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    • NCHELP TRAINING CONFERENCE Overview and Practical Application of Regulation Z November 5, 2007 Presented By: Bennet S. Koren McGlinchey Stafford PLLC Telephone: (504) 596-2783 E-mail: bkoren@mcglinchey.com
    • Truth-In-Lending Act/Regulation Z Definitions
      • Credit
      • Consumer Credit
      • Open-end/Closed-end
      • Creditor
    • Credit/Consumer Credit
      • CREDIT
      • The right to incur payment of debt or to
      • incur debt and defer its payment
      • CONSUMER CREDIT
      • Credit offered or extended to a consumer primarily for personal, family or household purposes
    • Open-End/Closed-End Credit
      • Open-end credits is credit where the creditor reasonably anticipates repeated advances, the creditor assesses a finance charge on the outstanding balance and the amount of credit that may be extended is generally made available to the extent the outstanding balance is repaid
    • Open-End/Closed-End Credit (cont’d)
      • Closed-end is every other type of credit
      • Home equity lines of credit and credit cards are examples of open-end credit; purchase money mortgage loans and home equity loans are examples of closed-end credit
    • Multiple Advance Loans
      • Borrower can “draw” up to a stated maximum amount
      • Borrower can/must take all proceeds in increments
      • Creditor is obligated to make subsequent advances if borrower is not in default
    • Multiple Advance Loans (cont’d)
      • Closed-end or open-end?
      • Can borrower take more than one advance?
      • Is there a right to re-borrow?
    • Reusable Line Feature
      • A true open-end plan has an unlimited amount of total credit extended-use; repay; use again
      • This is different from a series of advances made pursuant to a closed-end credit loan commitment
    • Reusable Line Feature (cont’d)
      • EXAMPLE: Creditor agrees to lend a total of $10,000 in a series of advances as agreed by the consumer. Once consumer has borrowed the full $10,000, no more is advanced even if some of the debt has been repaid
    • Consequences of Mischaracterizing Closed-End Credit
      • Open-end disclosure is not accurate
      • No closed-end disclosure
      • RESULT: Failure to make any relevant disclosure
    • Creditor
      • A person who regularly extend credit that is subject to a finance charge or is payable by written agreement in more than 4 installments
      • “ Regularly extends credit” = 25 times per calendar year
    • Exemptions
      • Extensions of credit > $25,000 unless secured by the consumer’s dwelling
      • Business purpose transactions
      • Higher Education Act Title IV Loan Programs
    • Finance Charge
      • The cost of credit expressed as a dollar amount
      • All charges not also incurred in a comparable cash transaction are included (unless excluded by Regulation Z)
    • Examples of Finance Charges
      • Interest
      • Points
      • Credit report fees/application fees (unless charged to all applicants, approved or denied)
    • Disclosure Requirements
      • Retainable by consumer
      • Given to the consumer before consummation
      • Reflect legal obligation of the consumer
      • Estimates can be used for unknown information
      • Minor variables in timing and amount can be ignored
    • Closed-End Disclosure Statements
      • Must be provided to borrower before consummation
      • Consummation is determined by state law
      • Disclosure at Disbursement: Is this sufficient?
    • Disclosure Requirements
      • Clear and Conspicuous
      • Retainable by consumer
      • Given to the consumer before consummation
      • Reflect legal obligation of the consumer
    • Disclosure Requirements (cont’d)
      • Estimates can be used for unknown information
      • Minor variables in timing and amount can be ignored
    • Contents of Disclosures
      • Creditor
      • Payment Schedule
      • Itemization of Amount Financed
      • Fed Box: Amount Financed, Finance Charge
    • Contents of Disclosures (cont’d)
      • APR, Total of Payments
      • Variable Rate Information
      • Late Charge, Prepayment, Security Interest
    • Annual Percentage Rate (APR)
      • Finance charge expressed as a percentage
      • APR typically exceeds contract rate
      • Appendix J- Calculation Rules
    • Variable Rate Disclosures
      • Circumstances under which rate may increase
      • Limitation on increase
      • Effect of an increase
      • An example of the payment terms that would result from an increase
    • Special Disclosure Rules
      • Mail/Telephone Orders
      • Interim Student Loans
    • Mail/Telephone Orders
      • Disclosure is delayed until due date of first payment
      • Representative amounts or ranges of certain information is made available in writing to the consumer before actual order
    • Mail/Telephone Orders (cont’d)
      • Principal loan amount
      • Finance Charge
      • APR; variable rate information, if applicable
      • Repayment Terms
    • Interim Student Loans
      • Origination Disclosure and Repayment Disclosure
      • Origination Disclosure deletes finance charge, payment schedule, total of payments
      • These items are not known at disbursement because beginning of repayment period is not known
    • Contents of Disclosures
      • Creditor
      • Payment Schedule
      • Itemization of Amount Financed
      • Fed Box: Amount Financed, Finance Charge
      • APR, Total of Payments
      • Variable Rate Information
      • Late Charge, Prepayment, Security Interest
    • Variable Rate Disclosures
      • Circumstances under which rate may increase
      • Limitation on increase
      • Effect of an increase
      • An example of the payment terms that would result from an increase
    • Practical Example (Loan with an interim period)
      • John Brown applies for a private loan. He is offered the following terms:
        • Loan Amount: $5,000
        • Origination fee: 5% of Principal Balance
        • First disbursement on September 1, 2004, in the amount of $2,500
        • Second disbursement on November 3, 2004, in the amount of $2,500
    • Practical Example
      • First payment due on December 1, 2006
      • Annual rate of interest: 5.0%
    • Subsequent Disclosure Requirements
      • Refinancing requires new disclosures
      • Workouts are not refinancings
      • No variable rate adjustment notices required
    •  
    •  
    • Miscellaneous Issues
      • Record Retention – 2 years
      • Language of Disclosures – can be in language other than English, if available in English upon request
    • Miscellaneous Issues (cont'd)
      • Electronic communication
        • Compliance is not mandatory
        • Incorporates E-Sign consent rules
        • Permits use of e-mail disclosures or disclosures posted at a website
        • E-Sign consent rules do not apply to advertising
    • Miscellaneous Issues (cont’d)
      • State Exemptions
        • Certain states have a comparable law; transactions in these states are not subject to Regulation Z
        • This exemption does not apply to federally chartered institutions
    • Advertising
      • Actually available terms
      • Finance charges must be expressed as an APR
      • Variable rate statement
      • Triggering term system
      • Catalogs/Multiple page documents
    • Triggering Term System
      • Use of following terms triggers full
      • disclosures:
      • Down payment Amount
      • Repayment Term
      • Payment Amount
      • Finance Charge Amount
    • Examples of Triggering Terms
      • Repayment Terms
        • 30 Years to Repay
        • 240 Month Payment Terms
        • But Not: “Monthly Payments” or “Take Years to Repay”
    • Examples of Triggering Terms (cont'd)
      • Payment Amount
        • “ Payable with installments of $XY”
        • “ $XXXXX Balance Payable in Y Equal Installments”
    • Examples of Triggering Terms (cont'd)
      • Finance Charge Amount
        • “ $XXXXX Total Cost of Credit”
        • “ Origination Fee of X%”
        • But Not: “No Origination Fee ”
    • Triggering Term System (cont'd)
      • If any triggering term appears in the advertisement, the following terms must be included:
        • Down payment
        • Repayment terms
        • APR and variable rate statement, if applicable
    • Disclosure of Required Terms
      • Repayment Terms
        • Generally speaking, this means the repayment schedule
        • But does not have to correspond to an exact repayment schedule
    • Disclosure of Required Terms (cont'd)
      • APR
        • Use “APR”
        • Refer to possibility of increase if variable rate
    • Disclosure of Required Terms (cont'd)
      • Use of Examples
        • Use a “Typical Transaction”
        • Call the example what it is
        • Use representative terms
    • Catalogs/Multiple Page Advertisments
      • Table or chart can be used to make required disclosures
      • Table must be clearly and conspicuously set forth
      • Text mentioning triggering terms must refer to the location of the chart
    • THE END