taxes, hazard insurance, condominium dues, etc. If a particular payee, such as a taxing body, receives more than one payment during the escrow account computation year, the statement shall indicate each payment and disbursement date. If there are several taxing authorities or insurers, the statement shall identify each taxing body or insurer (e.g., City Taxes, School Taxes, Hazard Insurance, or Flood Insurance, etc.). Annual Escrow Account Statements For each escrow account, a servicer shall submit an annual escrow account statement to the borrower within 30 days of the completion of the escrow account computation year. The servicer shall also submit to the borrower the previous year's projection or initial escrow account statement. The servicer shall conduct an escrow account analysis before submitting an annual escrow account statement to the borrower. Contents of Annual Escrow Account Statement The annual escrow account statement shall provide an account history, reflecting the activity in the escrow account during the escrow account computation year, and a projection of the activity in the account for the next year. In preparing the statement, the servicer may assume scheduled payments and disbursements will be made for the final 2 months of the escrow account computation year. The annual escrow account statement must include, at a minimum, the following: The amount of the borrower's current monthly mortgage payment and the portion of the monthly payment going into the escrow account, this amount must be clearly itemized; The amount of the past year's monthly mortgage payment and the portion of the monthly payment that went into the escrow account, this amount must be clearly itemized; The total amount paid into the escrow account during the past computation year, this amount must be clearly itemized; The total amount paid out of the escrow account during the same period for taxes, insurance premiums, and other charges (as separately identified), this amount must be clearly itemized; Rules and Regulations for Home Equity Line of Credit Lending Page 122

126 The balance in the escrow account at the end of the period; An explanation of how any surplus is being handled by the servicer; An explanation of how any shortage or deficiency is to be paid by the borrower; and If applicable, the reason(s) why the estimated low monthly balance was not reached, as indicated by noting differences between the most recent account history and last year's projection. Public Guidance Documents entitled Annual Escrow Account Disclosure Statement Format and Annual Escrow Account Disclosure Statement Example set forth an acceptable format and methodology for conveying this information. No Annual Statements in the Case of Default, Foreclosure, or Bankruptcy If at the time the servicer conducts the escrow account analysis the borrower is more than 30 days overdue, then the servicer is exempt from the requirements of submitting an annual escrow account statement to the borrower. This exemption also applies in situations where the servicer has brought an action for foreclosure under the underlying federally related mortgage loan, or where the borrower is in bankruptcy proceedings. If the servicer does not issue an annual statement pursuant to this exemption and the loan subsequently is reinstated or otherwise becomes current, the servicer shall provide a history of the account since the last annual statement (which may be longer than 1 year) within 90 days of the date the account became current. Delivery with Other Material The servicer may deliver the annual escrow account statement to the borrower with other statements or materials, including the Substitute 1098, which is provided for Federal income tax purposes. Short Year Statements A servicer may issue a short year annual escrow account statement ( short year statement ) to change one escrow account computation year to another. By using a short year statement a servicer may adjust its production schedule or alter the escrow account computation year for the escrow account. Effect of Short Year Statement The short year statement shall end the escrow account computation year for the escrow account and establish the beginning date of the new escrow account computation year. The servicer shall deliver the short year statement to the borrower within 60 days from the end of the short year. Short Year Statement Upon Servicing Transfer Upon the transfer of servicing, the transferor (old) servicer shall submit a short year statement to the borrower within 60 days of the effective date of transfer. Short Year Statement Upon Loan Payoff If a borrower pays off a federally related mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the payoff funds. Formats for Annual Escrow Account Statement The formats and completed examples for annual escrow account statements using single-item analysis (pre-rule accounts) and aggregate analysis are set out in Public Guidance Documents Rules and Regulations for Home Equity Line of Credit Lending Page 123

127 entitled Annual Escrow Account Disclosure Statement Format and Annual Escrow Account Disclosure Statement Example. Timely Payments If the terms of any federally related mortgage loan require the borrower to make payments to an escrow account, the servicer must pay the disbursements in a timely manner, that is, on or before the deadline to avoid a penalty, as long as the borrower's payment is not more than 30 days overdue. Upon advancing funds to pay a disbursement, the servicer may seek repayment from the borrower for the deficiency. For the payment of property taxes from the escrow account, if a taxing jurisdiction offers a servicer a choice between annual and installment disbursements, the servicer must also comply with this paragraph. If the taxing jurisdiction neither offers a discount for disbursements on a lump sum annual basis nor imposes any additional charge or fee for installment disbursements, the servicer must make disbursements on an installment basis. If, however, the taxing jurisdiction offers a discount for disbursements on a lump sum annual basis or imposes any additional charge or fee for installment disbursements, the servicer may, at the servicer's discretion (but is not required by RESPA to), make lump sum annual disbursements in order to take advantage of the discount for the borrower or avoid the additional charge or fee for installments, as long as such method of disbursement complies with the requirements above for timely payments. The Bureau encourages, but does not require, the servicer to follow the preference of the borrower, if such preference is known to the servicer. A servicer and borrower may mutually agree, on an individual case basis, to a different disbursement basis (installment or annual) or disbursement date for property taxes from that required above, so long as the agreement meets the requirements of timely payments. The borrower must voluntarily agree; neither loan approval nor any term of the loan may be conditioned on the borrower's agreeing to a different disbursement basis or disbursement date. Timely Payment of Hazard Insurance In general, with respect to a borrower whose mortgage payment is more than 30 days overdue, but who has established an escrow account for the payment for hazard insurance, a servicer may not purchase force-placed insurance, unless a servicer is unable to disburse funds from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner. Inability to Disburse funds When Inability Exists A servicer is considered unable to disburse funds from a borrower's escrow account to ensure that the borrower's hazard insurance premiums are paid in a timely manner only if the servicer has a reasonable basis to believe either that the borrower's hazard insurance has been canceled (or was not renewed) for reasons other than nonpayment of premium charges or that the borrower's property is vacant. When Inability Does Not Exist A servicer shall not be considered unable to disburse funds from the borrower's escrow account because the escrow account contains insufficient funds for paying hazard insurance premium charges. Rules and Regulations for Home Equity Line of Credit Lending Page 124

128 Recoupment of Advances If a servicer advances funds to an escrow account to ensure that the borrower's hazard insurance premium charges are paid in a timely manner, a servicer may seek repayment from the borrower for the funds the servicer advanced, unless otherwise prohibited by applicable law. Small Servicers A servicer that qualifies as a small servicer may purchase force-placed insurance and charge the cost of that insurance to the borrower if the cost to the borrower of the force-placed insurance is less than the amount the small servicer would need to disburse from the borrower's escrow account to ensure that the borrower's hazard insurance premium charges were paid in a timely manner. Discretionary Payments Any borrower's discretionary payment (such as credit life or disability insurance) made as part of a monthly mortgage payment is to be noted on the initial and annual statements. If a discretionary payment is established or terminated during the escrow account computation year, this change should be noted on the next annual statement. A discretionary payment is not part of the escrow account unless the payment is required by the lender, in accordance with the definition of settlement service or the servicer chooses to place the discretionary payment in the escrow account. If a servicer has not established an escrow account for a federally related mortgage loan and only receives payments for discretionary items, this section is not applicable List of Homeownership Counseling Organizations Provision of List Not later than three business days after a lender, mortgage broker, or dealer receives an application or information sufficient to complete an application, the lender must provide the loan applicant with a clear and conspicuous written list of homeownership counseling organizations that provide relevant counseling services in the loan applicant s location. The list of homeownership counseling organizations distributed to each loan applicant shall be obtained no earlier than 30 days prior to the time when the list is provided to the loan applicant from either: The web site maintained by the Bureau for lenders to use in complying with these requirements; or Data made available by the Bureau or HUD for lenders to use in complying with these requirements, provided that the data is used in accordance with instructions provided with the data. The list of homeownership counseling organizations may be combined and provided with other mortgage loan disclosures required pursuant to Regulation Z, 12CFR part 1026, or this part unless prohibited by Regulation Z or this part. A mortgage broker or dealer may provide the list of homeownership counseling organizations required to any loan applicant from whom it receives or prepares an application. If the mortgage broker or dealer has provided the required list of homeownership counseling organizations, the lender is not required to provide an additional list. The lender is responsible for ensuring that the list of homeownership counseling organizations is provided to a loan applicant in accordance with these requirements. If the lender, mortgage broker, or dealer does not provide the list of homeownership counseling organizations to the loan applicant in person, the lender must mail or deliver the list to the loan applicant by other means. The list may be provided in electronic form, subject to compliance Rules and Regulations for Home Equity Line of Credit Lending Page 125

129 with the consumer consent and other applicable, provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act), 15 U.S.C 7001 et seq. The lender is not required to provide the list of homeownership counseling organization if, before the end of the three business-day period, the lender denies the application or the loan applicant withdrawal the application. If the mortgage loan transaction involves more than one lender only one list of homeownership counseling organizations required shall be given to the loan applicant and the lenders shall agree among themselves which lender will comply with the requirements. If there is more than one loan applicant the required list of homeownership counseling organizations may be provided to any loan applicant with primary liability on the mortgage loan obligation. Open-End Lines of Credit (Home-Equity Plans) For a federally related mortgage loan that is a home-equity line of credit subject to Regulation Z, 12 CFR , a lender or mortgage broker that provides the loan applicant with a list of homeownership organizations may comply with the timing and delivery requirements by either providing the list of homeownership organizations at the time an application is provided to the consumer or by delivering or placing them in the mail not later than three business days following receipt of a consumer application in the case of applications contained in magazines or other publications, or when the application is received by telephone, or when the application is received through an intermediary agent or broker. Exemptions A lender is not required to provide the list of homeownership counseling organizations to an applicant for a reverse mortgage transaction, or mortgage loan secured by a timeshare, as described under 11 U.S.C.101(53D). Rules and Regulations for Home Equity Line of Credit Lending Page 126

130 12 C.F.R TRUTH IN LENDING (REGULATION Z) Definitions Advertisement means a commercial message in any medium that promotes, directly or indirectly, a credit transaction. Billing Cycle or Cycle means the interval between the days or dates of regular periodic statements. These intervals shall be equal and no longer than a quarter of a year. An interval will be considered equal if the number of days in the cycle does not vary more than four days from the regular day or date of the periodic statement. Bureau means the Bureau of Consumer Financial Protection. Business Day means a day on which the creditor's offices are open to the public for carrying on substantially all of its business functions. However, for purposes of rescission under and , and for purposes of (a)(1)(ii), (a)(2), , and (d)(4), the term means all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year's Day, the Birthday of Martin Luther King, Jr., Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day. Cash Price means the price at which a creditor, in the ordinary course of business, offers to sell for cash property or service that is the subject of the transaction. At the creditor's option, the term may include the price of accessories, services related to the sale, service contracts and taxes and fees for license, title, and registration. The term does not include any finance charge. Consumer means a cardholder or natural person to whom consumer credit is offered or extended. However, for purposes of rescission under and , the term also includes a natural person in whose principal dwelling a security interest is or will be retained or acquired, if that person's ownership interest in the dwelling is or will be subject to the security interest. Consumer Credit means credit offered or extended to a consumer primarily for personal, family, or household purposes. Consummation means the time that a consumer becomes contractually obligated on a credit transaction. Credit means the right to defer payment of debt or to incur debt and defer its payment. Credit Card means any card, plate, or other single credit device that may be used from time to time to obtain credit. Credit Card Account Under an Open-End (not Home-Secured) Consumer Credit Plan means any open-end credit account that is accessed by a credit card, except: A home-equity plan subject to the requirements of that is accessed by a credit card; or An overdraft line of credit that is accessed by a debit card or an account number. Rules and Regulations for Home Equity Line of Credit Lending Page 127

131 Credit Sale means a sale in which the seller is a creditor. The term includes a bailment or lease (unless terminable without penalty at any time by the consumer) under which the consumer: Agrees to pay as compensation for use a sum substantially equivalent to, or in excess of, the total value of the property and service involved; and Will become (or has the option to become), for no additional consideration or for nominal consideration, the owner of the property upon compliance with the agreement. Creditor means: A person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment), and to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract; For purposes of (c)(8) (Discounts), (d) (Finance charge imposed at time of transaction), and (e) (Prompt notification of returns and crediting of refunds), a person that honors a credit card; For purposes of subpart B, any card issuer that extends either open-end credit or credit that is not subject to a finance charge and is not payable by written agreement in more than four installments; For purposes of subpart B (except for the credit and charge card disclosures contained in and (e) and (f), the finance charge disclosures contained in (a)(1) and (b)(3)(i) and (a)(4) through (7) and (b)(4) through (6) and the right of rescission set forth in ) and subpart C, any card issuer that extends closed-end credit that is subject to a finance charge or is payable by written agreement in more than four installments; A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of ) more than 25 times (or more than 5 times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of or one or more such credit extensions through a mortgage broker. Downpayment means an amount, including the value of property used as a trade-in, paid to a seller to reduce the cash price of goods or services purchased in a credit sale transaction. A deferred portion of a downpayment may be treated as part of the downpayment if it is payable not later than the due date of the second otherwise regularly scheduled payment and is not subject to a finance charge. Dwelling means a residential structure that contains one to four units, whether or not that structure is attached to real property. The term includes an individual condominium unit, cooperative unit, mobile home, and trailer, if it is used as a residence. Grace Period means a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate. Open-End Credit means consumer credit extended by a creditor under a plan in which: The creditor reasonably contemplates repeated transactions; The creditor may impose a finance charge from time to time on an outstanding unpaid balance; and Rules and Regulations for Home Equity Line of Credit Lending Page 128

132 The amount of credit that may be extended to the consumer during the term of the plan (up to any limit set by the creditor) is generally made available to the extent that any outstanding balance is repaid. Periodic Rate means a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year. Person means a natural person or an organization, including a corporation, partnership, proprietorship, association, cooperative, estate, trust, or government unit. Prepaid Finance Charge means any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time. Residential Mortgage Transaction means a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained in the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling. Security Interest means an interest in property that secures performance of a consumer credit obligation and that is recognized by state or Federal law. It does not include incidental interests such as interests in proceeds, accessions, additions, fixtures, insurance proceeds (whether or not the creditor is a loss payee or beneficiary), premium rebates, or interests in after-acquired property. For purposes of disclosures under and , the term does not include an interest that arises solely by operation of law. However, for purposes of the right of rescission under and , the term does include interests that arise solely by operation of law. State means any state, the District of Columbia, the Commonwealth of Puerto Rico, and any territory or possession of the United States. Regulation Z Account-Opening Disclosures Rules Affecting Home-Equity Plans The requirements of this part apply only to home-equity plans subject to the requirements of A creditor shall disclose the items in this section, to the extent applicable: The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows: o A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period's expiration; o A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, and the corresponding annual percentage rate. If a creditor offers a variable-rate plan, the creditor shall also disclose: The circumstances under which the rate(s) may increase; any limitations on the increase; and the effect(s) of an increase. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates shall apply shall also be disclosed. A creditor is not Rules and Regulations for Home Equity Line of Credit Lending Page 129

133 required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies; o An explanation of the method used to determine the balance on which the finance charge may be computed; o An explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined. The amount of any charge other than a finance charge that may be imposed as part of the plan, or an explanation of how the charge will be determined; The fact that the creditor has or will acquire a security interest in the property purchased under the plan, or in other property identified by item or type; A statement that outlines the consumer's billing error resolution rights and the creditor's responsibilities and that is substantially similar to the statement found in Model Form G-3 or, at the creditor's option, G-3(A), in appendix G of the regulation Home Equity Line of Credit Loans - Periodic Statement The creditor shall mail or deliver a periodic statement for each billing cycle at the end of which an account has a debit or credit balance of more than $1 or on which a finance charge has been imposed. A periodic statement need not be sent for an account if: The creditor deems it uncollectible, Delinquency collection proceedings have been instituted, The creditor has charged off the account in accordance with loan loss provisions and will not charge any additional fees or interest on the account; or Furnishing the statement would violate Federal law. For accounts under an open-end consumer credit plan a creditor must adopt reasonable procedures designed to ensure that if a grace period applies to the account: Periodic statements are mailed or delivered at least 21 days prior to the date on which the grace period expires; and The creditor does not impose finance charges as a result of the loss of the grace period if a payment that satisfies the terms of the grace period is received by the creditor within 21 days after mailing or delivery of the periodic statement. Regardless of whether a grace period applies to the account: Periodic statements are mailed or delivered at least 14 days prior to the date on which the required minimum periodic payment must be received in order to avoid being treated as late for any purpose; and The creditor does not treat as late for any purpose a required minimum periodic payment received by the creditor within 14 days after mailing or delivery of the periodic statement. Grace Period means a period within which any credit extended may be repaid without incurring a finance charge due to a periodic interest rate Identifying Transactions on Periodic Statements The creditor shall identify credit transactions on or with the first periodic statement that reflects the transaction by furnishing the following information, as applicable. Except as provided below, for each credit transaction involving the sale of property or services, the creditor must disclose the amount and date of the transaction, and either: Rules and Regulations for Home Equity Line of Credit Lending Page 130

134 o o A brief identification of the property or services purchased, for creditors and sellers that are the same or related; or The seller's name; and the city and state or foreign country where the transaction took place. The creditor may omit the address or provide any suitable designation that helps the consumer to identify the transaction when the transaction took place at a location that is not fixed; took place in the consumer's home; or was a mail, Internet, or telephone order. Creditors need not comply with the above requirements if: An actual copy of the receipt or other credit document is provided with the first periodic statement reflecting the transaction; and The amount of the transaction; and either: o The date of the transaction to the consumer's account; or o The date of debiting the transaction are disclosed on the copy or on the periodic statement. For each credit transaction not involving the sale of property or services, the creditor must disclose: A brief identification of the transaction; The amount of the transaction; and At least one of the following dates; o The date of the transaction; o The date the transaction was debited to the consumer's account; or o If the consumer signed the credit document, the date appearing on the document. If an actual copy of the receipt or other credit document is provided and that copy shows the amount and at least one of the specified dates, the brief identification may be omitted. The following procedures apply to creditors that treat an inquiry for clarification or documentation as a notice of a billing error, including correcting the account: Failure to disclose the information required above is not a failure to comply with the regulation, provided that the creditor also maintains procedures reasonably designed to obtain and provide the information. This applies to transactions that take place outside a state, whether or not the creditor maintains procedures reasonably adapted to obtain the required information. As an alternative to the brief identification for sale or non-sale credit, the creditor may disclose a number or symbol that also appears on the receipt or other credit document given to the consumer, if the number or symbol reasonably identifies that transaction with that creditor Subsequent Disclosure Requirements Furnishing Statement of Billing Rights - Annual Statement The credit union shall mail or deliver the billing rights statement at least once per calendar year, at intervals of not less than 6 months nor more than 18 months, either to all consumers or to each consumer entitled to receive a periodic statement for any one billing cycle. As an alternative to furnishing an annual statement of billing rights the creditor may mail or deliver, on or with each periodic statement, a statement substantially similar to Model Form G-4 or Model Form G-4(A) in appendix G to this regulation, as applicable. Creditors offering home- Rules and Regulations for Home Equity Line of Credit Lending Page 131

135 equity plans subject to the requirements of may use either Model Form, at their option. Disclosures for Supplemental Credit Access Devices and Additional Features If a creditor, within 30 days after mailing or delivering the account-opening disclosures, adds a credit feature to the consumer's account or mails or delivers to the consumer a credit access device, including but not limited to checks that access a credit card account, for which the finance charge terms are the same as those previously disclosed, no additional disclosures are necessary. After 30 days, if the creditor adds a credit feature or furnishes a credit access device (other than as a renewal, resupply, or the original issuance of a credit card) on the same finance charge terms, the creditor shall disclose, before the consumer uses the feature or device for the first time, that it is for use in obtaining credit under the terms previously disclosed. Whenever a credit feature is added or a credit access device is mailed or delivered to the consumer, and the finance charge terms for the feature or device differ from disclosures previously given the following disclosures shall be provided as applicable that are applicable to the added feature or device. These disclosures shall be given before the consumer uses the feature or device for the first time: The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows: o A statement of when finance charges begin to accrue, including an explanation of whether or not any time period exists within which any credit extended may be repaid without incurring a finance charge. If such a time period is provided, a creditor may, at its option and without disclosure, impose no finance charge when payment is received after the time period's expiration. o A disclosure of each periodic rate that may be used to compute the finance charge, the range of balances to which it is applicable, and the corresponding annual percentage rate. If a creditor offers a variable-rate plan, the creditor shall also disclose: The circumstances under which the rate(s) may increase; any limitations on the increase; and the effect(s) of an increase. When different periodic rates apply to different types of transactions, the types of transactions to which the periodic rates shall apply shall also be disclosed. A creditor is not required to adjust the range of balances disclosure to reflect the balance below which only a minimum charge applies; o An explanation of the method used to determine the balance on which the finance charge may be computed; o An explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined; or The finance charges which is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. The finance charge includes: o Charges by third parties - The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor: Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or Retains a portion of the third-party charge, to the extent of the portion retained. Rules and Regulations for Home Equity Line of Credit Lending Page 132

136 o Special rule closing agent charges- fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor: Requires the particular services for which the consumer is charged; Requires the imposition of the charge; or Retains a portion of the third-party charge, to the extent of the portion retained. o Special rule mortgage broker fees fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge; and Examples of finance charges -. The finance charge includes the following types of charges: o Interest, time price differential, and any amount payable under an add-on or discount system of additional charges; o Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature; o Points, loan fees, assumption fees, finder's fees, and similar charges; o Appraisal, investigation, and credit report fees; o Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss; o Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation; o Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction; o Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction; o Discounts for the purpose of inducing payment by a means other than the use of credit; o Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law. Rules Affecting Home-Equity Plans - Written Notice Required For home-equity plans subject to the requirements of , whenever any term required to be disclosed upon account opening is changed or the required minimum periodic payment is increased, the credit union shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change. For home-equity plans subject to the requirements of , a creditor is not required to provide notice under this section when the change involves a reduction of any component of a finance or other charge or when the change results from an agreement involving a court proceeding. Rules and Regulations for Home Equity Line of Credit Lending Page 133

137 For home-equity plans subject to the requirements of , if the creditor prohibits additional extensions of credit or reduces the credit limit, the creditor shall mail or deliver written notice of the action to each consumer who will be affected. The notice must be provided not later than three business days after the action is taken and shall contain specific reasons for the action. If the creditor requires the consumer to request reinstatement of credit privileges, the notice also shall state that fact Payments A creditor shall credit a payment to the consumer s account as of the date of receipt, except when a delay in crediting does not result in a finance charge or other charge. A creditor may specify reasonable requirements for payments that enable most consumers to make conforming payments. Examples of reasonable requirements for making payment may include: Requiring that payments be accompanied by the account number or payment stub; Setting reasonable cut-off times for payments to be received by mail, by electronic means, by telephone, and in person, provided that such cut-off times shall be no earlier than 5 p.m. on the payment due date at the location specified by the creditor for the receipt of such payments; Specifying that only checks or money orders should be sent by mail; Specifying that payment is to be made in U.S. dollars; or Specifying one particular address for receiving payments, such as a post office box. If a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments but accepts a payment that does not conform to the requirements the creditor shall credit the payment within five days of receipt. If a creditor promotes a method for making payments such payments shall be considered conforming payments and shall be credited to the consumer s account as of the date of receipt, except when a delay in crediting does not result in finance or other charge. If a creditor fails to credit a payment, as required in time to avoid the imposition of finance or other charges, the creditor shall adjust the consumer s account so that the charges imposed are credited to the consumers account during the next billing cycle. If a creditor does not receive or accept payments by mail on the due date for payments, the creditor may generally not treat a payment received the next business day as late for any purpose. The next business day means the next day on which the creditor accepts or receives payments by mail. If the creditor accepts or receives payments made on the due date by a method other than mail, such as electronic or telephone payments, the creditor is not required to treat a payment made by that method on the next business day as timely, even if it does not accept mailed payments on the due date Treatment of Credit Balances; Account Termination Credit balances When a credit balance in excess of $1 is created on a credit account (through transmittal of funds to a creditor in excess of the total balance due on an account, through rebates of Rules and Regulations for Home Equity Line of Credit Lending Page 134

138 unearned finance charges or insurance premiums, or through amounts otherwise owed to or held for the benefit of the consumer), the creditor shall: Credit the amount of the credit balance to the consumer's account; Refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer; Make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer's current location is not known to the credit union and cannot be traced through the consumer's last known address or telephone number. Termination of an Account A creditor shall not terminate an account prior to its expiration date solely because the consumer does not incur a finance charge. This does not prohibit credit union from terminating an account that is inactive for three or more consecutive months. An account is inactive for purposes of this paragraph if no credit has been extended (such as by purchase, cash advance or balance transfer) and if the account has no outstanding balance Determination of Annual Percentage Rate The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate. An annual percentage rate shall be considered accurate if it is not more than 1 8 of 1 percentage point above or below the annual percentage rate determined in accordance with this section. An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation if: The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and Upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes, and notifies the Bureau in writing of the error in the calculation tool. Where one or more periodic rates may be used to compute the finance charge, the annual percentage rate(s) to be disclosed for purposes shall be computed by multiplying each periodic rate by the number of periods in a year. Optional Effective Annual Percentage Rate for Periodic Statements for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling A creditor offering an open-end plan subject to the requirements of need not disclose an effective annual percentage rate. Such a creditor may, at its option, disclose an effective annual percentage rate(s) and compute the effective annual percentage rate as follows: If the finance charge is determined solely by applying one or more periodic rates, at the creditor's option, either: o By multiplying each periodic rate by the number of periods in a year; or o By dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year. If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate, other than a charge with respect to any specific transaction during the billing cycle, by dividing the total finance charge for the billing cycle by the amount of the balance(s) to which it is applicable and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a Rules and Regulations for Home Equity Line of Credit Lending Page 135

139 year. If there is no balance to which the finance charge is applicable, an annual percentage rate cannot be determined under this section. Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to opening, renewing, or continuing an account, the amount of such charge shall not be included in the calculation of the annual percentage rate. If the finance charge imposed during the billing cycle is or includes a charge relating to a specific transaction during the billing cycle (even if the total finance charge also includes any other minimum, fixed, or other charge not due to the application of a periodic rate), by dividing the total finance charge imposed during the billing cycle by the total of all balances and other amounts on which a finance charge was imposed during the billing cycle without duplication, and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year, except that the annual percentage rate shall not be less than the largest rate determined by multiplying each periodic rate imposed during the billing cycle by the number of periods in a year. Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to the opening, renewing, or continuing an account, the amount of such charge shall not be included in the calculation of the annual percentage rate. See appendix F to this regulation regarding determination of the denominator of the fraction under this paragraph. If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate and the total finance charge imposed during the billing cycle does not exceed 50 cents for a monthly or longer billing cycle, or the pro rata part of 50 cents for a billing cycle shorter than monthly, at the creditor's option, by multiplying each applicable periodic rate by the number of periods in a year. Calculations Where Daily Periodic Rate Applied If the finance charge is determined: Solely by applying one or more periodic rates, at the creditor's option, by dividing the total finance charge for the billing cycle by the sum of the balances to which the periodic rates were applied and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year; or If the finance charge imposed during the billing cycle is or includes a minimum, fixed, or other charge not due to the application of a periodic rate, other than a charge with respect to any specific transaction during the billing cycle, by dividing the total finance charge for the billing cycle by the amount of the balance(s) to which it is applicable and multiplying the quotient (expressed as a percentage) by the number of billing cycles in a year. If there is no balance to which the finance charge is applicable, an annual percentage rate cannot be determined under this section. Where the finance charge imposed during the billing cycle is or includes a loan fee, points, or similar charge that relates to opening, renewing, or continuing an account, the amount of such charge shall not be included in the calculation of the annual percentage rate; and All or a portion of the finance charge is determined by the application of one or more daily periodic rates, the annual percentage rate may be determined either: o By dividing the total finance charge by the average of the daily balances and multiplying the quotient by the number of billing cycles in a year; or o By dividing the total finance charge by the sum of the daily balances and multiplying the quotient by 365. Rules and Regulations for Home Equity Line of Credit Lending Page 136

140 Right of Rescission Exempt Transactions The right to rescind does not apply to a residential mortgage transaction or a credit plan in which a state agency is a creditor. Consumer s Right to Rescind In a credit plan in which a security interest is or will be retained or acquired in a consumer s principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind: Each credit extension made under the plan; The plan when the plan is opened A security interest when added or increased to secure an existing plan; and The increase when a credit limit on a plan is increased The consumer does not have the right to rescind each credit extension made under the plan if such extension is made in accordance with a previously established credit limit for the plan. The consumer may exercise the right to rescind until midnight of the third business day following: The occurrence that gave rise to the right of rescission; Delivery of the required notice; or Delivery of all material disclosures, whichever occurs last. If the required notice and material disclosures are not delivered, the right of rescission shall expire: Three years after the occurrence giving rise to the right of rescission; or Upon transfer of all of the consumer s interest in the property; or Upon sale of the property, whichever occurs first. When more than one consumer has the right to rescind, the exercise of the right by one consumer shall be effective as to all consumers. Notice of Right to Rescind In any transaction or occurrence subject to rescission, a credit union shall deliver two copies of the notice of the right to rescind to each consumer entitled to rescind (one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act). The notice shall Identify the transaction or occurrence and clearly and conspicuously disclose the following: The retention or acquisition of a security interest in the consumer s principal dwelling; The consumer s right to rescind; How to exercise the right to rescind, with a form for that purpose, designating the address of the credit union s place of business; The effects of rescission; The date the rescission period expires. Delay of Creditor s Performance Unless a consumer waives the right to rescind no money shall be disbursed other than in escrow, no services shall be performed, and no materials delivered until after the rescission period has expired and the creditor is reasonably satisfied that the consumer has not rescinded. A creditor does not violate these requirements if a third party with no knowledge of the event Rules and Regulations for Home Equity Line of Credit Lending Page 137

141 activating the rescission right does not delay in providing materials or services, as long as the debt incurred for those materials or services is not secured by the property subject to rescission Effects of Rescission When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void, and the consumer shall not be liable for any amount, including any finance charge. Within 20 calendar days after receipt of a notice of rescission the creditor shall return any money or property that has been given to anyone in connection with the transaction, and take any action necessary to reflect the termination of the security interest. If the creditor has delivered any money or property, the consumer may retain possession until the creditor has complied with this section. When the creditor has complied with this part, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer s option, tender of property may be made at the location of the property or at the consumer s residence. Tender of money must be made at the creditor s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer s tender, the consumer may keep it without further obligation. These procedures may be modified by court order. Consumer s Waiver of Right to Rescind The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited Advertising Requirements for HELOC loans Credit unions must follow specific requirements when advertising mortgage products. Generally the advertisement must state only those terms that actually are or will be arranged or offered by the credit union and not be misleading. The advertisement must also contain additional disclosures when certain triggering terms are used in advertising for home equity line of credit loans. Definitions Promotional Rate in a variable rate plan means any annual percentage rate that is not based on the index and margin that will be used to make rate adjustments under the plan, if that rate is less than a reasonably current annual percentage rate that would be in effect under the index and margin that will be used to make rate adjustments under the plan. Promotional Payment means for a variable rate plan any minimum payment applicable for a promotional period that: Is not derived by applying the index and margin to the outstanding balance when such index and margin will be used to determine other minimum payments under the plan; and Is less than other minimum payments under the plan derived by applying a reasonably current index and margin that will be used to determine the amount of such payments, given an assumed balance. Rules and Regulations for Home Equity Line of Credit Lending Page 138

142 For a plan other than a variable-rate plan, any minimum payment applicable for a proportional period, if that payment is less than other payments required under the plan given an assumed balance. Promotional Period means a period of time, less than the full term of the loan, that the promotional rate or promotional payment may be applicable. An advertisement may not refer to a home-equity plan as free money or contain a similarly misleading term. Finance Charge means the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction. Charges by Third Parties means when the finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor: Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or Retains a portion of the third-party charge, to the extent of the portion retained. Closing Agent Charges means fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor: Requires the particular services for which the consumer is charged; Requires the imposition of the charge; or Retains a portion of the third-party charge, to the extent of the portion retained. Mortgage Broker Fees means fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge. Examples of Finance Charges includes the following types of charges, except for charges specifically excluded below: Interest, time price differential, and any amount payable under an add-on or discount system of additional charges; Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature; Points, loan fees, assumption fees, finder's fees, and similar charges; Appraisal, investigation, and credit report fees; Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss: Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation; Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction; Premiums or other charges for insurance against loss of or damage to property; or against liability arising out of the ownership or use of property, written in connection with a credit transaction; Rules and Regulations for Home Equity Line of Credit Lending Page 139

143 Discounts for the purpose of inducing payment by a means other than the use of credit; Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law. Charges Excluded from the Finance Charge include the following: Application fees charged to all applicants for credit, whether or not credit is actually extended; Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence; Charges imposed by a financial institution for paying items that overdraw an account, unless the payment of such items and the imposition of the charge were previously agreed upon in writing; Fees charged for participation in a credit plan, whether assessed on an annual or other periodic basis; Seller's points; Interest forfeited as a result of an interest reduction required by law or on a time deposit used as security for an extension of credit; Real estate related fees include the following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount, fees for: o Title examination; o Abstract of title; o Title insurance; o Property survey and similar purposes; o Preparing loan related documents; such as: Deeds; Mortgages; and reconveyance or settlement documents. o Notary services; o Credit reports; o Property appraisal; o Inspections to assess the value or condition of the property if the service is performed prior to closing including fees related to pest infestation or floodhazard determinations; o Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge; Discounts offered to induce payment for a purchase by cash, check, or other means, as provided in section 167(b) of the Act. Insurance and Debt Cancellation and Debt Suspension Coverage - Voluntary Credit Insurance Premiums Premiums for credit life, accident, health, or loss-of-income insurance may be excluded from the finance charge if the following conditions are met: The insurance coverage is not required by the creditor, and this fact is disclosed in writing; The premium for the initial term of insurance coverage is disclosed in writing. If the term of insurance is less than the term of the transaction, the term of insurance also shall be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone and certain closed-end Rules and Regulations for Home Equity Line of Credit Lending Page 140

144 credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage; The consumer signs or initials an affirmative written request for the insurance after receiving the disclosures specified in this paragraph, except as provided in this section. Any consumer in the transaction may sign or initial the request. Property Insurance Premiums Premiums for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, including single interest insurance if the insurer waives all right of subrogation against the consumer, may be excluded from the finance charge if the following conditions are met: The insurance coverage may be obtained from a person of the consumer s choice, and this fact is disclosed. A creditor may reserve the right to refuse to accept, for reasonable cause, an insurer offered by the consumer; If the coverage is obtained from or through the creditor, the premium for the initial term of insurance coverage shall be disclosed. If the term of insurance is less than the term of the transaction, the term of insurance shall also be disclosed. The premium may be disclosed on a unit-cost basis only in open-end credit transactions, closed-end credit transactions by mail or telephone, and certain closed-end credit transactions involving an insurance plan that limits the total amount of indebtedness subject to coverage. Voluntary Debt Cancellation or Debt Suspension Fees Charges or premiums paid for debt cancellation coverage for amounts exceeding the value of the collateral securing the obligation or for debt cancellation or debt suspension coverage in the event of the loss of life, health, or income or in case of accident may be excluded from the finance charge, whether or not the coverage is insurance, if the following conditions are met: The debt cancellation or debt suspension agreement or coverage is not required by the creditor, and this fact is disclosed in writing; The fee or premium for the initial term of coverage is disclosed in writing. If the term of coverage is less than the term of the credit transaction, the term of coverage also shall be disclosed. The fee or premium may be disclosed on a unit-cost basis only in openend credit transactions, closed-end credit transactions by mail or telephone, and certain closed-end credit transactions involving a debt cancellation agreement that limits the total amount of indebtedness subject to coverage; The following are disclosed, as applicable, for debt suspension coverage: That the obligation to pay loan principal and interest is only suspended, and that interest will continue to accrue during the period of suspension; The consumer signs or initials an affirmative written request for coverage after receiving the disclosures. Any consumer in the transaction may sign or initial the request. Certain Security Interest Charges If itemized and disclosed, the following charges may be excluded from the finance charge: Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest; The premium for insurance in lieu of perfecting a security interest to the extent that the premium does not exceed taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest that otherwise would be payable; Rules and Regulations for Home Equity Line of Credit Lending Page 141

145 Any tax levied on security instruments or on documents evidencing indebtedness if the payment of such taxes is a requirement for recording the instrument securing the evidence of indebtedness. Prohibited Offsets Interest, dividends, or other income received or to be received by the consumer on deposits or investments shall not be deducted in computing the finance charge. Disclosure Requirements If an advertisement for credit states specific credit terms, it shall state only those terms that actually are or will be arranged or offered by the credit union. An advertisement may not refer to an annual percentage rate as fixed or use a similar tem, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open. If a catalog or other multiple-page advertisement, or an electronic advertisement, such as an advertisement appearing on an internal web site, gives information in a table or schedule in sufficient detail to permit determination of the disclosures required, it shall be considered a single advertisement if: The table or schedule is clearly and conspicuously set forth; and Any statement of terms appearing anywhere else in the catalog or advertisement clearly refers to the page or location where the table or schedule begins. A catalog or other multiple-page advertisement or an electronic advertisement such as an advertisement appearing on an internet web site complies with this paragraph if the table or schedule of terms includes all appropriate disclosures for a representative scale of amounts up to the level of the more commonly sold higher-priced property or services offered. Additional Disclosure Requirements for Home-Equity Plans If any finance charge or other charge, or the payment terms of the plan is set forth affirmatively or negatively in an advertisement for an open-end credit plan secured by the consumer s dwelling, the advertisement shall also clearly and conspicuously set for the following: Any minimum, fixed, transaction, activity or similar charge that is a finance charge that could be imposed; Any periodic rate that may be applied, expressed as an annual percentage rate; If the plan provides for a variable rate, that fact shall be disclosed; Any membership or participation fee that could be imposed; If any finance charge, other charge or payment terms of the plan are set forth, affirmatively or negatively, in an advertisement for a home equity plan, the advertisement also shall clearly and conspicuously set forth the following: Any loan fee that is a percentage of the credit limit under the plan; and An estimate of any other fees imposed for opening the plan, stated as a single dollar amount or a reasonable range; and Any periodic rate used to compute the finance charge, expressed as an annual percentage rate; and The maximum annual percentage rate that may be imposed in a variable-rate plan Rules and Regulations for Home Equity Line of Credit Lending Page 142

146 Discounted and Premium Rates If an advertisement states an initial annual percentage rate that is not based on the index and margin used to make later rate adjustments in a variable-rate plan, the advertisement also shall state with equal prominence and in close proximity to the initial rate: The period of time such initial rate will be in effect; and A reasonably current annual percentage rate that would have been in effect using the index and margin. Balloon Payment If an advertisement contains a statement of any minimum periodic payment and a balloon payment may result if only the minimum periodic payments are made, even if such a payment is uncertain or unlikely, the advertisement also shall state with equal prominence and in close proximity to the minimum periodic payment statement that a balloon payment may result, if applicable. A balloon payment results if: Paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time; and The consumer is required to repay the entire outstanding balance at such time. If a balloon payment will occur when the consumer makes only the minimum payments required under the plan an advertisement for such a program which contains any statement of any minimum periodic payment shall also state with equal prominence and in close proximity to the minimum periodic payment statement: 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. Tax Implications An advertisement that states that any interest expense incurred under the home equity plan is, or may be tax deductible, may not be misleading in this regard. If an advertisement distributed in paper form or through the internet, rather than by radio or television, is for a home-equity plan secured by the consumer s principal dwelling, and states that the advertised extension of credit may exceed the fair market value of the dwelling the advertisement shall clearly and conspicuously state: The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes; and The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges. Promotional Rates and Payments If any annual percentage rate or payment that may be applied to a plan is a promotional rate or payment the following must be disclosed in any advertisement in a clear and conspicuous manner with equal prominence and in close proximity to each listing of the promotional rate or payment: Rules and Regulations for Home Equity Line of Credit Lending Page 143

147 The period of time during which the promotional rate or promotional payment will apply; In the case of a promotional rate, any annual percentage rate that will apply under the plan. If such rate is variable, the annual percentage rate must be disclosed in accordance with the accuracy standards in or (b)(1)(ii)as applicable; and In the case of a promotional payment the amounts and time periods of any payments that will apply under the plan; In variable-rate transactions, payments that will be determined based on application of an index and margin shall be disclosed based on a reasonable current index and margin. The advertising disclosure requirements above for any promotional annual percentage rate or promotional payment do not apply to: An envelope in which an application or solicitation is mailed; or To a banner advertisement; or Pop-up advertisement linked to an application or solicitation provided electronically. Alternative Disclosures An advertisement made through television or radio stating a finance charge, any other charge, or payment terms of the plan may alternatively comply with the additional disclosure requirements by: Stating the periodic rate that may be applied, expressed as an annual percentage rate; and If the plan provides for a variable periodic rate, that fact shall be disclosed as applicable; and Listing a toll-free telephone number; or Listing any telephone number that allows a consumer to reverse the phone charges when calling for information; and Providing a reference that such number may be used by consumers to obtain the additional cost information Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling Related to a Home Equity Line of Credit Servicing Practices In connection with a consumer credit transaction secured by a consumer s dwelling a creditor, assignee or servicer, as applicable must provide an accurate statement of the total outstanding balance that would be required to pay the consumer s obligation in full as of a specified date. The statement shall be sent within a reasonable time but in no case more than seven business days, after receiving a written request from the consumer or any person acting on behalf of the consumer. When a creditor, assignee, or servicer, as applicable, is not able to provide the statement within seven business days of such a request because a loan is in bankruptcy or foreclosure, because the loan is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the payoff statement must be provided within a reasonable time. A creditor or assignee that does not currently own the mortgage loan or the mortgage servicing rights is not required to provide a payoff statement. Prohibition on Mandatory Arbitration Clauses and Waivers of Certain Consumer Rights A contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer s principal dwelling), may not include terms that require arbitration or any other non judicial procedure to resolve any Rules and Regulations for Home Equity Line of Credit Lending Page 144

148 controversy or settle any claims arising out of the transaction. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim. No Waivers of Federal Statutory Causes of Action A contract or other agreement relating to a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer s principal dwelling), may not be applied or interpreted to bar a consumer from bringing a claim in court pursuant to any provision of law for damages or other relief in connection with any alleged violation of any Federal law. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim. Prohibition on Financing Credit Insurance A creditor may not finance, directly or indirectly, any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer s principal dwelling). This prohibition does not apply to credit insurance for which premiums or fees are calculated and paid in full on a monthly basis. Credit insurance means credit life, credit disability, credit unemployment, or credit property insurance or any other accident, loss of life or health insurance, or any payments directly or indirectly or any debt cancellation or suspension agreement or contract. Credit insurance excludes credit unemployment insurance for which the unemployment insurance premiums are reasonable, the creditor receives no direct or indirect compensation in connection with the unemployment insurance premiums and the unemployment insurance premiums are paid pursuant to a separate insurance contract and are not paid to an affiliate of the creditor. A creditor finances premiums or fees for credit insurance if it provides a consumer the right to defer payment of a credit insurance premium or fee owed by the consumer beyond the monthly period in which the premium or fee is due; and credit insurance premiums or fees are calculated on a monthly basis if they are determined mathematically by multiplying a rate by the actual monthly outstanding balance Mortgage Transfer Disclosures Definitions Covered Person means any person, that becomes the owner of an existing mortgage loan by acquiring legal title to the debt obligation, whether through a purchase, assignment or other transfer, and who acquires more than one mortgage loan in any twelve-month period. For purposes of this section, a servicer of a mortgage loan shall not be treated as the owner of the obligation if the servicer holds title to the loan, or title is assigned to the servicer, solely for the administrative convenience of the servicer in servicing the obligation. Mortgage Loan means any consumer credit transaction that is secured by the principal dwelling of a consumer. Rules and Regulations for Home Equity Line of Credit Lending Page 145

149 Disclosure Required Except as provided below, each covered person is subject to the requirements of this section and shall mail or deliver the disclosures required by this section to the consumer on or before the 30th calendar day following the date of transfer. Form of Disclosures The disclosures required shall be provided clearly and conspicuously in writing, in a form that the consumer may keep. The disclosures required by this section may be provided to the consumer in electronic form, subject to compliance with the consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C et seq.). The Date of Transfer The date of transfer to the covered person may, at the covered person's option, be either the date of acquisition recognized in the books and records of the acquiring party, or the date of transfer recognized in the books and records of the transferring party. Multiple Consumers If more than one consumer is liable on the obligation, a covered person may mail or deliver the disclosures to any consumer who is primarily liable. Multiple Transfers If a mortgage loan is acquired by a covered person and subsequently sold, assigned, or otherwise transferred to another covered person, a single disclosure may be provided on behalf of both covered persons if the disclosure satisfies the timing and content requirements applicable to each covered person. Multiple Covered Persons If an acquisition involves multiple covered persons who jointly acquire the loan, a single disclosure must be provided on behalf of all covered persons. Exceptions A covered person is not subject to these requirements with respect to a particular mortgage loan if: The covered person sells, or otherwise transfers or assigns legal title to the mortgage loan on or before the 30th calendar day following the date that the covered person acquired the mortgage loan which shall be the date of transfer recognized. The mortgage loan is transferred to the covered person in connection with a repurchase agreement that obligates the transferor to repurchase the loan. However, if the transferor does not repurchase the loan, the covered person must provide the disclosures required by this section within 30 days after the date that the transaction is recognized as an acquisition on its books and records; or The covered person acquires only a partial interest in the loan and the party authorized to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan does not change as a result of the transfer of the partial interest. Content of Required Disclosures The disclosures required by this section shall identify the loan that was sold, assigned or otherwise transferred, and state the following: Rules and Regulations for Home Equity Line of Credit Lending Page 146

150 The name, address, and telephone number of the covered person; o If a single disclosure is provided on behalf of more than one covered person the information above shall be provided for each of them; o If a single disclosure is provided on behalf of more than one covered person, and one of them has been authorized to receive the consumer's notice of the right to rescind and resolve issues concerning the consumer's payments on the loan, the information name, address and telephone number may be provided only for that covered person. The date of transfer; The name, address and telephone number of an agent or party authorized to receive notice of the right to rescind and resolve issues concerning the consumer's payments on the loan. However, no information is required to be provided if the consumer can use the name, address and telephone number of the covered person for these purposes. Where transfer of ownership of the debt to the covered person is or may be recorded in public records, or, alternatively, that the transfer of ownership has not been recorded in public records at the time the disclosure is provided. Optional Disclosures In addition to the information required to be disclosed above, a covered person may, at its option, provide any other information regarding the transaction Home Equity Line of Credit Requirements For all open-end credit plans secured by the member s dwelling, the credit union shall provide the following disclosures as applicable: A statement that the consumer should make or otherwise retain a copy of the disclosures; A statement of the time by which the consumer must submit an application to obtain specific terms disclosed and an identification of any disclosed term that is subject to change prior to opening the plan; A statement that, if a disclosed term changes (other than a change due to fluctuations in the index in a variable-rate plan), prior to opening the plan and the consumer therefore elects not to open the plan, the consumer may receive a refund of fees paid in connection with the application; A statement that the creditor will acquire a security interest in the consumer s dwelling and that loss of the dwelling may occur in the event of default; A statement that, under certain conditions, the creditor may: o Terminate the plan and require payment of the outstanding balance in full in a single payment and impose fees upon termination; o Prohibit additional extensions of credit or reduce the credit limit; and o As specified in the initial agreement, implement certain changes in the plan; A statement that the consumer may receive, upon request, information about the conditions under which such actions may occur or in lieu of this statement, a statement of such conditions. If different payment terms may apply to the draw and any repayment period, or if different payment terms may apply within either period, the disclosures shall reflect the different payment terms. The payment terms may include: o o The length of the draw period and any repayment period; An explanation of how the minimum periodic payment will be determined and the timing of the payments. If paying only the minimum periodic payments may not repay any of the principal or may repay less than the outstanding balance, a statement of Rules and Regulations for Home Equity Line of Credit Lending Page 147

151 this fact, as well as a statement that a balloon payment may result. A balloon payment results if paying the minimum periodic payments does not fully amortize the outstanding balance by a specified date or time, and the consumer must repay the entire outstanding balance at such time; o An example based on a $10,000 outstanding balance and a recent annual percentage rate, showing the minimum periodic payments, any balloon payment, and the time it would take to repay the $10,000 outstanding balance if the consumer made only those payments and obtained no additional extensions of credit. For fixedrate plans, a recent annual percentage rate is a rate that has been in effect under the plan within the twelve months proceeding the date the disclosures are provided to the consumer. For variable-rate plans, a recent annual percentage rate is the most recent rate provided in the historical section or a rate that has been in effect under the plan since the date the most recent rate in the table; For fixed-rate plans, a recent annual percentage rate imposed under the plan and a statement that the rate does not include costs other than interest. A recent annual percentage rate is a rate that has been in effect under the plan within the twelve months preceding the date the disclosures are provided to the consumer; An itemization of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or percentage, and when such fees are payable; A good faith estimate, stated as a single dollar amount or range, of any fees that may be imposed by persons other than the creditor to open the plan, as well as a statement that the consumer may receive, upon request, a good faith itemization of such fees. In lieu of the statement, the itemization of such fees may be provided; A statement that negative amortization may occur and that negative amortization increases the principal balance and reduces the consumer s equity in the dwelling; Any limitations on the number of extensions of credit and the amount of credit that may be obtained during any time period, as well as any minimum outstanding balance and minimum draw requirements, stated as dollar amounts or percentages; A statement that the consumer should consult a tax advisor regarding the deductibility of interest charges under the plan; For a plan in which the annual percentage rate is variable the following disclosures as applicable: o The fact that the annual percentage rate, payment, or term may change due to the variable-rate feature; o A statement that the annual percentage rate does not include the costs other than interest; o The index used in making rate adjustments and a source of information about the index; o An explanation of how the annual percentage rate will be determined, including an explanation of how the index is adjusted, such as by the addition of a margin; o A statement that the consumer should ask about the current index value, margin, discount or premium, and annual percentage rate; o A statement that the initial annual percentage rate is not based on the index and margin used to make later rate adjustments, and the period of time such initial rate will be in effect; o o The frequency of changes in the annual percentage rate; Any rules relating to changes in the index value and the annual percentage rate and resulting changes in the payment amount, including, for example, an explanation of payment limitations and rate carryover; Rules and Regulations for Home Equity Line of Credit Lending Page 148

152 o o o o A statement of any annual or more frequent periodic limitations on changes in the annual percentage rate (or a statement that no annual limitation exists), as well as a statement of the maximum annual percentage rate that may be imposed under each payment option; The minimum periodic payment required when the maximum annual percentage rate for each payment option is in effect for a $10,000 outstanding balance, and a statement of the earliest date or time the maximum rate may be imposed; An historical example, based on a $10,000 extension of credit, illustrating how annual percentage rates and payments would have been affected by index value changes implemented according to the terms of the plan. The historical example shall be based on the most recent 15 years of index values (selected from the same time period each year) and shall reflect all significant plan terms, such as: Negative amortization; Rate carryover; Rate discounts; and Rate and payment limitations, that would have been affected by the index movement during the period; A statement that rate information will be provided on or with each periodic statement. Brochure The home equity brochure entitled What you should know about home equity lines of credit or a suitable substitute shall be provided at the time an application is provided to the consumer. The brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer s application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker. Limitations on Home Equity Lines of Credit Loans No creditor may by contract or otherwise: Change the annual percentage rate unless such change is based on an index that is not under the creditor s control and such index is available to the general public; Terminate the plan and demand repayment of the entire outstanding balance in advance of the original term except for reverse mortgage transactions unless: o There is fraud or material misrepresentation by the consumer in connection with the plan; o The consumer fails to meet the repayment terms of the agreement for any outstanding balance; o Any action or inaction by the consumer adversely affects the creditor s security for the plan, or any right of the creditor in such security; or o Federal law dealing with the credit extended by a depository institution to its executive officers specifically requires that as a condition of the plan the credit shall become due and payable on demand, provided that the creditor includes such a provision in the initial agreement. Change any term except that a credit union may: o Provide in the initial agreement that it may prohibit additional extensions of credit or reduce the credit limit during any period in which the maximum annual percentage rate is reached; o Provide in the initial agreement that specified changes will occur if a specified event takes place (for example, that the annual percentage rate will increase a specified amount if the member leaves the credit union s employment); Rules and Regulations for Home Equity Line of Credit Lending Page 149

153 o o o o o Change the index and margin used under the plan if: The original index is no longer available; The new index has an historical movement substantially similar to that of the original index; and The new index and margin would have resulted in an annual percentage rate substantially similar to the rate in effect at the time the original index became unavailable. Make a specified change if the consumer specifically agrees to it in writing at that time; Make a change that will unequivocally benefit the consumer throughout the remainder of the plan; Make an insignificant change to terms Prohibit additional extensions of credit or reduce the credit limit applicable to an agreement during any period in which: The value of the dwelling that secures the plan declines significantly below the dwelling s appraised value for purposes of the plan; The creditor reasonable believes that the consumer will be unable to fulfill the repayment obligations under the plan because of a material change in the member s financial circumstances; The member is in default of any material obligation under the agreement; The credit union is precluded by government action from imposing the annual percentage rate provided for in the agreement; The priority of the credit union s security interest is adversely affected by government action to the extent that the value of the security interest is less than 120 percent of the credit line; or The credit union is notified by its regulatory agency that continued advances constitute an unsafe and unsound practice For reverse mortgage transactions, terminate a plan and demand repayment of the entire outstanding balance in advance of the original term except: o In the case of default; o If the consumer transfers title to the property securing the note; o If the consumer ceases using the property securing the note as the primary dwelling; or o Upon the member s death Refund of Fees A credit union shall refund all fees paid by the member to anyone in connection with an application if any term required to be disclosed changes (other than a change due to fluctuations in the index in a variable-rate plan) before the plan is opened, and as a result the member elects not to open the plan. Imposition of Nonrefundable Fees Neither the credit union nor any other person may impose a nonrefundable fee in connection with an application until three business days after the member receives the disclosures and brochure required. If the disclosures and brochure are mailed to the consumer, the consumer is considered to have received them three business days after they are mailed. Records Retention A creditor shall retain evidence of compliance with the disclosure requirements under regulation Z for two years from the date disclosures are required to be made action is required to be taken. Rules and Regulations for Home Equity Line of Credit Lending Page 150

154 A creditor shall also permit the agency responsible for enforcing these requirements to inspect its relevant records for compliance Valuation Independence This rule prohibits anyone to cause the value assigned to the consumer s principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations. It further prohibits conflicts of interest related to the property or transaction for which a valuation is or will be performed. The rule also provides guidance for a credit union that knows at or before consummation of a violation related to the valuation. Credit unions making home equity line of credit loans that are secured by the consumer s principal dwelling are subject to this rule. Definitions Affiliate means any company that controls, is controlled by, or is under common control with, another company. Appraisal Management Company means any person authorized to perform one or more of the following actions on behalf of the creditor: Recruit, select and retain fee appraisers; Contract with fee appraisers to perform appraisal services; Review and verify the work of fee appraisers; or Manage the process of having an appraisal performed including providing administrative services such as: o Receiving appraisal orders and appraisal reports; o Submitting completed appraisal reports to creditors and underwriters; o Collecting fees from creditors and underwriters for services provided; and o Compensating fee appraisers for services performed. Appraisal Services means the services required to perform an appraisal including Defining the scope of work; Inspecting the property; Reviewing necessary and appropriate public and private data sources, for example: o Multiple listing services, o Tax assessment records, and o Public land records; Developing and rendering an opinion of value; and Preparing and submitting the appraisal report. Covered Person means a creditor with respect to a covered transaction or a person that provides settlements services as defined in 12 U.S.C.2602 (3) and implementing regulations, in connection with a covered transaction. Covered Transaction means an extension of consumer credit that is or will be secured by the consumer s principal dwelling which includes a residential structure that contains 1 to 4 units whether or not that structure is attached to real property including an individual condominium unit, cooperative unit, mobile home, and trailer if it is used as a residence. Fee Appraiser means Rules and Regulations for Home Equity Line of Credit Lending Page 151

155 A natural person who is a state-licensed or state-certified appraiser and receives a fee for performing an appraisal, but is not an employee of the person engaging the appraiser; or An organization that in the ordinary course of business: o Employs state-licensed or state-certified appraisers to perform appraisals; o Receives a fee for performing appraisals; and o Is not subject to the requirements of section 1124 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3353). Loan Production Function means an employee, officer, director, department, division, or other unit of a creditor with responsibility for generating covered transactions, approving covered transactions, or both. Settlement Service means any service provided in connection with a prospective or actual settlement, including, but not limited to, any one or more of the following: Origination of a federally related mortgage loan including, but not limited to: o The taking of loan applications; o Loan processing; and o The underwriting and funding of such loans. Rendering of services by a mortgage broker, including: o Counseling; o Taking of application; o Obtaining verifications and appraisals; o Other loan processing and origination services; and o Communicating with the borrower and lender. Provision of any services related to the origination, processing or funding of a federally related mortgage loan; Provision of title services including o Title searches; o Title examinations; o Abstract preparation; o Insurability determinations; and o The issuance of title commitments and title insurance policies. Rendering of services by an attorney; Preparation of documents, including o Notarization; o Delivery; and o Recordation. Rendering of credit reports and appraisals; Rendering of inspections, including inspections required by applicable law or any inspections required by the sales contract or mortgage documents prior to transfer of title; Conducting of settlement by a settlement agent and any related services; Provision of services involving mortgage insurance; Provision of services involving hazard, flood, or other casualty insurance or homeowner's warranties; Provision of services involving mortgage life, disability, or similar insurance designed to pay a mortgage loan upon disability or death of a borrower, but only if such insurance is required by the lender as a condition of the loan; Rules and Regulations for Home Equity Line of Credit Lending Page 152

156 Provision of services involving real property taxes or any other assessments or charges on the real property; Rendering of services by a real estate agent or real estate broker; and Provision of any other services for which a settlement service provider requires a borrower or seller to pay. State Agency means state appraiser certifying and licensing agency under 12 U.S.C3350 (1) and any implementing regulations. Valuation means an estimate of the value of the consumer s principal dwelling in written or electronic form, other than one produced solely by an automated model or system. Valuation Management Functions means Recruiting, selection or retaining a person to prepare a valuation; Contracting with or employing a person to prepare a valuation; Managing or overseeing the process of preparing a valuation, including by providing administrative services such as: o Receiving orders for and receiving a valuation; o Submitting a completed valuation to creditors and underwriters; o Collecting fees from creditors and underwriters for services provided in connection with a valuation; and o Compensating a person that prepares valuations or Reviewing or verifying the work of a person that prepares valuations. Scope This section applies to any consumer credit transaction secured by the consumer s principal dwelling. Valuation of Consumer s Principal Dwelling Coercion In connection with a covered transaction, no person shall attempt to directly or indirectly cause the value assigned to the consumer s principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery or intimidation of compensation of instruction to or collusion with a person that prepares valuations or performs valuation management functions. Examples of actions that would violate these requirements include: Seeking to influence a person that prepares a valuation to report a minimum or maximum value for the consumer s principal dwelling; Withholding or threatening to withhold timely payment to a person that prepares a valuation or performs valuation management functions because the person does not value the consumer s principal dwelling at or above a certain amount; Implying to a person that prepares valuations that current or future retention of the person depends on the amount at which the person estimates the value of the consumer s principal dwelling; Excluding a person that prepares a valuation from consideration for future engagement because the person reports a value for the consumer s principal dwelling that does not meet or exceed a predetermined threshold; and Conditioning the compensation paid to a person that prepares a valuation on consummation of the covered transaction. Rules and Regulations for Home Equity Line of Credit Lending Page 153

157 Misrepresentation In connection with a covered transaction no person that prepares valuations shall materially misrepresent the value of the consumer s principal dwelling in a valuation. A misrepresentation is material if it is likely to significantly affect the value assigned to the consumer s principal dwelling. A bona fide error shall not be a misrepresentation. Falsification or Alteration In connection with a covered transaction no covered person shall falsify and no covered person other than a person that prepares valuations shall materially alter a valuation. An alteration is material if it is likely to significantly affect the value assigned to the consumer s principal dwelling. Inducement of Mischaracterization In connection with a covered transaction no covered person shall induce a person to misrepresent, falsify, or alter a valuation. Permitted Actions Examples of actions that do not violate the above prohibitions include: Asking a person that prepares a valuation to consider additional appropriate property information including information about comparable properties, to make or support a valuation; Requesting that a person that prepares a valuation provide further detail, substantiation explanation for the person s conclusion about the value of the consumer s principal dwelling; Obtaining multiple valuations for the consumer s principal dwelling to select the most reliable valuation; Withholding compensation due to breach of contract or substandard performance of services; and Taking action permitted or required by applicable Federal or State statute, regulation, or agency guidance. Prohibition on Conflict of Interest No person preparing a valuation or performing valuation management functions for a covered transaction may have a direct or indirect interest financial or otherwise in the property or transaction for which the valuation is or will be performed. Employees and Affiliates of Creditors; Providers of Multiple Settlement Services In any covered transaction no person is in violation of a conflict of interest based solely on the fact that the person: Is an employee or affiliate of the creditor; or Provides a settlement service in addition to preparing valuations or performing valuation management functions, or based solely on the fact that the person s affiliate performs another settlement service. Employees and Affiliates of Creditors With Assets of More Than $250 Million for Both of the Past Two Calendar Years For any covered transaction in which the creditor had assets of more than $250 million as of December 31 for both of the past two calendar years a person preparing a valuation or performing valuation management functions for a covered transaction who is employed by or Rules and Regulations for Home Equity Line of Credit Lending Page 154

158 affiliated with the creditor does not have a conflict of interest violation based on the person s employment or affiliate relationship with the creditor if: The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; The person preparing a valuation or performing valuation management function reports to a person who is not part of the creditor s loan production function, and whose compensation is not based on the closing of the transaction to which the valuation relates; and No employee, officer or director in the creditor s loan production function, is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions. Employees and Affiliates of Creditors With Assets of $25 Million or Less for Either of the Past Two Calendar Years For any covered transaction in which the creditor had assets of $250 million or less as of December 31 st for either of the past two calendar years, a person who is responsible for preparing a valuation or performing valuation management functions who is employed by or affiliated with the creditor does not have a conflict of interest violation based on the person s employment or affiliate relationship with the creditor if: The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; and The creditor requires that any employee, officer, director of the creditor who orders, performs or reviews a valuation for a covered transaction abstain from participating in any decision to approve, not approve, or set the terms of the transaction. Providers of Multiple Settlement Services For any covered transaction a person who prepares a valuation or performs valuation management functions in addition to performing another settlement service for the transaction, or whose affiliate performs another settlement service for the transaction, does not have a conflict of interest violation as a result of the person or person s affiliate performing another settlement service for the transaction if: The creditor had assets of more than $250 million as of December 31 st for both of the past two calendar years; and The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; and The person preparing a valuation or performing valuation management functions reports to a person who is not part of the creditor s loan production function, and whose compensation is not based on the closing of the transaction to which the valuation relates; and No employee, officer or director in the creditor s loan production function, is directly or indirectly involved in selecting, retaining recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions; or The creditor had assets of less than $250 million as of December 31 st for both of the past two calendar years; and The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation; and Rules and Regulations for Home Equity Line of Credit Lending Page 155

159 The creditor requires that any employee, officer, director of the creditor who orders performs or reviews a valuation for a covered transaction abstain from participating in any decision to approve, not approve, or set the terms of the transaction. Extension of Credit Prohibited In connection with a covered transaction a creditor that knows at or before consummation of a violation involving the valuation of a consumer s principal dwelling or a conflict of interest in connection with a valuation shall not extend credit based on the valuation unless the creditor documents that it has acted with reasonable diligence to determine that the valuation does not materially misstate or misrepresent the value of the consumer s principal dwelling. A valuation materially misstates or misrepresents the value of the consumer s principal dwelling if the valuation contains a misstatement or misrepresentation that affects the credit decision or the terms on which credit is extended. Customary and Reasonable Compensation In any covered transaction the creditor and its agents shall compensate a fee appraiser for performing appraisal services at a rate that is customary and reasonable for comparable appraisal services performed in the geographic market of the property being appraised. Agents of the creditor do not include any fee appraiser. Presumption of Compliance A creditor and its agents shall be presumed to comply with these compensation requirements if: The creditor or its agents compensate the fee appraiser in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the geographic market of the property being appraised. In determining this amount, a creditor or its agents shall review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable: o The type of property; o The scope of work; o The time in which the appraisal services are required to be performed; o Fee appraiser qualifications; o Fee appraiser experience and professional record; and o Fee appraiser work quality; and The creditor and its agents do not engage in any anticompetitive acts in violation of state or federal law that affect the compensation paid to fee appraisers including: o Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation as prohibited by law; or o Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic marked as prohibited by under section 2 of the Sherman Antitrust Act, 15 U.S.C.2, or any other relevant antitrust laws. Alternative Presumption of Compliance A creditor and its agents shall be presumed to comply with these requirements if the creditor or its agents determine the amount of compensation paid to the fee appraiser by relying on information about rates that: Rules and Regulations for Home Equity Line of Credit Lending Page 156

160 Is based on objective third-party information including fee schedules, studies, and surveys prepared by independent third parties such as government agencies, academic institutions and private research firms; Is based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers; and In the case of information based on fee schedules, studies and surveys, such fee schedules, studies, or surveys, or the information derived there from, excludes compensation paid to fee appraisers for appraisals ordered by appraisal management companies. Mandatory Reporting Any covered person that reasonably believes an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or Ethical or Professional requirements for appraisers under applicable state or Federal statutes or regulations shall refer the matter to the appropriate state agency if the failure to comply is material. A failure to comply is material if it is likely to significantly affect the value assigned to the consumer s principal dwelling. Timing of Reporting A covered person shall notify the appropriate state agency within a reasonable period of time after the person determines that there is a reasonable basis to believe that a failure to comply required to be reported has occurred. The appropriate state agency to which a covered person must refer a matter is the agency for the state in which the consumer s principal dwelling is located HELOC Requirements for High Cost Mortgages Definitions High Cost Mortgages The loan is a high cost mortgage if: It is a consumer credit transaction secured by the consumer s principal dwelling; The annual percentage rate applicable to the transaction will exceed the average prime offer rate for a comparable transaction by more than: o 6.5 percentage points for a first-lien transaction; or o 8.5 percentage points for a first-lien transaction if the dwelling is personal property and the loan amount is less than $50,000; or o 8.5 percentage points for a subordinate-lien transaction; or The transactions total points and fees will exceed: o 5 percent of the total loan amount for a transaction with a loan amount of $20,000(adjusted annually) or more; or o The lesser of 8 percent of the total loan amount or $1,000(adjusted annually) for a transaction with a loan amount of less than $20,000; or Under the terms of the loan contract or open-end credit agreement the creditor can charge a prepayment penalty, more than 36 months after consummation or account opening, or prepayment penalties that can exceed, in total, more than 2 percent of the amount prepaid. Exemptions The definition does not apply to: A reverse mortgage transaction; A transaction to finance the initial construction of a dwelling; A transaction originated by a Housing Finance Agency, where the Housing Finance Agency is the creditor for the transaction; or Rules and Regulations for Home Equity Line of Credit Lending Page 157

161 A transaction originated pursuant to the United States Department of Agriculture s Rural Development Section 502 Direct Loan Program. Points and Fees in connection with an open-end plan means the following fees or charges that are known at or before account opening: All items included in the finance charge except: o Interest or the time-price differential; o Any premium or other charges imposed in connection with any Federal or State agency program for any guaranty or insurance that protects the creditor against the consumer s default or other credit loss; o For any guaranty or insurance that protects the creditor against the consumer s default or other credit loss and that is not in connection with any Federal or State agency program: If the premium or other charge is payable after account opening, the entire amount of such premium or other charge; or If the premium or other charge is payable at or before account opening, the portion of any such premium or other charge that is not in excess of the amount payable under policies in effect at that time of account opening under section 203(c)(2)(A) of the National Housing act (12U.S.C.1709(c)(2)(A), provided that the premium or charge is required to be refundable on a pro rata basis and the refund is automatically issued upon notification of the satisfaction of the underlying mortgage transaction; o Any bona fide third party charge not retained by the creditor, loan originator, or an affiliate of either unless the charge is required to be included in points and fees; o Up to two bona fide discount points payable by the consumer in connection with the transaction, provided that the interest rate without any discount does not exceed: The average prime offer rate by more than one percentage point; or For transactions that are secured by personal property, the average rate for a loan insured under Title 1 of the National Housing Act (12 U.S.C et seq.) by more than one percentage point; and o Up to one bona fide discount point payable by the consumer in connection with the transaction, provided that no discount points have been excluded and the interest rate without any discount does not exceed: The average prime offer rate by more than two percentage points; or For transactions that are secured by personal property, the average rate for a loan insured under Title I of the National Housing Act (12 U.S.C et seq.) by more than two percentage points; All compensation paid directly or indirectly by a consumer or creditor to a loan originator that can be attributed to that transaction at the time the interest rate is set unless: o That compensation is paid by a consumer to a mortgage broker and already has been included in points and fees; o That compensation is paid by a mortgage broker, to a loan originator that is an employee of the mortgage broker; o That compensation is paid by a creditor to a loan originator that is an employee of the creditor; or o That compensation is paid by a retailer of manufactured homes to its employees. All of the following items other than amounts held for future payment of taxes unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the credit union: Rules and Regulations for Home Equity Line of Credit Lending Page 158

162 o Fees for title examination, abstract of title, title insurance, property survey, and similar purposes; o Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents; o Notary and credit-report fees; o Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pestinfestation or flood-hazard determinations; o Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge; Premiums or other charges payable at or before account opening for any credit life, credit disability, credit unemployment, or credit property insurance, or any other life, accident, health, or loss of income insurance for which the creditor is a beneficiary, or any payments directly or indirectly for any debt cancellation or suspension agreement or contract; The maximum prepayment penalty that may be charged or collected under the terms of the open-end credit plan; The total prepayment penalty as applicable, incurred by the consumer if the consumer refinances an existing closed-end credit transaction with an open-end credit plan or terminates an existing open-end credit plan in connection with obtaining a new open-end credit plan, with the current holder of the existing transaction or plan, a servicer acting on behalf of the current holder, or an affiliate of either; Any fees charged for participation in an open-end credit plan, payable at or before account opening, whether assessed on an annual or other periodic basis; and Any transaction fee including any minimum fee or pre-transaction fee, that will be charged for a draw on the credit line, where the creditor must assume that the consumer will make at least one draw during the term of the plan. Bonafide Discount Point related to open end credit means an amount equal to 1 percent of the credit limit for the plan when the account is opened, paid by the consumer, and that reduces the interest rate or time-price differential applicable to the transaction based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate or time-price differential appropriate for the amount of discount points paid by the consumer. Determination of Annual Percentage Rate A creditor shall determine the annual percentage rate for a closed-or open credit transaction based on the following: For a transaction in which the annual percentage rate will not vary during the term of the loan or credit plan, the interest rate in effect as of the date the interest rate for the transaction is set; For a transaction in which the interest rate may vary during the term of the loan or credit plan in accordance with an index, the interest rate that results from adding the maximum margin permitted at any time during the term of the loan or credit plan to the value of the index rate in effect as of the date the interest rate for the transaction is set, or the introductory interest rate, whichever is greater; and For a transaction in which the interest rate may or will vary during the term of the loan or credit plan, other than a transaction described above, the maximum interest rate that may be imposed during the term of the loan or credit plan. Rules and Regulations for Home Equity Line of Credit Lending Page 159

163 Total Loan Amount for an open end credit plan is the credit limit for the plan when the account is opened. Prepayment Penalty for an open end credit plan means a charge imposed by the creditor if the consumer terminates the open-end credit plan prior to the end of its term, other than a waived, bona fide third party charge that the creditor imposes if the consumer terminates the open-end credit plan sooner than 36 months after account opening. Disclosure Requirements for High Cost Home Equity Line of Credit Mortgage Loans In addition to other disclosures required by this regulation the credit union shall disclose the following in conspicuous type size: The following statement You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan. ; The annual percentage rate; An example showing: o The first minimum periodic payment for the draw period; o The first minimum periodic payment for any repayment period; and o The balance outstanding at the beginning of any repayment period; The example must be based on the following assumptions o The consumer borrows the full credit line, as disclosed at account opening and does not obtain any additional extensions of credit; o The consumer makes only minimum periodic payments during the draw period and any repayment period; and o The annual percentage rate used to calculate the example payments remains the same during the draw period and any repayment period. The creditor must provide the minimum periodic payment example based on the annual percentage rate for the plan, except that if an introductory annual percentage rate applies, the creditor must use the rate that will apply to the plan after the introductory rate expires. If the credit contract provides for a balloon payment under the plan a disclosure of that fact and an example showing the amount of the balloon payment based on the assumptions above; A statement that the example payments show the first minimum periodic payments at the current annual percentage rate if the consumer borrows the maximum credit available when the account is opened and does not obtain any additional extensions of credit, or a substantially similar statement; A statement that the example payments are not the consumer s actual payments and that the actual minimum periodic payments will depend on the amount the consumer borrows, the interest rate applicable to that period and whether the consumer pays more than the required minimum periodic payments or a substantially similar statement; For variable rate transactions a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest required to be included in the contract; For an open-end credit plan, the credit limit for the plan when the account is opened. The creditor shall furnish the disclosures required at least three business days prior to consummation or account opening of a high-cost mortgage. Rules and Regulations for Home Equity Line of Credit Lending Page 160

164 Limitations for High Cost Home Equity Line of Credit Mortgage Loans A high cost mortgage shall not include the following terms: A payment schedule with a payment that is more than two times a regular payment, (balloon payment) except: o A mortgage transaction with a payment schedule that is adjusted to the seasonal or irregular income of the consumer; o A loan with a maturity of 12 months or less, if the purpose of the loan is a bridge loan connected with the acquisition or construction of a dwelling intended to become the consumer s principal dwelling; or o A loan that satisfies the following requirements of a qualified mortgage: Provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not result in an increase of the principal balance; For which the loan term does not exceed 30 years; For which the total points and fees payable in connection with the loan do not exceed: o For a loan amount greater than or equal to $100,000 (indexed for inflation), 3 percent of the total loan amount; o For a loan amount greater than or equal to $60,000 (indexed for inflation) but less than $100,000 (indexed for inflation), $3,000 (indexed for inflation). o For a loan amount greater than or equal to $20,000 (indexed for inflation) but less than $100,000 (indexed for inflation), $3,000 (indexed for inflation) o For a loan amount greater or equal to $20,000 (indexed for inflation) but less than $60,000 (indexed for inflation), 5 percent of the total loan amount; o For a loan amount greater than or equal to $12,500 (indexed for inflation) but less than $20,000 (indexed for inflation), $1,000 (indexed for inflation); o For a loan amount less than $12,500 (indexed for inflation), 8 percent of the total loan amount. For which the creditor considers and verifies at or before consummation the following but without regard to the standards in appendix Q of the regulation: o The consumer s current or reasonably expected income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan; and o A consumer s current debt obligations, alimony, and child support; A creditor must verify the amounts of income or assets that the creditor relies on to determine a consumer s ability to repay a covered transaction using third-party records that provide reasonably reliable evidence of the consumer s income or assets. A creditor may verify the consumer s income using a tax-return transcript issued by the Internal Revenue Service (IRS). Examples of other records the creditor may use to verify the consumer s income or assets include: o Copies of tax returns the consumer filed with the IRS or a State taxing authority; o IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding; o Payroll statements, including military Leave and Earnings statements; Rules and Regulations for Home Equity Line of Credit Lending Page 161

165 o o o o o o Financial institution records; o Records from the consumer s employer or a third party that obtained information from the employer; o Records from a Federal, State, or local government agency stating the consumer s income from benefits or entitlements; o Receipts from the consumer s use of check cashing services; and o Receipts from the consumer s use of a funds transfer service; o The consumer s current debt obligations, alimony and child support; The creditor determines at or before consummation that the consumer can make all of the scheduled payments under the terms of the legal obligation, together with the consumer s monthly payments for all mortgage-related obligations and excluding the balloon payment, from the consumer s current or reasonably expected income or assets other than the dwelling that secures the loan; The creditor considers at or before consummation the consumer s monthly debt to income ratio or residual income and verifies the debt obligations and income used to determine that ratio; The legal obligation provides for: Scheduled payments that are substantially equal, calculated using an amortization period that does not exceed 30 years; An interest rate that does not increase over the term of the loan; and A loan term of five years or longer. The loan is not subject, at consummation, to a commitment to be acquired by another person, other than a person that satisfies the following requirements: During any of the three preceding calendar years, the creditor extended more than 50 percent of its total covered transactions, secured by a first lien, on properties that are located in counties that are either rural or underserved ; During the preceding calendar year, the creditor and its affiliates together originated 500 or fewer covered transactions, secured by a first lien; and As of the end of the preceding calendar year, the creditor had total assets of less than $2,000,000,000, this asset threshold shall adjust automatically each year, based on the year-to-year changes in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars; and The creditor satisfies the following requirements: During any of the three preceding calendar years, the creditor extended more than 50 percent of its total covered transactions, secured by a first lien, on properties that are located in counties that are either rural or underserved ; During the preceding calendar year, the creditor and its affiliates together originated 500 or fewer covered transactions, secured by a first lien; and As of the end of the preceding calendar year, the creditor had total assets of less than $2,000,000,000, this asset threshold shall adjust automatically each year, based on the year-to-year changes in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. o A balloon-payment qualified mortgage, immediately loses its status as a qualified mortgage if legal title to the balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person except when: Rules and Regulations for Home Equity Line of Credit Lending Page 162

166 o o The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person three years or more after consummation of the balloon-payment qualified mortgage; The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person creditor that: o During any of the three preceding calendar years, the creditor extended more than 50 percent of its total covered transactions, secured by a first lien, on properties that are located in counties that are either rural or underserved ; o During the preceding calendar year, the creditor and its affiliates together originated 500 or fewer covered transactions, secured by a first lien; and o As of the end of the preceding calendar year, the creditor had total assets of less than $2,000,000,000, this asset threshold shall adjust automatically each year, based on the year-to-year changes in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars; The balloon-payment qualified mortgage is sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, actions or instructions of any person acting as conservator, receiver or bankruptcy trustee, an order of a State or Federal governmental agency with jurisdiction to examine the creditor pursuant to State or Federal law, or an agreement between the creditor and such an agency; or The balloon-payment qualified mortgage is sold, assigned or otherwise transferred pursuant to a merger of the creditor with another person or acquisition of the creditor by another person or of another person by the creditor. If the terms of an open-end credit plan provide for a repayment period during which no further draws may be taken, the limitations related to a balloon payment above do not apply to any adjustment in the regular periodic payment that results solely from the credit plan s transition for a draw period to a repayment period; If the terms of an open end credit plan do not provide for any repayment period, the limitations related to a balloon payment above apply to all periods of the credit plan; Negative amortization - A payment schedule with regular periodic payments that cause the principal balance to increase; Advance payments- A payment schedule that consolidates more than two periodic payments and pays them in advance from the proceeds; An increase in the interest rate after default; Rebates - A refund calculated by a method less favorable than the actuarial method for rebates of interest arising from a loan acceleration due to default; A prepayment penalty-a charge imposed by a creditor if the consumer terminates the open-end credit plan prior to the end of its term, other than a waived, bona fide thirdparty charge that the creditor imposes if the consumer terminates the open-end credit plan sooner than 36 months after account opening; Acceleration of debt - A demand feature that permits the creditor to accelerate the indebtedness by terminating the high-cost mortgage in advance of the original maturity Rules and Regulations for Home Equity Line of Credit Lending Page 163

167 date and to demand repayment of the entire outstanding balance except in the following circumstances: o There is fraud or material misrepresentation by the consumer in connection with the loan or open-end credit agreement; o The consumer fails to meet the repayment terms of the agreement for any outstanding balance that results in a default in payment under the loan; or o There is any action or inaction by the consumer that adversely affects the creditor s security for the loan, or any right of the creditor in such security Prohibited Acts or Practices in Connection with High-Cost Home Equity Line of Credit Mortgage Loans Home improvement contracts A creditor shall not pay a contractor under a home improvement contract from the proceeds of a high-cost mortgage other than: By an instrument payable to the consumer or jointly to the consumer and the contractor; or At the election of the consumer, through a third-party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor prior to the disbursement. Notice to Assignee A creditor shall not sell or otherwise assign a high-cost mortgage without furnishing the following statement to the purchaser or assignee. This is a mortgage subject to special rules under the Federal Truth in Lending Act. Purchasers or assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage that the consumer could assert against the creditor. Refinancing Within One-Year Period Within one year of having extended a high-cost mortgage a creditor shall not refinance any high-cost mortgage to the same consumer into another high-cost mortgage unless the refinancing is in the consumer s interest. An assignee holding or servicing a high-cost mortgage shall not, for the remainder of the one-year period following the date of origination of the credit, refinance any high-cost mortgage to the same consumer into another high-cost mortgage, unless the refinancing is in the consumer s interest. A creditor (or assignee) is prohibited from engaging in acts or practices to evade this provision, including a pattern or practice of arranging for the refinancing of its own loans by affiliated or unaffiliated creditors. Repayment Ability for High Cost Mortgages In connection with an open-end, high cost mortgage, the creditor shall not open a plan for a consumer where the credit is or will be extended without regard to the consumer s repayment ability as of account opening including the consumer s current and reasonably expected income, employment, assets other than the collateral and current obligations including any mortgagerelated obligations that are required by another credit obligation, undertaken prior to or at account opening, and secured by the same dwelling that secures the high cost mortgage transaction. Mortgage related obligations include: Property taxes; Premiums and similar charges that are required by the creditor such as: o Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer's default or other credit loss; Rules and Regulations for Home Equity Line of Credit Lending Page 164

168 o Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction; o Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction; and o Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law. Fees and special assessments imposed by a condominium, cooperative or homeowners association; Ground rent; and Leasehold payments. Basis for Determination of Repayment Ability A creditor must determine the consumer s repayment ability in connection with an open-end high cost mortgage as follows: A creditor must verify amounts of income or assets that it relies on to determine repayment ability including expected income or assets by the consumer s: o Internal Revenue Service form W-2; o Tax returns; o Payroll receipts; o Financial institution records; or o Other third-party documents that provide reasonably reliable evidence of the consumer s income or assets. A creditor must verify the consumer s current obligations, including any mortgage-related obligations that are required by another credit obligation undertaken prior to or at account opening and are secured by the same dwelling that secures the high cost mortgage transaction. Presumption of Compliance For a open-end high cost mortgage, a creditor is presumed to have complied with the repayment ability requirements with respect to a transaction if the creditor: Determines the consumer s repayment ability as provided above; Takes into account current obligations, and mortgage-related obligations, and using the largest required minimum periodic payment based on the following assumptions: o The consumer borrows the full credit line at account opening with no additional extensions of credit; o The consumer makes only required minimum periodic payments during the draw period and any repayment period; o If the annual percentage rate may increase during the plan, the maximum annual percentage rate that is included in the contract applies to the plan at account opening and will apply during the draw period and any repayment period. Assesses the consumer s repayment ability taking into account as least one of the following: o The ratio of total current obligations, including any mortgage-related obligations that are required by another credit obligation undertaken prior to or at account opening, and are secured by the same dwelling that secures the high-cost mortgage transaction, to income, or the income the consumer will have after paying current obligations. Rules and Regulations for Home Equity Line of Credit Lending Page 165

169 Exclusions from Presumption of Compliance No presumption of compliance is available for an open end, high-cost mortgage transaction for which the regular periodic payments, when aggregated do not fully amortize the outstanding principal balance except: A mortgage transaction with a payment schedule that is adjusted to the seasonal or irregular income of the consumer; or A loan with maturity of 12 months or less, if the propose of the loan is a bridge loan connected with the acquisition or construction of a dwelling intended to become the consumer s principal dwelling; A loan that meets the criteria for a balloon qualified mortgage. Counseling Requirement A creditor shall not extend a high-cost mortgage to a consumer unless the creditor receives written certification that the consumer has obtained counseling on the advisability of the mortgage from a counselor that is approved to provide such counseling by the Secretary of the U.S. Department of Housing and Urban Development or, if permitted by the Secretary of State, by a housing finance authority. The counseling must occur after the consumer receives the required disclosures required by section 5(c) of the Real Estate Settlement Procedures Act of 1974, or the disclosures required by of regulation Z; or, the consumer receives the following disclosures for transactions in which neither of the other disclosures listed are provided: The following statement: You are not required to complete this agreement merely because you have received these disclosures or have signed a loan application. If you obtain this loan, the lender will have a mortgage on your home. You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan. ; The annual percentage rate; For an open-end credit plan: o An example showing the first minimum periodic payment for the draw period, the first minimum periodic payment for any repayment period, and the balance outstanding at the beginning of any repayment period. The example must be based on the following assumptions: The consumer borrows the full credit line at account opening and does not obtain any additional extensions of credit; The consumer makes only minimum periodic payments during the draw period and any repayment period; and The annual percentage rate used to calculate the example payments remains the same during the draw period and any repayment period. The creditor must provide the minimum periodic payment example based on the annual percentage rate for the plan, except that if an introductory annual percentage rate applies, the creditor must use the rate that will apply to the plan after the introductory rate expires; o If the credit contract provides for a balloon payment under the plan a disclosure of that fact and an example showing the amount of the balloon payment based on the assumptions described above; o A statement that the example payments show the first minimum periodic payments at the current annual percentage rate if the consumer borrows the maximum credit available when the account is opened and does not obtain any additional extensions of credit, or a substantially similar statement; Rules and Regulations for Home Equity Line of Credit Lending Page 166

170 o A statement that the example payments are not the consumer's actual payments and that the actual minimum periodic payments will depend on the amount the consumer borrows, the interest rate applicable to that period, and whether the consumer pays more than the required minimum periodic payment, or a substantially similar statement. For variable-rate transactions, a statement that the interest rate and monthly payment may increase, and the amount of the single maximum monthly payment, based on the maximum interest rate required to be included in the contract; For an open-end credit plan, the credit limit for the plan when the account is opened. The counseling required shall not be provided by a counselor who is employed by or affiliated with the credit union. The certification of counseling required must include: The name(s) of the consumer(s) who obtained counseling; The date(s) of counseling; The name and address of the counselor; A statement that the consumer(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in either the disclosure required in RESPA or ; For transaction for which neither of the disclosures listed above are provided, a statement that the consumer(s) received counseling on the advisability of the high-cost mortgage based on the terms provided in the disclosures required by (c); A statement that the counselor has verified that the consumer(s) received the disclosures required by either RESPA or those listed above with respect to the transaction. Counseling Fees A creditor may pay the fees of a counselor or counseling organization for providing counseling required but may not condition the payment of such fees on the consummation or accountopening of a mortgage transaction. If the consumer withdraws the application that would result in the extension of a high-cost mortgage, a creditor may not condition the payment of such fees on the receipt of certification from the counselor. A creditor may, however confirm that the counselor has provided counseling to the consumer prior to paying the fee of a counselor or counseling organization. Steering Prohibited A creditor that extends a high-cost mortgage shall not steer or otherwise direct a consumer to choose a particular counselor or counseling organization for the counseling required. A creditor or mortgage broker may not recommend or encourage default on an existing loan or on other debt, prior to and in connection with the consummation or account opening of a highcost mortgage that refinances all or any portion of such existing loan or debt. A creditor, successor-in-interest, assignee, or any agent of such parties may not charge a consumer any fee to modify, renew, extend or amend a high-cost mortgage or to defer any payment due under the terms of such mortgage. Rules and Regulations for Home Equity Line of Credit Lending Page 167

171 Late Fees Any late payment charge imposed in connection with a high-cost mortgage must be specifically permitted by the terms of the loan contract or open-end credit agreement and may not exceed 4 percent of the amount of the payment past due. No such charge may be imposed more than once for a single late payment. A late payment charge may be imposed in connection with a high-cost mortgage only if the payment is not received by the end of the 15-day period beginning on the date the payment is due or, in the case of a high-cost mortgage on which interest on each installment is paid in advance, the end of the 30-day period beginning on the date the payment is due. A late payment charge may not be imposed in connection with a high- cost mortgage payment if any delinquency is attributable only to a late payment charge imposed on an earlier payment and the payment otherwise is a full payment for the applicable period and is paid by the due date or within any applicable grace period. Failure to Make Required Payment The terms of a high-cost mortgage agreement may provide that any payment shall first be applied to any past due balance. If the consumer fails to make a timely payment by the due date and subsequently resumes making payments but has not paid all past due payments, the creditor may impose a separate late payment charge for any payment(s) outstanding (without deduction due to late fees or related fees) until the default is cured. Payoff Statements A creditor or servicer may not charge a fee for providing to a consumer, or a person authorized by the consumer to obtain such information, a statement of the amount due to pay off the outstanding balance of a high-cost mortgage. Processing Fee A creditor may charge a processing fee to cover the costs of providing a payoff statement, by fax, or courier, provided that such fee may not exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer s principal dwelling and are not high cost mortgages. A creditor shall make a payoff statement available to a consumer, or a person authorized by the consumer to obtain such information by a method other than a fax or courier and without charge. Processing Fee Disclosure Prior to charging a processing fee for provision of a payoff statement by fax or courier, a creditor or servicer shall disclose to a consumer or a person authorized by a consumer to obtain the consumer s payoff statement that payoff statements, are available by a method other than by fax or courier without charge. Fees Permitted after Multiple Requests A creditor or servicer that has provided a payoff statement to a consumer, or to a person authorized by the consumer to obtain such information, without charge, other than the processing fee permitted, four times during a calendar year, may thereafter charge a reasonable fee for providing such statements during the remainder of the calendar year. Fees for payoff statements provided to a consumer, or a person authorized by the consumer to obtain such information, in a subsequent calendar year are subject to these requirements. Rules and Regulations for Home Equity Line of Credit Lending Page 168

172 A payoff statement for a high-cost mortgage shall be provided by a creditor or servicer within five business days after receiving a request for such statement by a consumer or a person authorized by the consumer to obtain such statement. Financing of Points and Fees A creditor that extends credit under a high-cost mortgage may not finance charges that are required to be included in the calculation of points and fees. Credit insurance premiums or debt cancellation or suspension fees that are required to be included in points and fees shall not be considered financed by the creditor when they are calculated and paid in full on a monthly basis. Structuring Loans to Evade High Cost Mortgage Requirements A creditor shall not structure any transaction that is otherwise a high-cost mortgage in a form, for the purpose, and with the intent to evade the requirements of a high-cost mortgage, including by dividing any loan transaction into separate parts. Rules and Regulations for Home Equity Line of Credit Lending Page 169

173 12 C.F.R HOME MORTGAGE DISCLOSURE (REGULATION C) Definitions Application means an oral or written request for a home purchase loan, home improvement loan or a refinancing that is made in accordance with procedures used by a credit union for the type of credit requested. Average Prime Offer Rate means an annual percentage rate that is derived from average interest rates, points, and other loan pricing terms currently offered to consumers by a representative sample of creditors for mortgage loans that have low-risk pricing characteristics. The Bureau publishes average prime offer rates for a broad range of types of transactions in tables updated at least weekly, as well as the methodology the Bureau uses to derive these rates. Branch Office means any office of a credit union that is approved as a branch by a Federal or state supervisory agency, but excludes free-standing electronic terminals such as automated teller machines. Dwelling means a residential structure (whether or not attached to real property) located in a state of the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico. The term includes an individual condominium unit, cooperative unit, or mobile or manufactured home. Financial Institution means a credit union that: On the preceding December 31 had assets in excess of the asset threshold established and published annually by the Bureau for coverage by the act, based on the year to year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical workers, not seasonally adjusted, for each twelve month period ending in November, without rounding to the nearest million; On the preceding December 31, had a home or branch office in an Metropolitan Statistical Area, (MSA); In the preceding calendar year originated at least one home purchase loan (excluding temporary financing such as a construction loan) or refinancing of a home purchase loan, secured by a first lien on a one to four family dwelling; and Meets one or more of the following criteria: o The institution is federally insured or regulated; o The mortgage loan was insured, guaranteed, or supplemented by a Federal Agency; or o The mortgage loan was intended by the institution for sale to Fannie Mae or Freddie Mac. Home Equity Line of Credit means an open-end credit plan secured by a dwelling as defined above. Home Improvement Loan means: A loan secured by a lien on a dwelling that is for the purpose in whole or in part of repairing, rehabilitating, remodeling or improving a dwelling or the real property on which it is located; and Rules and Regulations for Home Equity Line of Credit Lending Page 170

174 A non-dwelling secured loan that is for the purpose in whole or in part of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan. Home Purchase Loan means a loan secured by and made for the purpose of purchasing a dwelling. Manufactured Home means any residential structure as defined under regulations of the Department of Housing and Urban Development establishing manufactured home construction and safety standards (24 C.F.R ). Metropolitan Statistical Area or MSA means a metropolitan statistical area as defined by the U.S. Office of management and Budget. Metropolitan Division or MD means a metropolitan division of an MSA, as defined by the U.S. Office of Management and Budget. Preapproval Programs a request for preapproval for a home purchase loan is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than: Conditions that require the identification of a suitable property; Conditions that require that no material change has occurred in the applicant s financial condition or creditworthiness prior to closing; and Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional home mortgage application (such as certification of a clear termite inspection). Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower in which: For coverage purposes, the existing obligation is a home purchase loan ( as determined by the lender, for example by reference to available documents or as stated by the application); and both the existing obligation and the new obligation are secured by first liens on dwellings; and For reporting purposes, both the existing and the new obligation are secured by liens on dwellings Compilation of Loan Data Data Format and Itemization A credit union shall collect data regarding applications for, and originations, and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year. A credit union is required to collect data regarding requests under a preapproval program only if the preapproval request is denied or results in the origination of a home purchase loan. All reportable transactions shall be recorded, within thirty calendar days after the end of the calendar quarter in which final action is taken (such as origination or purchase of a loan, or denial or withdrawal of an application), on a register in the format prescribed in appendix A of this regulation. The data recorded shall include the following items: Rules and Regulations for Home Equity Line of Credit Lending Page 171

175 An identifying number for the loan or application and the date the application was received; The type of loan or application; The purpose of the loan or application; Whether the application is a request for preapproval and whether it resulted in a denial or in an origination; The property type to which the loan or application relates; The owner-occupancy status of the property to which the loan or application relates; The amount of the loan or the amount applied for; The type of action taken and the date; The location of the property to which the loan or application relates, by MSA or Metropolitan Division, by state, by county, and by census tract, if the institution has a home or branch office in that MSA or Metropolitan Division; The ethnicity, race and sex of the applicant or borrower, and the gross annual income relied on in processing the application; The type of entity purchasing a loan that the credit union originates or purchases and then sells within the same calendar year (this information need not be included in quarterly updates); For originated loans subject to Regulation Z, 12 CFR part 1026, the difference between the loan s annual percentage rate( APR) and the average prime offer rate for a comparable transaction as of the date the interest rate is set, if that difference is equal to or greater than 1.5 percentage points for loans secured by a first lien on a dwelling, equal to or greater than 3.5 percentage points for loans secured by a subordinate lien on a dwelling; Whether the loan is subject to the Home Ownership and Equity Protection Act of 1994, as implemented in Regulation Z (12 CFR ); The lien status of the loan or application (first lien, subordinate lien, or not secured by a lien on a dwelling). Collection of Data on Ethnicity, Race, Sex and Income A credit union shall collect data about the ethnicity, race, and sex of the applicant or borrower. For loans purchased by the credit union data may, but need not be collected on ethnicity, race, sex, and income. Optional Data A financial institution may report: The reasons it denied a loan application; Requests for preapproval that are approved by the institution but not accepted by the applicant; and Home-equity lines of credit made in whole or in part for the purpose of home improvement or home purchase. Excluded Data A credit union shall not report: Loans originated or purchased by the credit union acting in a fiduciary capacity (such as trustee); Loans on unimproved land; Temporary financing such as bridge or construction loans; Rules and Regulations for Home Equity Line of Credit Lending Page 172

176 The purchase of an interest in a pool of loans such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits; The purchase solely of the right to service loans; or Loans acquired as part of a merger or acquisition or as part of the acquisition of all of the assets and liabilities of a branch office Disclosure and Reporting Reporting to Agency By March 1 following the calendar year for which the loan data are compiled a credit union shall send its complete loan/application register to the specified agency office and retain a copy for its records for at least three years. Public Disclosure Statement The Federal Financial Institutions Examination Council (FFIEC) will prepare a disclosure statement from the data each financial institution submits. A credit union shall make its disclosure statement prepared by the FFIEC available to the public at the credit union s home office no later than three business days after receiving the disclosure statement from the FFIEC. In addition a credit union shall either: Make its disclosure statement available to the public, within ten business days of receiving it in at least one branch office in each other MSA and each other Metropolitan Division where the institution has offices. The disclosure statement need only contain data relating to the MSA or Metropolitan Division where the branch is located; or Post the address for sending written requests in the lobby of each branch office in other MSAs and Metropolitan Divisions where the institution has offices; and Mail or deliver a copy of the disclosure statement within fifteen calendar days of receiving a written request. The disclosure statement need only contain data relating to the MSA or Metropolitan Division for which the request is made. Including the address in the general notice required, satisfies this requirement of this regulation. Public Disclosure of Modified Loan/Application Register A credit union shall make its loan/application register available to the public after removing the following information regarding each entry: The application or loan number; The date that the application was received; and The date action was taken. A credit union shall make its modified register available following the calendar year for which the data are compiled, by March 31 for a request received on or before March 1, and within thirty calendar days for a request received after March 1. The modified register need only contain data relating to the MSA or Metropolitan Division for which the request is made. Availability of Data A credit union shall make its modified register available to the public for a period of three years and its disclosure statement available for a period of five years. A credit union shall make the data available for inspection and copying during the hours the office is normally open to the public for business. It may impose a reasonable fee for any cost incurred in providing or reproducing the data. Rules and Regulations for Home Equity Line of Credit Lending Page 173

177 Notice of Availability A credit union shall post a general notice about the availability of its HMDA data in the lobby of its home office and of each branch office located in an MSA and Metropolitan Division. A credit union shall provide promptly upon request the location of the institution s offices where the statement is available for inspection and copying, or it may include the location in the lobby notice. Rules and Regulations for Home Equity Line of Credit Lending Page 174

178 50 U.S.C. App b - CIVIL SERVICE RELIEF ACT 527 Maximum Rate of Interest on Debts Incurred Before Military Service Definitions Interest The term interest includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability. Obligation or Liability The term obligation or liability includes an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage. Interest Rate Limitation Limitation to 6 Percent An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a service member, or the service member and the service member's spouse jointly, before the service member enters military service shall not bear interest at a rate in excess of 6 percent: During the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the nature of a mortgage; or During the period of military service, in the case of any other obligation or liability. Forgiveness of Interest in Excess of 6 Percent Interest at a rate in excess of 6 percent per year that would otherwise be incurred but for the prohibition above is forgiven. Prevention of Acceleration of Principal The amount of any periodic payment due from a service member under the terms of the instrument that created an obligation or liability covered by this section shall be reduced by the amount of the interest forgiven, that is allocable to the period for which such payment is made. Implementation of Limitation Written Notice to Creditor In order for an obligation or liability of a service member to be subject to the interest rate limitation, the service member shall provide to the creditor written notice and a copy of the military orders calling the service member to military service and any orders further extending military service, not later than 180 days after the date of the service member's termination or release from military service. Limitation Effective as of Date of Order to Active duty Upon receipt of written notice and a copy of orders calling a service member to military service, the creditor shall treat the debt in accordance with this regulation effective as of the date on which the service member is called to military service. Creditor Protection A court may grant a creditor relief from the limitations of this section if, in the opinion of the court, the ability of the service member to pay interest upon the obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of the service member's military service. Rules and Regulations for Home Equity Line of Credit Lending Page 175

179 533 Mortgages and Trust Deeds Mortgage as security This section applies only to an obligation on real or personal property owned by a service member that: Originated before the period of the service member s military service and for which the service member is still obligated; and Is secured by a mortgage, trust deed, or other security in the nature of a mortgage. Stay of Proceedings and Adjustment of Obligation In an action filed during, or within 9 months after, a service member s period of military service to enforce an obligation with a mortgage as security as stated above, the court may after a hearing and on its own motion and shall upon application by a service member when the service member s ability to comply with the obligation is materially affected by military service: Stay the proceedings for a period of time as justice and equity require; or Adjust the obligation to preserve the interests of all parties. Sale or Foreclosure A sale, foreclosure, or seizure of property for a breach of an obligation described above shall not be valid if made during, or within 9 months after, the period of the service member s military service except: Upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or If made pursuant to an agreement as provided in section 107 [50 U.S.C. App. 517]. Rules and Regulations for Home Equity Line of Credit Lending Page 176

180 Home Equity Line of Credit Loans Rules and Regulations for Granting Home Equity Line of Credit Loans COMPLIANCE CHECKLISTS FOR HOME EQUITY LINE OF CREDIT LENDING TIMELINE COMPLIANCE CHECKLIST Before Acting as a Mortgage Loan Originator All HELOCs Determine the number of mortgage loans all mortgage loan originators acted on in the past 12 months; Require all mortgage loan originators to register with the Registry unless during the past 12 months the employee or volunteer acted as a mortgage loan originator for five or fewer residential mortgage loans. If you are a non- federally insured credit union determine if your state supervisory authority has executed a Memorandum of Understanding (MOU) with the National Credit Union Administration for registration and oversight. This information should be available on NCUA s website ( If you are a non-federally insured credit union and your state supervisory authority where the credit union is located fails to maintain an MOU with the National Credit Union Administration you must register with the appropriate state licensing and registration system. If the state does not have such a system, you must use the registration system established by the Bureau for mortgage loan originators and their employees. Initial Written Communication with Consumer by Loan Originator All HELOCs Provide the member with the mortgage loan originator unique identifier. Time of Application All HELOCs. Provide initial disclosures required by regulation Z (d)(1)-(12). Provide the brochure What you should know about home equity lines of credit or a substitute. Document the evidence of intent to apply for joint credit as applicable. Within Three Business Days after Receipt of an Application Provide the loan applicant with a written list of homeownership counseling organizations for all HELOCs. This list must be obtained within the last 30 days and based on applicant s zip code. Provide the loan applicant with a written notice of the applicant s right to receive a copy of all written appraisals developed in connection with the application for HELOC loans secured by a first lien on a dwelling. This includes when the credit is extended, denied or if the application is incomplete or withdrawn. Rules and Regulations for Home Equity Line of Credit Lending Page 177

181 Within a Reasonable Time Before the Completion of the Transaction Flood Hazard Area All HELOCs Develop procedures to determine if the property securing a loan is or will be located in a special flood hazard area. This determination should be done timely in order to meet the notice requirements to the member. Prior to Cosigner Becoming Obligated All HELOCs Provide a clear and conspicuous disclosure statement in writing to the cosigner prior to the cosigner becoming obligated. Three Days Prior to Transaction Consummation HELOCs Secured by the Consumer s Principal Dwelling Deliver two copies of the notice of the right to rescind to each consumer entitled to rescind or one copy to each if the notice is delivered in electronic form in accordance with the consumer consent and other applicable provisions of the E-Sign Act. Provide high cost mortgage disclosures if the loan is a high cost mortgage. Prior to Extending a High-Cost Mortgage to a Consumer- HELOCs Secured by the Consumer s Principal Dwelling Obtain written certification of counseling if the loan is a high cost mortgage. Promptly Upon Completion or Three Business Days Prior to Account Opening, Whichever is Earlier HELOCs Secured by a First Lien on a Dwelling Provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for HELOCs secured by a first lien on a dwelling including when the credit is extended, denied or if the application is incomplete or withdrawn. An applicant may waive the timing requirement and agree to receive any copy at or before account opening or consummation unless prohibited by law. Any such waiver must be obtained at least three business days prior to consummation or account opening, unless the waiver pertains solely to the applicant s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more days prior to consummation or account opening. If the applicant provides a waiver and the transaction is not consummated or the account is not opened, the creditor must provide these copies no later than 30 days after the creditor determines consummation will not occur or the account will not be opened. Prior to When the First Transaction is Made Under the Plan All HELOCs Provide the required Truth in Lending Disclosures. Provide each consumer that requests an extension of credit that is or will be secured by one to four units of residential real property the required credit score disclosure before the first transaction is made under an open-end credit plan. No Later Than 30 days After a Determination is Made That Consummation Will Not Occur HELOCs Secured by a First Lien on a Dwelling If the applicant provides a waiver of the appraisal timing requirement and the transaction is not consummated or the account is not opened, the creditor must provide copies of the appraisal to the applicant not later than 30 days after the creditor determines consummation will not occur or the account will not be opened for HELOC loans secured by a first lien on a dwelling including when the credit is extended, denied or if the application is incomplete or withdrawn. Rules and Regulations for Home Equity Line of Credit Lending Page 178

182 Denied Loans - All HELOCs Provide notice to the applicant within 30 days: After receiving a completed application concerning the creditor s approval of, counteroffer to, or adverse action on the application; After taking adverse action on an incomplete application unless notice is provided of the incompleteness; or After taking adverse action on existing accounts. Provide notice to the applicant within 90 days After notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. As of the Date of Receipt of Payment All HELOCs A creditor shall credit a payment to the consumer s account except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency. No More Than 7 Business Days After Receiving a Written Request from the Consumer - HELOCs Secured by a Dwelling In connection with a consumer credit transaction secured by a consumer's dwelling, a creditor, assignee or servicer, as applicable, must provide an accurate statement of the total outstanding balance that would be required to pay the consumer's obligation in full as of a specified date. The statement shall be sent within a reasonable time, but in no case more than seven business days, after receiving a written request from the consumer or any person acting on behalf of the consumer. When a creditor, assignee, or servicer, as applicable, is not able to provide the statement within seven business days of such a request because a loan is in bankruptcy or foreclosure, because the loan is a reverse mortgage or shared appreciation mortgage, or because of natural disasters or other similar circumstances, the payoff statement must be provided within a reasonable time. A creditor or assignee that does not currently own the mortgage loan or the mortgage servicing rights is not subject to the requirement to provide a payoff statement. Flood Zone Determination Within a Reasonable time Prior to Closing All HELOCs Provide the member the required flood notice (if in a flood zone). Provide as Promptly as Practicable After the Credit Union Provides Notice to the Borrower All HELOCs Provide a notice whether or not flood insurance is available under the Act for collateral securing the loan, to the servicer as promptly as practicable after the credit union provides the notice to the borrower but in any event no later than the time the credit union provides other similar notices to the servicer concerning hazard insurance and taxes. Upon Determination That Flood Insurance is Required All HELOCs If a credit union, or a servicer acting on behalf of the credit union, determines at any time during the term of a designated loan that the building or mobile home and any personal property securing the designated loan is not covered by flood insurance, or is covered by flood insurance in an amount less than the amount required under 760.3, then the credit union or its servicer shall notify the borrower that the borrower should obtain flood insurance, at the borrower's expense, in an amount at least equal to the amount required under 760.3, for the remaining term of the loan. Rules and Regulations for Home Equity Line of Credit Lending Page 179

183 45 Days after Flood Insurance Notification All HELOCs If the borrower failed to obtain adequate flood insurance within 45 days after being notified the credit union or its servicer shall purchase insurance on the borrower s behalf. Annually All HELOCs Provide for independent testing for compliance of The Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act). Renew registration information for S.A.F.E. Act within the time frames required. Review lending policies and procedures. Provide training to staff and volunteers as needed. The creditor shall mail or deliver the billing rights statement required by (a)(5) and (b)(5)(iii) at least once per calendar year, at intervals of not less than 6 months nor more than 18 months, either to all consumers or to each consumer entitled to receive a periodic statement under (b)(2) for any one billing cycle. 15 Days Prior to Any Material Change in Term All HELOCs For home-equity plans subject to the requirements of , whenever any term required to be disclosed under (a) is changed or the required minimum periodic payment is increased, the creditor shall mail or deliver written notice of the change to each consumer who may be affected. The notice shall be mailed or delivered at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change. 2 Years After Disclosures are Made or Action is Required to be Taken All HELOCs Retain records related to HELOC loans for 2 years after disclosures are made or action is required to be taken. Within a Reasonable Time That It Is Known a Notification is Required Notify the appropriate state agency when an appraiser has not complied with the Uniform Standards of Professional Appraisal Practice or ethical professional requirements for appraisers under applicable. The appropriate state agency to which a covered person must refer a matter is the agency for the state in which the consumer s principal dwelling is located. This is required for HELOCs secured by the consumer s principal dwelling. Rules and Regulations for Home Equity Line of Credit Lending Page 180

184 CHECKLISTS PER REGULATION COMPLIANCE CHECKLISTS (*** Designates Time Sensitive Requirement) 12 C.F.R NCUA NONDISCRIMINATION REQUIREMENTS Ensure the required nondiscrimination notice is displayed in the public lobby of the credit union and in the public area of each office where such loans are made. Ensure the nondiscrimination notices contain all required information. Develop lending policies that comply with the Fair Housing Act by requiring each loan applicant s creditworthiness to be reviewed on an individual basis, without presuming that the applicant has certain characteristics of a group. Develop a quality control review process to ensure the following do not discriminate or promote discrimination on the basis of race, color, religion, sex, handicap, familial status, or national origin: o Policies or Procedures; o Employees; o Appraisals; or o Advertising Develop a quality control review process to ensure advertising of real estate related loans contains the required logo or nondiscrimination wording. ***Ensure appraisals are available for a period of 25 months after the applicant has received notice from the credit union of the action taken by the credit union on the real estate related loan application. Provide regular training to staff. 12 C.F.R NCUA APPRAISAL REQUIREMENTS Ensure policies and procedures require all federally related transactions having a transaction value of $1,000,000 or more to have an appraisal performed by a state certified appraiser. Ensure policies and procedures require all federally related transactions having a transaction value of more than $250,000 other than those involving appraisals of 1-to4 - family residential properties, have an appraisal prepared by a state-certified appraiser. Ensure policies and procedures require all complex 1-4-family residential property appraisals rendered in connection with a federally related transaction with a transaction value of $250,000 or more to be prepared by a state-certified appraiser. Develop policies and procedures to ensure all appraisers maintain independence and are competent. Develop policies and procedures to ensure all appraisals meet the minimum appraisal standards. Develop policies and procedures for reviewing appraisals and taking appropriate steps if the appraisal does not meet the minimum appraisal standards. Ensure all appraisals for federally related transactions not requiring the services of a state-certified appraiser are prepared by either a state-certified appraiser or a statelicensed appraiser. Ensure secured transactions exempted from the appraisal requirements of being performed by a state certified or state licensed appraiser and not otherwise exempted from the regulation or fully insured are supported by a written estimate of market value, performed by an individual having no direct or indirect interest in the property, and Rules and Regulations for Home Equity Line of Credit Lending Page 181

185 qualified and experienced to perform such estimates of value for the type and amount of credit being considered. Provide ongoing training to staff. Develop a compliance monitoring program to ensure ongoing compliance. 12 C.F.R NCUA LOANS IN AREAS HAVING SPECIAL FLOOD HAZARDS REQUIREMENTS Ensure the credit union maintains sufficient records to indicate the method used to determine whether improved real estate or a mobile home offered as security for a loan is located in a special flood hazard area. ***Develop a process for determining if the property securing the loan is located in a flood hazard area in a timely manner to allow the member and servicer to receive the required notice within a reasonable time before completion of the transaction. Ensure the credit union is using the standard flood hazard determination form developed by the Director when determining whether the security is or will be located in a special flood hazard area in which flood insurance is available. This form can be found at ***Ensure the credit union is retaining a copy of the completed standard flood hazard determination form, in either hard copy or electronic form, for the period of time the credit union owns the loan. ***Develop a process for providing the required notice of whether or not flood insurance is available under the Act for the collateral securing the loan for a loan secured by a building or a mobile home located or to be located in a special flood hazard area to the borrower within a reasonable time before completion of the transaction and to the servicer as promptly as practicable after the credit union provides notice to the borrower and in any event no later than the time the credit union provides other similar notices to the servicer concerning hazard insurance and taxes. ***Develop a process to ensure the credit union retains a record of receipt of the notices by the borrower and the servicer or a record of written assurance from the seller or lessor that, within a reasonable time before the completion of the sale or lease transaction, the seller or lessor has provided the notice of whether or not flood insurance is available under the Act to the purchaser or lessee. These should be retained for the period of time the credit union owns the loan. Utilize the sample notice shown in the appendix to the regulation to ensure compliance with the notice requirement. Develop a process for notifying the borrower that the borrower should obtain flood insurance, at the borrower s expense, when it is determined the security is not adequately covered by flood insurance. ***Develop procedures for the credit union or the servicer to purchase insurance on the borrower s behalf if the borrower fails to obtain flood insurance within 45 days after notification. Develop and document in your procedures a process for purchasing insurance on the borrower s behalf when the borrower fails to obtain adequate flood insurance. Develop a procedure for charging the borrower for the cost of the premiums and fees incurred in purchasing any needed flood insurance. Ensure any determination fee charged to the borrower in relation to the flood insurance meets the required criteria. Determine if the credit union has escrow accounts set up for any loan secured by residential improved real estate or mobile home loans, and if so, ensure the credit union is also escrowing all premiums and fees for any flood insurance required. Rules and Regulations for Home Equity Line of Credit Lending Page 182

186 If the loan is otherwise subject to RESPA ensure all escrow accounts are in compliance with the requirements of RESPA. Determine if the credit union is submitting the required escrow payments timely for flood insurance premium and fees. Develop a process to ensure the security of the loan is covered by adequate flood insurance in an amount at least equal to the lesser of the outstanding principal balance of the designated loan or the maximum limit of coverage, which is the overall value of the property securing the designated loan minus the value of the land on which the property is located. ***Develop a process to notify the Director of FEMA (or the Director s designee) in writing of the identity of the servicer of the loan This notification should be made when the credit union makes, increases, extends, renews, sells or transfers a loan secured by a building or mobile home located or to be located in a special flood hazard area and within 60 days after the effective date of a change in the servicer. 12 C.F.R EQUAL CREDIT OPPORTUNITY ACT (REGULATION B) Develop policies and procedures to prohibit discrimination on any prohibited basis. ***Develop procedures to notify an applicant of action taken within 30 days after receiving a completed application concerning the creditor s approval of, counteroffer to, or adverse action on the application. ***Develop procedures to notify an applicant of action taken within 30 days after taking adverse action on an incomplete application, unless notice of incompleteness is provided; Develop procedures to track the status of incomplete applications and provide the required notice. ***Develop procedures to notify an applicant of action taken within 30 days after taking adverse action on an existing account. ***Develop procedures to notify an applicant of action taken within 90 days after notifying the applicant of a counteroffer if the applicant does not expressly accept or use the credit offered. ***Develop procedures to designate any existing account to reflect spousal participation within 90 days after receiving a written request to do so from one of the spouses. Develop procedures to provide the required notice for business credit applicants. Develop procedures for providing the required notice for multiple applicants. Develop procedures for providing the required notice for applications submitted through a third party. Ensure the notification given to an applicant when adverse action is taken contains all of the required information. Develop procedures for furnishing information to the credit bureau to ensure the spousal information is correct. ***Include in your records retention program procedures to ensure the following records are retained for 25, months, (12 months for business credit that had gross revenue of $1 million or less in its preceding fiscal year. With regard to a business that had gross revenues in excess of $1 million in its preceding fiscal year, or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, retain records for at least 60 days after notifying the applicant of the action taken. If within that time period the applicant requests in writing the reasons for adverse action or that records be retained, retain records for 12 months), after the date that you notify the applicant of action taken on the application, or of incompleteness for: o Any applications that you receive; Rules and Regulations for Home Equity Line of Credit Lending Page 183

187 o o o o o o o o o o o Any information required to be obtained concerning characteristics of an applicant to monitor compliance with the Act ; Any written or recorded information used in evaluating the application and not returned to the applicant at the applicant s request; Any notification of action taken furnished to the applicant in writing or if orally any notation or memorandum made by the credit union; The statement of specific reasons for adverse action in written form or, if furnished orally, any notation or memorandum made by the credit union; Any written statement submitted by the applicant alleging a violation of the Act or this regulation; Any written or recorded information concerning the adverse action; All written or recorded information in your possession concerning the applicant, including any notation of action taken for any application that you are not required to provide notification; Other applications; The text of any prescreened solicitation retained in original form or a copy thereof; The list of criteria used to select potential recipients of the prescreened solicitation retained in original form or a copy thereof; and Any correspondence related to complaints (formal or informal) about the prescreened solicitation retained in original form or a copy thereof. ***Include in your records retention program procedures to ensure applications for business credit, with gross revenues in excess of $1 million in its preceding fiscal year, or an extension of trade credit, credit incident to a factoring agreement, or other similar types of business credit, are retained for at least 60 days after notifying the applicant of the action taken. If within that time period the applicant requests in writing the reasons for adverse action, or records be retained, the records shall be retained for 12 months. ***Develop a records retention program to ensure all written or recorded information about the self-test is retained for 25 months after a self-test has been completed. ***Develop a records retention program to ensure information about the self-test is retained beyond 25 months if the credit union has actual notice that it is under investigation or is subject to an enforcement proceeding for an alleged violation, or if it has been served with notice of a civil action. In such cases, retain the information until final disposition of the matter, unless an earlier time is allowed by the appropriate agency or court order. Develop a process for collecting the required information when an application is received for a loan that is occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling. Ensure the process related to a dwelling includes informing the applicant that the information is being requested by the Federal Government for the purpose of monitoring compliance with the Federal statutes that prohibit creditors from discriminating against applicants on those bases. ***Develop procedures to provide the applicant with the notice of the applicant s right to receive a copy of all written appraisals developed in connection with the application for credit that is to be secured by a first lien on a dwelling not later than the third business day after receipt of the application. ***Develop procedures to provide applicants with a copy of all appraisals or other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling promptly upon completion or three business days prior to account opening, whichever is earlier. This includes applications that are approved, denied, incomplete or withdrawn. Rules and Regulations for Home Equity Line of Credit Lending Page 184

188 ***Develop procedures for tracking applications for credit that are not to be secured by a first lien on a dwelling at the time of application but later are determined to be secured by a first lien on a dwelling. Ensure theses applicants are provided the required notice of the right to receive a copy of all written appraisals developed in connection with the application in writing not later than the third business day after the credit union determines that the loan is to be secured by a first lien on a dwelling. ***Develop a procedure for accepting waivers of the appraisal timing requirements to ensure the waivers are received from the applicant at least three business days prior to consummation or account opening, unless the waiver pertains solely to the applicant s receipt of a copy of an appraisal or other written valuation that contains only clerical changes from a previous version of the appraisal or other written valuation provided to the applicant three or more business days prior to consummation or account opening. ***Develop procedures to provide an applicant who waives the timing requirement of the appraisal or other written valuation and the transaction is not consummated or the.account is not opened, copies no later than 30 days after the creditor determines the account will not be opened. Ensure procedures to provide appraisals and other written valuations include applications that are withdrawn, denied, incomplete or approved. Determine if a fee will be charged for reimbursement for the cost of the appraisal or other written valuation. If the appraisal or valuation will be provided electronically develop procedures that will comply with the provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). Determine if a waiver in the timing requirement is prohibited by law applicable to your credit union. Develop a process to allow applicants to waive the timing requirement for receiving appraisals or other valuations if not prohibited by law. Develop a process to document any waiver requests received. Develop monitoring procedures to determine if any application has changed from a non first lien on a dwelling to a first lien on a dwelling. Provide training to staff. Develop a quality control process to ensure ongoing compliance. 12 C.F.R SECURE AND FAIR ENFORCEMENT FOR MORTGAGE LICENSING ACT (S.A.F.E. ACT)-FEDERAL REGISTRATION OF RESIDENTIAL MORTGAGE LOAN ORIGINATORS (REGULATION G) ***Determine if you made more than 5 mortgage related loans in the last 12 months. Develop policies and procedures to comply with the S.A.F.E. Act. Identify all mortgage loan originators, (MLOs). Assign an employee to be an administrator responsible for S.A.F.E. Act compliance who is not an MLOs. (Exception applies for credit unions with fewer than 10 employees). Develop procedures to submit the required information to the Registry on behalf of the credit union. Require all MLOs to be registered with the Registry. Require all MLOs to maintain their registration with the Registry. Require all MLOs to obtain a unique identifier. Develop procedures to ensure an employee who is subject to the registration requirements is not allowed to act as a mortgage loan originator for the credit union unless the employee is registered with the Registry. Rules and Regulations for Home Equity Line of Credit Lending Page 185

189 Develop tracking procedures for monitoring compliance with registration and renewal requirement for all MLOs. ***Develop procedures to ensure annual renewals are completed during the annual renewal period each year November 1 through December 31. Develop a process for verifying that the registration requirements of the S.A.F.E. Act are met if an employee of a credit union was previously registered or licensed through, and obtained a unique identifier from, the Registry and has maintained this registration or license before the employee becomes subject to the requirements at the credit union. Develop a process for reviewing employee criminal history, background reports. Develop procedures for handling situations where the MLO does not comply with the registration requirements of the S.A.F.E. Act or the credit union s related policies and procedures. Develop a process for taking appropriate action consistent with applicable federal law for employees who do not qualify to be MLOs. Develop a process for maintaining appropriate records of the reports on employees. Develop a process for ensuring that any third party that has arrangements related to mortgage loan origination are in compliance with the requirements of the S.A.F.E. Act. Perform annual testing for compliance. Develop procedures to ensure each MLO is providing their unique identifier as required. ***Develop procedures to notify the Registry within 30 days of the date a registrant ceases to be an employee of the credit union. ***Develop procedures to notify the Registry within 30 days of the date of a change in the name of a registrant or any other information becomes inaccurate, incomplete or out of date. Develop procedures to update all information within 60 days of the effective date of a merger or acquisition or reorganization. Provide ongoing training to your staff and volunteers on the requirements of the S.A.F.E Act. 12 C.F.R FAIR CREDIT REPORTING (REGULATION V) Develop a list of your affiliates. Determine if your credit union receives eligibility information about a consumer from an affiliate that is used to make a solicitation for marketing purposes to the consumer and if so, develop procedures to provide the consumer disclosures in writing or, if the consumer agrees, electronically, in a concise notice that you may use eligibility information about that consumer received from an affiliate to make solicitations for marketing purposes to the consumer. ***Develop procedures to provide the consumer a reasonable opportunity and a reasonable and simple method to opt out, or prohibit you from using eligibility information to make solicitations for marketing purposes to the consumer. A reasonable opportunity to opt out includes: o The consumer is given 30 days from the date the notice is mailed to elect to opt out by any reasonable means. o The opt-out notice is provided electronically to the consumer, such as by posting the notice at the web site at which the consumer has obtained a product or service. The consumer acknowledges receipt of the electronic notice. The consumer is given 30 days after the date the consumer acknowledges receipt to elect to opt-out by any reasonable means. o The opt-out notice is provided to the consumer by where the consumer has agreed to receive disclosures by from the person sending the notice. The Rules and Regulations for Home Equity Line of Credit Lending Page 186

190 consumer is given 30 days after the is sent to elect to opt out by any reasonable means. o The opt-out notice is provided to the consumer at the time of an electronic transaction, such as a transaction conducted on a web site. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction. o The opt-out notice is provided to the consumer in writing at the time of an in person transaction. The consumer is required to decide, as a necessary part of proceeding with the transaction, whether to opt out before completing the transaction, and is not permitted to complete the transaction without making a choice. o The opt-out notice is included in the privacy notice. The consumer is allowed to exercise the opt-out within a reasonable period of time and in the same manner as the opt-out under the privacy notice. Provide with each solicitation the required notice to consumers when using a consumer report in connection with any credit or insurance transaction that is not initiated by the consumer. Develop a tracking method to determine which consumers have opted out and which have not opted out. Develop a tracking method to maintain the opt out election for a period of at least five years from the date when the consumer's opt-out election is received and implemented, unless the consumer subsequently revokes the opt-out in writing or, if the consumer agrees, electronically. Ensure there is a written agreement between your affiliate and the service provider. Develop procedures to recognize opt out elections from joint relationships. Ensure opt out notices provided to joint relationships contain the required information. Ensure the opt-out notices are provided so that each consumer can reasonably be expected to receive the actual notice. Develop procedures to provide the consumers the required renewal opt-out notice and ensure they contain a reasonable opportunity and simple method to renew the opt out election. Develop procedures to ensure the renewal opt-out notices are provided so that each consumer can reasonably be expected to receive the actual notice. ***Develop procedures to ensure the renewal opt out notices are provided timely. The renewal notice may be provided to the consumer at either a reasonable period of time before the expiration of the opt-out period; or any time after the expiration of the opt-out period but before solicitations that would have been prohibited by the expired opt-out are made to the consumer. Develop procedures to provide a consumer with a new opt-out notice if, after all continuing relationships with you or your affiliate(s) are terminated, the consumer subsequently establishes another continuing relationship with you or your affiliate(s) and the consumer's eligibility information is to be used to make a solicitation. Establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that the credit union furnishes to a consumer reporting agency. ***Review your policies and procedures periodically and update them as necessary to ensure their continued effectiveness. ***Develop procedures to conduct a reasonable investigation of a direct dispute related to an account the member has with the credit union when a member submits a dispute notice to the credit union s address. Report the results of the investigation to the Rules and Regulations for Home Equity Line of Credit Lending Page 187

191 member within 30 days of receipt of the dispute. If the credit union receives information from the member during the 30 day period that is relevant to the investigation the 30 days may be extended for not more than an additional 15 days. Develop methods for determining if a dispute is legitimate, frivolous or irrelevant. ***Develop procedures for notifying the member when a dispute is determined to be frivolous or irrelevant within five business days after making the determination. Develop a notice that contains the required information to be provided to the member when a dispute is determined to be frivolous or irrelevant. ***Develop procedures to promptly notify each consumer reporting agency to which the credit union provided inaccurate information and provide any correction to the information provided to make the information accurate. ***Develop procedures to provide the required notice with each solicitation to consumers when using a consumer report in connection with any credit or insurance transaction that is not initiated by the consumer. ***Develop procedures to provide to each consumer that requests an extension of credit that is or will be secured by one to four units of residential real property the required credit score disclosure before the first transaction is made under an open-end credit plan. Ensure the credit score disclosure includes the required information. Develop and implement reasonable policies and procedures designed to enable the user of a consumer report to form a reasonable belief that a consumer report relates to the consumer about whom it has requested the report, when the user receives a notice of address discrepancy. Develop and implement reasonable policies and procedures for furnishing an address for the consumer that the credit union has reasonably confirmed is accurate to the consumer reporting agency from whom it received the notice of address discrepancy. *** Review policies and procedures periodically and update them as necessary to ensure their continued effectiveness. 12 C.F.R REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) Ensure that no fee is imposed or charge is made upon any other person, as part of settlement costs or otherwise, in connection with a federally related mortgage loan made by it (or a loan for the purchase of a manufactured home), or by a servicer for or on account of the preparation and distribution of the HUD-1 or HUD-1A settlement statement, escrow account statements required, or other statements required. ***Develop procedures to include providing a copy of the special information booklet to a person from whom the credit union receives, or for whom the credit union prepares a written application for a federally related mortgage loan. Provide the special information booklet by delivering it or placing it in the mail to the applicant not later than three business days after the application is received or prepared. Develop procedures to ensure that no person gives or accepts any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Develop procedures to ensure that no person gives or accepts any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. Rules and Regulations for Home Equity Line of Credit Lending Page 188

192 ***Develop procedures as applicable to disclose all affiliated business arrangements utilizing the required form at the time of application. If establishing escrow accounts in relation to federally related mortgage loans develop procedures to ensure the limits on the payments to an escrow account are not exceeded. Develop procedures for conducting all required escrow account analysis to determine the amount the borrower must deposit into the escrow account and the amount of the borrower s periodic payments into the escrow account. Develop procedures to determine if a surplus, shortage or deficiency exists in the escrow account. Develop procedures for making adjustments to the escrow account when any surplus, shortage or deficiency exists. Develop procedures for estimating the disbursement amounts as required. ***Develop procedures for paying the disbursements in a timely manner on or before the deadline to avoid a penalty. Develop procedures for the payment of property taxes from the escrow account when the taxing jurisdiction offers a choice between annual and installment disbursements. Develop procedures for preparing and delivering all required escrow statements to the borrower. Ensure the initial escrow account statement includes all required information. ***Develop procedures for conducting the initial escrow account analysis for each escrow account and submitting an initial escrow account statement to the borrower at settlement or within 45 calendar days of settlement for escrow accounts that are established as a condition of the loan. Ensure the annual escrow account statement includes all required information. ***Develop procedures for conducting an annual escrow account analysis and providing an annual escrow account statement to the borrower within 30 days of the completion of the escrow account computation year. ***Develop procedures as applicable to provide the short year escrow statement to the borrower within 60 days from the end of the short year. ***Develop procedures as applicable upon the transfer of servicing, for the transferor (old) servicer to submit a short statement to the borrower within 60 days of the effective date of transfer. ***Develop procedures as applicable to provide the borrower with an initial escrow account statement within 60 days of the date of servicing transfer if the credit union is a new servicer and changes either the monthly payment amount or the accounting method used by the transferor (old) servicer, then the credit union. ***Develop procedures to submit a short year statement to the borrower within 60 days after receiving the payoff funds if a borrower pays off a federally related mortgage loan during the escrow account computation year and the credit union is the servicer. ***Develop procedures to provide a history of the account since the last annual statement (which may be longer than 1 year) within 90 days of the date the account became current for when the credit union is the servicer and does not issue an annual statement pursuant to the exemption for default, foreclosure or bankruptcy, and the loan subsequently is reinstated or otherwise becomes current. ***Develop procedures to refund the surplus of an escrow account when the analysis discloses a surplus, within 30 days from the date of the analysis, refund the surplus to the borrower if the surplus is greater than or equal to 50 dollars ($50). If the surplus is less than 50 dollars ($50), the credit union may refund such amount to the borrower, or credit such amount against the next year's escrow payments. Rules and Regulations for Home Equity Line of Credit Lending Page 189

193 ***Develop procedures to provide the loan applicant with a clear and conspicuous written list of homeownership organizations that provide relevant counseling services in the loan applicant s location not later than three business days after the credit union receives an application, or information sufficient to complete an application. ***Develop procedures to obtain the list of homeownership counseling organizations distributed to each loan applicant no earlier than 30 days prior to the time when the list is provided to the loan applicant. Develop procedures to obtain the list of homeownership counseling organizations from either the web site maintained by the Bureau for lenders to use in complying with these requirements; or data made available by the Bureau or HUD for lenders to use in complying with these requirements, provided that the data is used in accordance with instructions provided with the data. Develop procedures to disclose all affiliated business arrangements utilizing the required form. ***Ensure records related to RESPA are retained for a period of five(5) years from the date of execution. Provide training to staff. Develop review procedures to ensure continued compliance. 12 C.F.R TRUTH IN LENDING (REGULATION Z) Determine which types of home equity line of credit loans the credit union makes (fixed or variable rate). Determine the disclosures required for fixed rate and variable rate loans. ***Develop procedures to ensure the required disclosures are provided to the members within the required time frames. The home equity brochure entitled What you should know about home equity lines of credit or a suitable substitute shall be provided at the time an application is provided to the consumer. The brochure may be delivered or placed in the mail not later than three business days following receipt of a consumer s application in the case of applications contained in magazines or other publications, or when the application is received by telephone or through an intermediary agent or broker. ***Develop procedures for retaining the required evidence of compliance with the disclosure requirements. A creditor shall retain evidence of compliance with the disclosure requirements under regulation Z for two years from the date disclosures are required to be made or action is required to be taken. A creditor shall also permit the agency responsible for enforcing these requirements to inspect its relevant records for compliance Utilize the sample forms provided in the appendix to the regulation. ***Develop procedures to ensure a periodic statement is provided for each billing cycle at the end of which an account has a debit or credit balance of more than $1 or on which a finance charge has been imposed. ***Develop procedures to provide the periodic statement within the timeframes required taking into account any grace period. For accounts under an open-end consumer credit plan a creditor must adopt reasonable procedures designed to ensure that: o If a grace period applies to the account, periodic statements are required to be mailed or delivered at least 21 days prior to the date on which the grace period expires; and o Regardless of whether a grace period applies to the account, periodic statements are required to be mailed or delivered at least 14 days prior to the date on which the required minimum periodic payment must be received in order to avoid being treated as late for any purpose; and Rules and Regulations for Home Equity Line of Credit Lending Page 190

194 o o The creditor does not treat as late for any purpose a required minimum periodic payment received by the creditor within 14 days after mailing or delivery of the periodic statement; and The creditor does not impose finance charges as a result of the loss of the grace period if a payment that satisfies the terms of the grace period is received by the creditor within 21 days after mailing or delivery of the periodic statement. Develop procedures to ensure the periodic statement includes the required information. *** Develop procedures to provide the billing rights statement annually at interval of not less than 6 months or more than 18 months either to all members or to all members eligible to receive a periodic statement. ***Develop procedures to provide the required notice whenever any term required to be disclosed upon account opening is changed or the required minimum periodic payment is increased at least 15 days prior to the effective date of the change. The 15-day timing requirement does not apply if the change has been agreed to by the consumer; the notice shall be given, however, before the effective date of the change. ***Develop a process for issuing disclosures when adding a credit feature or furnishing a credit access device (other than as a renewal, resupply, or the original issuance of a credit card) on the same finance charge terms, after 30 days after delivering the account-opening disclosures. The new disclosure shall be issued before the consumer uses the feature or device for the first time, that it is for use in obtaining credit under the terms previously disclosed. ***Develop a process for issuing disclosures when adding a credit feature or a credit access device and the finance charge terms for the feature or device differ from disclosures previously given. The disclosures required by (a) or (b)(3)(ii)(a), that are applicable to the added feature or device shall be given before the consumer uses the feature or device for the first time. ***Develop procedures to deliver a written notice to members when the credit union prohibits additional extensions of credit or reduces their credit limit not later than three business days after the action is taken. ***Develop procedures for crediting payments received: o A creditor shall credit a payment to the consumer s account as of the date of receipt, except when a delay in crediting does not result in a finance charge or other charge. o If a creditor specifies, on or with the periodic statement, requirements for the consumer to follow in making payments but accepts a payment that does not conform to the requirements the creditor shall credit the payment within five days of receipt. o If a creditor fails to credit a payment, as required in time to avoid the imposition of finance or other charges, the creditor shall adjust the consumer's account so that the charges imposed are credited to the consumer's account during the next billing cycle. Determine any reasonable specific requirements for payments to be considered a conforming payment. Develop procedures to credit the members account for any fees that were charged due to an error by the credit union. Develop procedures to track any credit balances in excess of $1. ***Develop procedures to credit or refund any credit balances in excess of $1 as required. When a credit balance in excess of $1 is created on a credit account the creditor shall refund any part of the remaining credit balance within seven business days from receipt of a written request from the consumer. Rules and Regulations for Home Equity Line of Credit Lending Page 191

195 ***Develop procedures to locate a consumer when the current address or contact information for the consumer is unknown. The creditor shall make a good faith effort to refund to the consumer by cash, check, or money order, or credit to a deposit account of the consumer, any part of the credit balance remaining in the account for more than six months. No further action is required if the consumer s current location is not known to the creditor and cannot be traced through the consumer s last known address or telephone number. Review the method your credit union uses to compute the annual percentage rate. Develop procedures to discontinue use of any calculation tool that is producing an incorrect annual percentage rate and notify the Bureau in writing of the error in the calculation tool. Develop procedures to provide each consumer entitled to rescind with two copies of the notice of right to rescind for any real estate loan secured by the consumer s principal dwelling that is not an initial purchase or construction. ***Ensure the necessary information is included on the notice of right to rescind. If the required notice and material disclosures are not delivered, the right of rescission shall expire: o Three years after the occurrence giving rise to the right of rescission; or o Upon transfer of all of the consumer s interest in the property; or o Upon sale of the property, whichever occurs first. ***Utilize tools for determining the expiration of the rescission date. The consumer may exercise the right to rescind until midnight of the third business day following: o The occurrence that gave rise to the right of rescission; o Delivery of the required notice; or o Delivery of all material disclosures, whichever occurs last. Develop procedures to ensure the rescission period has passed prior to the credit union disbursing funds. Develop procedures for modification or waiver in the case of a bona fide personal financial emergency. ***Develop procedures to return any money or property after receipt of notice of recession from the member. Within 20 calendar days after receipt of a notice of rescission the creditor shall return any money or property that has been given to anyone in connection with the transaction, and take any action necessary to reflect the termination of the security interest. Determine the type of advertising your credit union will be doing, (radio, newspaper, television, online, etc). Review the advertisements to ensure they state only those terms that actually are or will be arranged or offered by the credit union and is not misleading. Review advertisements for home equity loans to ensure all required disclosures are included in the advertisement based on the type of advertisement. Review advertisements specifically for triggering terms related to home equity line of credit loans. Ensure advertisements do not contain the term free money or a similar term. Review advertisements to ensure nothing in the advertisement indicates the credit union discriminates on a prohibited basis. Review any advertisements containing pictures of people to determine if they represent your entire field of membership. Ensure advertisements of discounted or premium rates contain the additional required disclosures. If an advertisement contains a statement of any minimum periodic payment and a balloon payment may result if only the minimum periodic payments are made, even if Rules and Regulations for Home Equity Line of Credit Lending Page 192

196 such a payment is uncertain or unlikely, ensure the advertisement also states with equal prominence and in close proximity to the minimum periodic payment statement that a balloon payment may result, if applicable. If any finance charge or other charge is set forth affirmatively or negatively in an advertisement for an open-end credit plan secured by the consumer s dwelling ensure the additional disclosures are included in the advertisement. Ensure advertisements do not refer to an annual percentage rate as fixed or use a similar term, unless the advertisement also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open. Ensure any advertisement that states that any interest expense incurred under the home equity plan is, or may be tax deductible, is not misleading in this regard. Ensure the notice of nondiscrimination is displayed clearly visible to the general public in your lobby and in every office where real estate related loans are made. ***Maintain the advertisements for 2 years from the date the ad was published. Determine if you make high cost home equity line of credit mortgage loans. Develop procedures for calculating if any of your home equity line of credit loans are high cost mortgage loans. Determine if your credit union is a small entity. Determine if your credit union is a rural or underserved entity. Determine if your credit union makes home equity line of credit balloon mortgages that are high cost. If you make high cost home equity line of credit balloon mortgages ensure you meet the requirements for making this type of loan. If you make high cost home equity line of credit mortgages ensure that they do not include: o Negative amortization; o Advanced payments; o An increased interest rate after default; o Prepayment penalties; o o Acceleration of debt except under certain conditions; or Rebates of interest arising from a loan acceleration due to default, calculated by a method less favorable than the actuarial method. ***Develop procedures for providing the required disclosures related to high cost mortgages at least three business days prior to consummation or account opening of a high-cost mortgage. Develop procedures for making payments to contractors under any home improvement contract from the proceeds of a high cost home equity line of credit mortgage. Develop procedures for providing the required notice when selling or assigning a highcost home equity line of credit mortgage. Develop procedures for properly refinancing high-cost home equity line of credit mortgages. Develop procedures for calculating, verifying, and documenting the member s ability to repay the high cost home equity line of credit mortgage. Develop procedures for documenting the member s receipt of counseling prior to extending a high cost home equity line of credit mortgage loan. Develop procedures to ensure the credit union does not steer or otherwise direct the consumer to choose a particular counselor or counseling organization. Ensure the credit union does not use a counselor who is employed by or affiliated with the credit union. Ensure the certification of counseling required contains all of the required information. Rules and Regulations for Home Equity Line of Credit Lending Page 193

197 Develop procedures for paying fees of a counselor or counseling organization for providing counseling required. Ensure any late fees charged in connection with a high-cost mortgage are specifically permitted by the terms of the open-end credit agreement and do not exceed 4 percent of the amount of the payment past due. Ensure any late fees charged are not imposed more than once for a single late payment. Ensure late fees are not imposed in connection with a high cost home equity line of credit if any delinquency is attributable only to a late payment charge imposed on an earlier payment and the payment otherwise is a full payment for the applicable period. ***Develop procedures to provide a payoff statement to a consumer or a person authorized by the consumer to obtain such information of a high-cost home equity line of credit mortgage within five business days after receiving a request from the consumer or any person acting on behalf of the consumer. Develop procedures for charging a processing fee to cover the costs of providing a payoff statement by fax, or courier. ***Develop procedures for providing the disclosure to the consumer or a person authorized by the consumer to obtain the consumer s payoff statement that payoff statements are available by a method other than by fax or courier without charge. This disclosure should be provided prior to charging a processing fee. ***Develop procedures to provide the required disclosures to the consumer for the transfer of the loan if the lien is in first position on or before the 30 th calendar day following the date of transfer: o A covered person is not subject to these requirements with respect to a particular mortgage loan if the covered person sells, or otherwise transfers or assigns legal title to the mortgage loan on or before the 30 th calendar day following the date that the covered person acquired the mortgage loan which o shall be the date of transfer recognized. A covered person is not subject to these requirements with respect to a particular mortgage loan if the mortgage loan is transferred to the covered person in connection with a repurchase agreement that obligates the transferor to repurchase the loan. However, if the transferor does not repurchase the loan, the covered person must provide the disclosures required within 30 days after the date that the transaction is recognized as an acquisition on its books and records. Develop procedures to mail or deliver the disclosures to the primarily liable party if more than one consumer is liable on the obligation. If disclosures will be provided electronically develop procedures for consumer consent and other applicable provisions of the Electronic Signatures in Global and National Commerce Act (E-Sign) (15 U.S.C et seq.). Develop procedures for monitoring appraisals and appraisers to ensure valuation independence is maintained for consumer credit transactions secured by the consumer s principal dwelling. Develop procedures to ensure no conflict of interest exists between any employee, director, or officer of the credit union and any covered transaction. Develop procedures to determine the amount of compensation paid to a fee appraiser is customary and reasonable. ***Develop procedures to report any material failure of an appraiser to comply with the Uniform Standards of Professional Appraisal Practice or ethical or professional requirements for appraisers under applicable state or Federal statutes or regulations within a reasonable period of time after the person determines that there is a reasonable basis to believe that a failure to comply required to be reported has occurred. Rules and Regulations for Home Equity Line of Credit Lending Page 194

198 12 C.F.R HOME MORTGAGE DISCLOSURE (REGULATION C) Determine if your credit union is required to report HMDA data. Determine if you will report home equity line of credit loans (Note: As of this publication HMDA reporting is optional for home equity line of credit loans but there is currently a proposed rule out for comment that could change this option). Establish procedures for completion of the LAR. Ensure your lobby notice contains the correct information. Ensure your HMDA notices are in the offices where mortgage loans are made. ***Ensure all reportable transactions are recorded within 30 calendar days after the end of the calendar quarter in which the final action was taken. Ensure the register meets the formatting requirements of Appendix A of the regulation. ***Establish procedures to ensure by March 1 of the following calendar year for which the loan data are compiled the credit union sends its loan /application register (LAR) to the specified agency office. ***Ensure procedures include retaining a copy of the LAR for at least three years. ***Ensure procedures include making its disclosure statement prepared by the FFIEC available to the public at the credit union s home office no later than three business days after receiving the disclosure statement from the FFIEC. ***Ensure procedures include making the disclosure statement available to the public within 10 business days of receiving it in at least one branch office in each other MSA and each other Metropolitan Division where the credit union has offices. Ensure procedures include posting the address for sending written requests in the lobby of each branch office in other MSAs or Metropolitan Division where the credit union has offices. ***Ensure procedures include mailing or delivering a copy of the disclosure statement within 15 calendar days of receiving a written request. Ensure procedures include removing the required data from the LAR prior to making it available to the public. ***Ensure procedures include making the modified LAR available following the calendar year for which the data are compiled by March 31 for a request received on or before March 1. ***Ensure procedures include making the modified LAR available following the calendar year for which the data are compiled after 30 days for a request received after March 1. ***Ensure procedures include retaining a copy of the LAR and making the modified LAR available to the public for a period of three years. ***Ensure procedures include making the disclosure statement available to the public for a period of five years. Ensure procedures include making the data available for copying during the hours the office is normally open to the public for business. Ensure procedures include any costs or fees to be charged for providing or reproducing the data. Ensure procedures include posting a general notice about the availability of its HMDA data in the lobby of its home office and of each branch office located in an MSA and Metropolitan Division. ***Ensure procedures include providing promptly upon request the location of the credit union s offices where the statement is available for inspection and copying or including the location it in the lobby notice. Provide training to staff. Develop procedures to ensure ongoing compliance. Rules and Regulations for Home Equity Line of Credit Lending Page 195

199 50 U.S.C. App b- CIVIL SERVICE RELIEF ACT Develop a system to monitor loans to service members. Develop a process for documenting the receipt of all written requests and military orders. ***Develop procedures for reducing any applicable loan interest rate to 6% retroactively to the date the service member was called to military service. This rate of 6% shall remain during the period of military service and one year thereafter, in the case of an obligation or liability consisting of a mortgage, trust deed, or other security in the name of the mortgage; or during the period of military service, in the case of any other obligation or liability. Develop procedures for refunding interest in excess of 6% when required. ***Develop collection procedures for loans secured by real or personal property that was owned by a service member before military service which secures a mortgage, trust deed, or similar security interest, to prohibit selling, foreclosing upon, or seizing real or personal property during the service member s military service or for 9 months thereafter, without a court order. Provide training to staff. Develop a monitoring process to ensure ongoing compliance. Rules and Regulations for Home Equity Line of Credit Lending Page 196

200 Sample Policies for Granting Home Equity Line of Credit Loans Rules and Regulations for Home Equity Line of Credit Lending Sample S.A.F.E Act Policy Definitions Mortgage Loan Originator (MLO) A mortgage loan originator means an individual who takes a residential mortgage loan application and offers or negotiates terms of a residential mortgage loan for compensation or gain. The term mortgage loan originator does not include an individual who performs purely administrative or clerical tasks on behalf of an individual who is described as a mortgage loan originator. Residential Mortgage Loans- Residential mortgage loan means any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling or residential real estate upon which is constructed or intended to be constructed a dwelling, and includes refinancing, reverse mortgages, home equity lines of credit and other first and additional lien loans. Unique Identifier- Unique identifier means a number or other identifier that permanently identifies a registered mortgage loan originator; is assigned by protocols established by the Nationwide Mortgage Licensing System and Registry and the Bureau to facilitate electronic tracking of mortgage loan originators; and uniform identification of and public access to, the employment history of and the publicly adjudicated disciplinary and enforcement actions against mortgage loan originators and must not be used for purposes other than those set forth under the S.A.F.E. act. Requirements Each employee who acts as a residential mortgage loan originator is required to register with the Registry, maintain this registration, and obtain a unique identifier in accordance with the requirements of the S.A.F.E. Act. Employees who fail to register and comply with the requirements will not be allowed to perform the functions of a Mortgage Loan originator (MLO). This will be communicated to all MLOs when hired and annually as part of their ongoing mortgage and S.A.F.E. Act training. The lending manager will identify all employees required to be registered. This list will be maintained by the lending manager and updated on an ongoing basis. Once the MLOs are registered and receive their unique identifiers they will be required to provide their unique identifier to Members upon request, prior to acting as a mortgage loan originator; and Through the MLO s initial written communication with a member. Rules and Regulations for Home Equity Line of Credit Lending Page 197

201 For a closed-end consumer credit transaction secured by a dwelling (Required under regulation Z), a loan originator organization must include on: The credit application; The note or loan contract; and The security instrument whenever each such loan document is provided to a consumer or presented to a consumer for signature as applicable: o Its name and NMLSR ID, if the NMLSR has provided it an NMLSR ID; and o The name of the individual loan originator (as the name appears in the NMLSR) with primary responsibility for the origination and, if the NMLSR has provided such person an NMLSR ID, that NMLSR ID. Confirmation of the employee registration, updates and renewals will be performed by the lending manager. This information will be compared to the credit union s records for accuracy immediately after the employee registers, when the information is changed and annually to ensure the information remains correct. A tracking system will be established and maintained by the lending manager. The tracking system will ensure employees remain current with registration and renewal requirements. The annual renewal period is November 1 through December 31 of each year. The lending manager will be responsible for reviewing employee criminal history background reports received from the Registry and shall take appropriate action consistent with Federal law including Section 206 of the Federal Credit Union Act. Records of the review and any related actions will be maintained in the Human Resources Department. Annual testing of compliance with the S.A.F.E. Act requirements will be conducted. This can be completed by either the Supervisory Committee or an outside source. The lending manager will insure that any third parties we work with in the in the origination of residential mortgage loans, comply with the S.A.F.E. Act, requirements. De Minimis Exception Any employee who has never been registered or licensed through the Registry as a mortgage loan originator and if during the past 12 months the employee acted as a mortgage loan originator for 5 or fewer residential mortgage loans that employee is not required to register. Prior to engaging in mortgage loan origination activity that exceeds the exception limit of 5 the employee must register with the Registry. Procedures- The lending manager will develop procedures to: Identify which employees are required to be registered mortgage loan originators; Require that all employees of the credit union who are mortgage loan originators be informed of the registration requirements of the S.A.F.E. Act and be instructed on how to comply with such requirements and procedures; Comply with the unique identifier requirements; Establish reasonable procedures and tracking systems for monitoring compliance with registration and renewal requirements and procedures; Confirm the adequacy and accuracy of employee registrations, including updates and renewals by comparison with credit union records; Monitor compliance with registration and renewal requirements; Review employee criminal history background reports received pursuant to these requirements and maintain records of these reports and actions taken; Rules and Regulations for Home Equity Line of Credit Lending Page 198

202 Work with the HR department to determine the plan of action when criminal history background reports contain negative information; Ensure annual independent testing is conducted and maintain records of any findings and action taken; Work with HR to develop disciplinary actions for any MLO who does not comply with the requirements of the S.A.F.E. Act or this policy. Maintain records of these reports and actions taken; Ensure through written documentation that any third parties we have a working relationship with related to mortgage loan origination have policies and procedures that comply with the S.A.F.E. Act, including appropriate licensing and or registration of individuals acting as mortgage loan originators. Sample Fair Credit Reporting Act Policy XYZ Credit union obtains information from credit reporting agencies as part of our decision making process for opening accounts, granting loans, reviewing credit lines for renewal or additional credit and, hiring employees. The use of credit reports for hiring employees is discussed in our HR policy. This policy relates to member activities. We also provide information to credit reporting agencies on our members based on the activity in their loan accounts. We will make every effort to ensure the information we provide to the credit reporting agency is accurate. In doing so we will develop procedures to verify the information is correct prior to sending it as well as implementing ongoing monitoring procedures to ensure it remains accurate. Our procedures will also include steps we will take to test our system and corrective measures as necessary. The Credit Union will not use or rely on information it knows or has reason to know may be inaccurate and will not take adverse action against a member when the credit union is on notice of identity theft involving the member. The credit union will not obtain or use medical information pertaining to a consumer in connection with any determination of the consumer s eligibility, or continued eligibility for credit or services at the credit union. The credit union will not report information relating to a member to any credit reporting agency if the credit union knows, or has reasonable cause to believe, that the information is inaccurate. If it is found that we have relied on information that is inaccurate or we take adverse action against a member that is on notice of identity theft or if it is determined that we used medical information in connection with any determination of the consumer s eligibility or continued eligibility for credit or services or reported information related to a member to any credit reporting agency that we knew was incorrect, an investigation will be conducted by the employee s supervisor and disciplinary action may be taken against the employee who performed the transaction. We will take the necessary steps to delete, update, and correct information in the furnisher's records, as appropriate, to avoid furnishing inaccurate information. We will conduct a reasonable investigation of all disputes. Upon making a determination that a dispute is frivolous or irrelevant, we will notify the consumer of the determination not later than Rules and Regulations for Home Equity Line of Credit Lending Page 199

203 five business days after making the determination, by mail or, if authorized by the consumer for that purpose, by any other means available. We will work with our vendors regularly to ensure our technology and other means of communication with consumer reporting agencies is programmed to prevent duplicative reporting of accounts, erroneous association of information with the wrong consumer(s), and other occurrences that may compromise the accuracy or integrity of information provided to consumer reporting agencies. Our VP of operations will develop procedures to ensure we are providing consumer reporting agencies with sufficient identifying information in the furnisher's possession about each consumer about whom information is furnished to enable the consumer reporting agency properly to identify the consumer. We will conduct an annual review of our practices and the consumer reporting agency practices, (as able), to ensure information is accurate, our disputes are resolved timely, corrections of inaccurate information are made timely, and our vendors are complying with required policies and procedures. Adverse Credit Decision When information obtained from a credit reporting agency is related to an adverse credit decision, the following information must be disclosed to the member orally, or in writing or electronically: The name, address, and telephone number of the credit reporting agency that provided the report; A statement that the credit reporting agency did not make the adverse decision and is not able to explain why the decision was made; A statement outlining the member s right to obtain a free disclosure of his/her file from the credit reporting agency if the consumer makes a request within 60 days; and A statement outlining the consumer s right to dispute directly with the consumer reporting agency regarding accuracy or completeness of any information provided by the credit reporting agency. When information obtained from a credit reporting agency is related to an adverse credit decision, the following information must be disclosed to the member in writing or electronically: The numerical credit score used by the Credit Union in taking any adverse action based in whole or in part on any information in a consumer report; The range of possible scores under the model used; All of the key factors that adversely affected the credit score of the consumer in the model used, the total number of which shall not exceed 4; The date on which the credit score was created; and The name of the person or entity that provided the credit score or credit file upon which the credit score was created. When information obtained from an outside source other than a credit reporting agency is related to an adverse credit decision, the credit union must either disclose the nature of the information or the member s right to obtain the nature of the information, if a written request is filed within 60 days of the adverse action notice. The credit union may, but is not required to, disclose the source of the information. Rules and Regulations for Home Equity Line of Credit Lending Page 200

204 Risk-Based Pricing Notices When the Credit Union uses information in a consumer report in connection with an application for or grant, extension, or provision of credit to a member on material terms that are materially less favorable than the most favorable terms available to a substantial portion of members from or through the Credit Union, the Credit Union will provide a risk-based pricing notice to the member in accordance with regulations issued by the Federal Trade Commission (FTC) and the National Credit Union Administration (NCUA). Notice to Home Loan Applicants The credit union will provide mortgage loan applicants with a Notice to Home Loan Applicants disclosure (prepared by the Federal Trade Commission) and the credit score provided by the credit reporting agency, (if the Credit Union uses credit scores in connection with mortgage loan applications). The notice requirement applies to purchase money mortgages, refinanced loans, home equity loans, second mortgages, and home equity lines of credit secured by 1 to 4 units of residential real property. The notice will be provided as soon as reasonably practical. Address Discrepancy and ID Theft The credit union will develop procedures to form a reasonable belief that a consumer report relates to the consumer about whom it has requested the report. In the case of a consumer report that shows a notice of address discrepancy the credit union will perform additional procedures to verify that the consumer report relates to the consumer about whom it has requested the report. The extra procedures may include but not be limited to the following: o Procedures the credit union uses to obtain and verify the member's identity in accordance with the requirements of the Member Identification Program (CIP) rules implementing 31 U.S.C. 5318(l) (31 CFR ); o Utilize the information from its own records, such as applications, change of address notifications, other member account records, or retained MIP documentation; or o Obtaining from third-party sources; or o Verifying the information in the consumer report provided by the consumer reporting o agency with the consumer. Utilizing passwords or other information that the credit union has on file that only the member would know. When the employee is confident that the consumer report relates to the consumer about whom it has requested the report, the credit union will furnish an address for the consumer that the user has reasonable confirmed is accurate to the credit reporting agency from whom it received the notice of address discrepancy. Permissible Purposes for Obtaining and Using Credit Reports The Credit Union will not permit access to members information except to those with a need to know for purposes of their employment and to those credit union employees on whom background checks have been performed and who have executed appropriate security and confidentiality agreements and who have the authority to obtain this information. Rules and Regulations for Home Equity Line of Credit Lending Page 201

205 The credit union will obtain and use consumer reports only for permissible purposes which are as follows: As instructed by the member in writing; For extension of credit as a result of an application from a member, or the review or collection of a member s account; In response to an order by a court of federal grand jury subpoena; Where there is legitimate business need in connection with the business transaction that is initiated by the member or consumer; To review a member s account to determine whether the member continues to meet the terms of the account; For the purpose of making prescreened unsolicited offers of credit or insurance subject to the applicable obligations of the users of such prescreened information. The Credit Union will certify to each consumer reporting agency from which it obtains information that it has a permissible purpose for obtaining the information and that the Credit Union will not use the information for any impermissible purpose. Reporting Data to Consumer Reporting Agencies When reporting data to the consumer reporting agencies we will use standard data reporting formats and standard procedures for compiling and furnishing data, where feasible, such as the electronic transmission of information about consumers to consumer reporting agencies. Staff Training We will provide ongoing training to staff on the requirements of properly reporting to consumer reporting agencies. This training will be conducted annually and will be mandatory for all staff who report to credit bureaus. The training will be developed to incorporate not only the requirements or applicable rules and regulations but also will incorporate our policies and procedures. When a change to any of our policies or procedures occurs in this area, staff training will be conducted within 10 days of the change. Oversight of Relevant Service Providers Our VP of operations will develop procedures for providing appropriate and effective oversight of relevant service providers whose activities may affect the accuracy or integrity of information about consumers furnished to consumer reporting agencies to ensure compliance with our policies and procedures. Mergers Although mergers are not common for our credit union, our VP of operations will develop procedures for furnishing information about consumers to consumer reporting agencies following mergers, portfolio acquisitions or sales, or other acquisitions or transfers of accounts or other obligations in a manner that prevents re-aging of information, duplicative reporting, or other problems that may similarly affect the accuracy or integrity of the information furnished. These procedures will be developed if and when the need arises. Rules and Regulations for Home Equity Line of Credit Lending Page 202

206 Model Forms for Granting Home Equity Line of Credit Loans Rules and Regulations for Home Equity Line of Credit Lending Sample Forms Logotype Non discrimination The logotype and text of the notice required shall be as follows: Rules and Regulations for Home Equity Line of Credit Lending Page 203

207 Appendix to Part 760 Sample Form of Notice of Special Flood Hazards and Availability of Federal Disaster Relief Assistance The credit union will be considered to be in compliance with the requirements for notice to the borrower by providing written notice to the borrower containing the language present in the sample below: We are giving you this notice to inform you that: The building or mobile home securing the loan for which you have applied is or will be located in an area with special flood hazards. The area has been identified by the Director of the Federal Emergency Management Agency (FEMA) as a special flood hazard area using FEMA s Flood Insurance Rate Map or the Flood Hazard Boundary Map for the following community:. This area has at least a one percent (1%) chance of a flood equal to or exceeding the base flood elevation (a 100- year-flood) hazard area is 26 percent (26%). Federal law allows a lender and borrower jointly to request the Director of FEMA to review the determination of whether the property securing the loan is located in a special flood hazard area. If you would like to make such a request, please contact us for further information. The community in which the property securing the loan is located participates in the National Flood Insurance Program(NFIP). Federal law will not allow us to make you the loan that you have applied for if you do not purchase flood insurance. The flood insurance must be maintained for the life of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance or you at your expense. Flood insurance coverage under the NFIP may be purchased through an insurance agent who will obtain the policy either directly through the NFIP or through an insurance company that participates in the NFIP. Flood insurance also may be available from private insurers that do not participate in the NFIP. At a minimum, flood insurance purchased must cover the lesser of: (1) The outstanding principal balance of the loan; or (2) The maximum amount of coverage allowed for the type of property under the NFIP. Flood insurance coverage under the NFIP is limited to the overall value of the property securing the loan minus the value of the land on which the property is located. Federal disaster relief assistance (usually in the form of a low-interest loan) may be available for damages incurred in excess of your flood insurance if your community s participation in the NFIP is in accordance with NFIP requirements. Flood insurance coverage under the NFIP is not available for the property securing the loan because the community in which the property is located does not participate in the NFIP. In addition, the non-participating community has been Rules and Regulations for Home Equity Line of Credit Lending Page 204

208 identified for at least one year as containing a special flood hazard area, properties located in the community will not be eligible for Federal disaster relief assistance in the event of a Federally-declared flood disaster. To: From: AFFILIATED BUSINESS ARRANGEMENT DISCLOSURE STATEMENT FORMAT NOTICE Property: Date: (Entity Making Statement) This is to give you notice that [referring party] has a business relationship with [settlement services provider(s)]. [Describe the nature of the relationship between the referring party and the provider(s), including percentage of ownership interest, if applicable.] Because of this relationship, this referral may provide [referring party] a financial or other benefit. [A.] Set forth below is the estimated charge or range of charges for the settlement services listed. You are NOT required to use the listed provider(s) as a condition for [settlement of your loan on] [or] [purchase, sale, or refinance of] the subject property. THERE ARE FREQUENTLY OTHER SETTLEMENT SERVICE PROVIDERS AVAILABLE WITH SIMILAR SERVICES. YOU ARE FREE TO SHOP AROUND TO DETERMINE THAT YOU ARE RECEIVING THE BEST SERVICES AND THE BEST RATE FOR THESE SERVICES. [provider and settlement service] [charge or range of charges] [B.] Set forth below is the estimated charge or range of charges for the settlement services of an attorney, credit reporting agency, or real estate appraiser that we, as your lender, will require you to use, as a condition of your loan on this property, to represent our interests in the transaction. [provider and settlement service] [charge or range of charges] ACKNOWLEDGMENT I/we have read this disclosure form, and understand that referring party is referring me/us to purchase the above-described settlement service(s) and may receive a financial or other benefit as the result of this referral. Rules and Regulations for Home Equity Line of Credit Lending Page 205

209 Signature [INSTRUCTIONS TO PREPARER:] [Use paragraph A for referrals other than those by a lender to an attorney, a credit reporting agency, or a real estate appraiser that a lender is requiring a borrower to use to represent the lender's interests in the transaction. Use paragraph B for those referrals to an attorney, credit reporting agency, or real estate appraiser that a lender is requiring a borrower to use to represent the lender's interests in the transaction. When applicable, use both paragraphs. Specific timing rules for delivery of the affiliated business disclosure statement are set forth in 12 CFR (b)(1) of Regulation X). These INSTRUCTIONS TO PREPARER should not appear on the statement.] Appendix B to Part 1002 Model Application Forms This appendix contains five model credit application forms, each designated for use in a particular type of consumer credit transaction as indicated by the bracketed caption on each form. The first sample form is intended for use in open-end, unsecured transactions; the second for closed-end, secured transactions; the third for closed-end transactions, whether unsecured or secured; the fourth in transactions involving community property or occurring in community property states; and the fifth in residential mortgage transactions which contains a model disclosure for use in complying with the requirements for certain dwelling-related loans. All forms contained in this appendix are models; their use by creditors is optional. Appendix C to Part 1002 Sample Notification Forms This Appendix contains ten sample notification forms. Forms C-1 through C-4 are intended for use in notifying an applicant that adverse action has been taken on an application or account. Form C-5 is a notice of disclosure of the right to request specific reasons for adverse action. Form C-6 is designed for use in notifying an applicant, that an application is incomplete. Forms C-7 and C-8 are intended for use in connection with applications for business credit. Form C-9 is designed for use in notifying an applicant of the right to receive a copy of appraisals Form C- 10 is designed for use in notifying an applicant for nonmortgage credit that the creditor is requesting applicant characteristic information. Appendix B to Part 1022 Model Notices of Furnishing Negative Information Compliance with the notice requirements of the FCRA if the institution properly uses the model notices in this appendix (as applicable). Appendix D to Part Affiliated Business Arrangement Disclosure Statement Format Notice The link provides access to affiliated business arrangement disclosure statement under RESPA. Appendix G to Part Open-End Model Forms and Clauses The link provides access to the sample forms under regulation Z. Appendix A to Part 1003 Form and Instructions for Completion of HMDA Loan/Application Register (LAR) This link provides instructions for completing the LAR as well as a sample form. Rules and Regulations for Home Equity Line of Credit Lending Page 206