NCHELP  TRAINING  CONFERENCE Overview and Practical Application of Regulation Z November 5, 2007 Presented By:  Bennet S. ...
Truth-In-Lending  Act/Regulation Z Definitions  <ul><li>Credit </li></ul><ul><li>Consumer Credit </li></ul><ul><li>Open-en...
Credit/Consumer Credit <ul><li>CREDIT </li></ul><ul><li>The right to incur payment of debt or to </li></ul><ul><li>incur d...
Open-End/Closed-End Credit <ul><li>Open-end credits is credit where the creditor reasonably anticipates repeated advances,...
Open-End/Closed-End Credit (cont’d) <ul><li>Closed-end is every other type of credit </li></ul><ul><li>Home equity lines o...
Multiple Advance Loans <ul><li>Borrower can “draw” up to a stated maximum amount </li></ul><ul><li>Borrower can/must take ...
Multiple Advance Loans (cont’d) <ul><li>Closed-end or open-end? </li></ul><ul><li>Can borrower take more than one advance?...
Reusable  Line Feature <ul><li>A true open-end plan has an unlimited amount of total credit extended-use; repay; use again...
Reusable Line Feature  (cont’d) <ul><li>EXAMPLE:  Creditor agrees to lend a total of $10,000 in a series of advances as ag...
Consequences of Mischaracterizing Closed-End Credit <ul><li>Open-end disclosure is not accurate </li></ul><ul><li>No close...
Creditor <ul><li>A person who regularly extend credit that is subject to a finance charge or is payable by written agreeme...
Exemptions <ul><li>Extensions of credit > $25,000 unless secured by the consumer’s dwelling </li></ul><ul><li>Business pur...
Finance Charge <ul><li>The cost of credit expressed as a dollar amount </li></ul><ul><li>All charges not also incurred in ...
Examples of Finance Charges <ul><li>Interest </li></ul><ul><li>Points </li></ul><ul><li>Credit report fees/application fee...
Disclosure Requirements <ul><li>Retainable by consumer </li></ul><ul><li>Given to the consumer before consummation </li></...
Closed-End Disclosure Statements <ul><li>Must be provided to borrower before consummation </li></ul><ul><li>Consummation i...
Disclosure Requirements <ul><li>Clear and Conspicuous </li></ul><ul><li>Retainable by consumer </li></ul><ul><li>Given to ...
Disclosure Requirements (cont’d) <ul><li>Estimates can be used for unknown information </li></ul><ul><li>Minor variables i...
Contents of Disclosures <ul><li>Creditor  </li></ul><ul><li>Payment Schedule </li></ul><ul><li>Itemization of Amount Finan...
Contents of Disclosures (cont’d) <ul><li>APR, Total of Payments </li></ul><ul><li>Variable Rate Information </li></ul><ul>...
Annual Percentage Rate (APR) <ul><li>Finance charge expressed as a percentage </li></ul><ul><li>APR typically exceeds cont...
Variable Rate Disclosures <ul><li>Circumstances under which rate may increase </li></ul><ul><li>Limitation on increase </l...
Special Disclosure Rules <ul><li>Mail/Telephone Orders </li></ul><ul><li>Interim Student Loans </li></ul>
Mail/Telephone Orders <ul><li>Disclosure is delayed until due date of first payment </li></ul><ul><li>Representative amoun...
Mail/Telephone Orders (cont’d) <ul><li>Principal loan amount </li></ul><ul><li>Finance Charge </li></ul><ul><li>APR; varia...
Interim Student Loans <ul><li>Origination Disclosure and Repayment Disclosure </li></ul><ul><li>Origination Disclosure del...
Contents of Disclosures <ul><li>Creditor </li></ul><ul><li>Payment Schedule </li></ul><ul><li>Itemization of Amount Financ...
Variable Rate Disclosures <ul><li>Circumstances under which rate may increase </li></ul><ul><li>Limitation on increase </l...
Practical Example (Loan with an interim period) <ul><li>John Brown applies for a private loan.  He is offered the followin...
Practical Example <ul><li>First payment due on December 1, 2006 </li></ul><ul><li>Annual rate of interest:  5.0% </li></ul>
Subsequent Disclosure Requirements <ul><li>Refinancing requires new disclosures </li></ul><ul><li>Workouts are not refinan...
 
 
Miscellaneous Issues <ul><li>Record Retention – 2 years </li></ul><ul><li>Language of Disclosures – can be in language oth...
Miscellaneous Issues (cont'd) <ul><li>Electronic communication </li></ul><ul><ul><li>Compliance is not mandatory </li></ul...
Miscellaneous Issues (cont’d) <ul><li>State Exemptions </li></ul><ul><ul><li>Certain states have a comparable law; transac...
Advertising <ul><li>Actually available terms </li></ul><ul><li>Finance charges must be expressed as an APR </li></ul><ul><...
Triggering Term System <ul><li>Use of following terms triggers full </li></ul><ul><li>disclosures: </li></ul><ul><li>Down ...
Examples of Triggering Terms <ul><li>Repayment Terms </li></ul><ul><ul><li>30 Years to Repay </li></ul></ul><ul><ul><li>24...
Examples of Triggering Terms (cont'd) <ul><li>Payment Amount </li></ul><ul><ul><li>“ Payable with installments of $XY” </l...
Examples of Triggering Terms (cont'd) <ul><li>Finance Charge Amount </li></ul><ul><ul><li>“ $XXXXX Total Cost of Credit” <...
Triggering Term System (cont'd) <ul><li>If any triggering term appears in the advertisement, the following terms must be i...
Disclosure of Required Terms <ul><li>Repayment Terms </li></ul><ul><ul><li>Generally speaking, this means the repayment sc...
Disclosure of Required Terms (cont'd) <ul><li>APR </li></ul><ul><ul><li>Use “APR” </li></ul></ul><ul><ul><li>Refer to poss...
Disclosure of Required Terms (cont'd) <ul><li>Use of Examples </li></ul><ul><ul><li>Use a “Typical Transaction” </li></ul>...
Catalogs/Multiple Page Advertisments <ul><li>Table or chart can be used to make required disclosures </li></ul><ul><li>Tab...
THE END
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  1. 1. 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
  2. 2. Truth-In-Lending Act/Regulation Z Definitions <ul><li>Credit </li></ul><ul><li>Consumer Credit </li></ul><ul><li>Open-end/Closed-end </li></ul><ul><li>Creditor </li></ul>
  3. 3. Credit/Consumer Credit <ul><li>CREDIT </li></ul><ul><li>The right to incur payment of debt or to </li></ul><ul><li>incur debt and defer its payment </li></ul><ul><li>CONSUMER CREDIT </li></ul><ul><li>Credit offered or extended to a consumer primarily for personal, family or household purposes </li></ul>
  4. 4. Open-End/Closed-End Credit <ul><li>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 </li></ul>
  5. 5. Open-End/Closed-End Credit (cont’d) <ul><li>Closed-end is every other type of credit </li></ul><ul><li>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 </li></ul>
  6. 6. Multiple Advance Loans <ul><li>Borrower can “draw” up to a stated maximum amount </li></ul><ul><li>Borrower can/must take all proceeds in increments </li></ul><ul><li>Creditor is obligated to make subsequent advances if borrower is not in default </li></ul>
  7. 7. Multiple Advance Loans (cont’d) <ul><li>Closed-end or open-end? </li></ul><ul><li>Can borrower take more than one advance? </li></ul><ul><li>Is there a right to re-borrow? </li></ul>
  8. 8. Reusable Line Feature <ul><li>A true open-end plan has an unlimited amount of total credit extended-use; repay; use again </li></ul><ul><li>This is different from a series of advances made pursuant to a closed-end credit loan commitment </li></ul>
  9. 9. Reusable Line Feature (cont’d) <ul><li>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 </li></ul>
  10. 10. Consequences of Mischaracterizing Closed-End Credit <ul><li>Open-end disclosure is not accurate </li></ul><ul><li>No closed-end disclosure </li></ul><ul><li>RESULT: Failure to make any relevant disclosure </li></ul>
  11. 11. Creditor <ul><li>A person who regularly extend credit that is subject to a finance charge or is payable by written agreement in more than 4 installments </li></ul><ul><li>“ Regularly extends credit” = 25 times per calendar year </li></ul>
  12. 12. Exemptions <ul><li>Extensions of credit > $25,000 unless secured by the consumer’s dwelling </li></ul><ul><li>Business purpose transactions </li></ul><ul><li>Higher Education Act Title IV Loan Programs </li></ul>
  13. 13. Finance Charge <ul><li>The cost of credit expressed as a dollar amount </li></ul><ul><li>All charges not also incurred in a comparable cash transaction are included (unless excluded by Regulation Z) </li></ul>
  14. 14. Examples of Finance Charges <ul><li>Interest </li></ul><ul><li>Points </li></ul><ul><li>Credit report fees/application fees (unless charged to all applicants, approved or denied) </li></ul>
  15. 15. Disclosure Requirements <ul><li>Retainable by consumer </li></ul><ul><li>Given to the consumer before consummation </li></ul><ul><li>Reflect legal obligation of the consumer </li></ul><ul><li>Estimates can be used for unknown information </li></ul><ul><li>Minor variables in timing and amount can be ignored </li></ul>
  16. 16. Closed-End Disclosure Statements <ul><li>Must be provided to borrower before consummation </li></ul><ul><li>Consummation is determined by state law </li></ul><ul><li>Disclosure at Disbursement: Is this sufficient? </li></ul>
  17. 17. Disclosure Requirements <ul><li>Clear and Conspicuous </li></ul><ul><li>Retainable by consumer </li></ul><ul><li>Given to the consumer before consummation </li></ul><ul><li>Reflect legal obligation of the consumer </li></ul>
  18. 18. Disclosure Requirements (cont’d) <ul><li>Estimates can be used for unknown information </li></ul><ul><li>Minor variables in timing and amount can be ignored </li></ul>
  19. 19. Contents of Disclosures <ul><li>Creditor </li></ul><ul><li>Payment Schedule </li></ul><ul><li>Itemization of Amount Financed </li></ul><ul><li>Fed Box: Amount Financed, Finance Charge </li></ul>
  20. 20. Contents of Disclosures (cont’d) <ul><li>APR, Total of Payments </li></ul><ul><li>Variable Rate Information </li></ul><ul><li>Late Charge, Prepayment, Security Interest </li></ul>
  21. 21. Annual Percentage Rate (APR) <ul><li>Finance charge expressed as a percentage </li></ul><ul><li>APR typically exceeds contract rate </li></ul><ul><li>Appendix J- Calculation Rules </li></ul>
  22. 22. Variable Rate Disclosures <ul><li>Circumstances under which rate may increase </li></ul><ul><li>Limitation on increase </li></ul><ul><li>Effect of an increase </li></ul><ul><li>An example of the payment terms that would result from an increase </li></ul>
  23. 23. Special Disclosure Rules <ul><li>Mail/Telephone Orders </li></ul><ul><li>Interim Student Loans </li></ul>
  24. 24. Mail/Telephone Orders <ul><li>Disclosure is delayed until due date of first payment </li></ul><ul><li>Representative amounts or ranges of certain information is made available in writing to the consumer before actual order </li></ul>
  25. 25. Mail/Telephone Orders (cont’d) <ul><li>Principal loan amount </li></ul><ul><li>Finance Charge </li></ul><ul><li>APR; variable rate information, if applicable </li></ul><ul><li>Repayment Terms </li></ul>
  26. 26. Interim Student Loans <ul><li>Origination Disclosure and Repayment Disclosure </li></ul><ul><li>Origination Disclosure deletes finance charge, payment schedule, total of payments </li></ul><ul><li>These items are not known at disbursement because beginning of repayment period is not known </li></ul>
  27. 27. Contents of Disclosures <ul><li>Creditor </li></ul><ul><li>Payment Schedule </li></ul><ul><li>Itemization of Amount Financed </li></ul><ul><li>Fed Box: Amount Financed, Finance Charge </li></ul><ul><li>APR, Total of Payments </li></ul><ul><li>Variable Rate Information </li></ul><ul><li>Late Charge, Prepayment, Security Interest </li></ul>
  28. 28. Variable Rate Disclosures <ul><li>Circumstances under which rate may increase </li></ul><ul><li>Limitation on increase </li></ul><ul><li>Effect of an increase </li></ul><ul><li>An example of the payment terms that would result from an increase </li></ul>
  29. 29. Practical Example (Loan with an interim period) <ul><li>John Brown applies for a private loan. He is offered the following terms: </li></ul><ul><ul><li>Loan Amount: $5,000 </li></ul></ul><ul><ul><li>Origination fee: 5% of Principal Balance </li></ul></ul><ul><ul><li>First disbursement on September 1, 2004, in the amount of $2,500 </li></ul></ul><ul><ul><li>Second disbursement on November 3, 2004, in the amount of $2,500 </li></ul></ul>
  30. 30. Practical Example <ul><li>First payment due on December 1, 2006 </li></ul><ul><li>Annual rate of interest: 5.0% </li></ul>
  31. 31. Subsequent Disclosure Requirements <ul><li>Refinancing requires new disclosures </li></ul><ul><li>Workouts are not refinancings </li></ul><ul><li>No variable rate adjustment notices required </li></ul>
  32. 34. Miscellaneous Issues <ul><li>Record Retention – 2 years </li></ul><ul><li>Language of Disclosures – can be in language other than English, if available in English upon request </li></ul>
  33. 35. Miscellaneous Issues (cont'd) <ul><li>Electronic communication </li></ul><ul><ul><li>Compliance is not mandatory </li></ul></ul><ul><ul><li>Incorporates E-Sign consent rules </li></ul></ul><ul><ul><li>Permits use of e-mail disclosures or disclosures posted at a website </li></ul></ul><ul><ul><li>E-Sign consent rules do not apply to advertising </li></ul></ul>
  34. 36. Miscellaneous Issues (cont’d) <ul><li>State Exemptions </li></ul><ul><ul><li>Certain states have a comparable law; transactions in these states are not subject to Regulation Z </li></ul></ul><ul><ul><li>This exemption does not apply to federally chartered institutions </li></ul></ul>
  35. 37. Advertising <ul><li>Actually available terms </li></ul><ul><li>Finance charges must be expressed as an APR </li></ul><ul><li>Variable rate statement </li></ul><ul><li>Triggering term system </li></ul><ul><li>Catalogs/Multiple page documents </li></ul>
  36. 38. Triggering Term System <ul><li>Use of following terms triggers full </li></ul><ul><li>disclosures: </li></ul><ul><li>Down payment Amount </li></ul><ul><li>Repayment Term </li></ul><ul><li>Payment Amount </li></ul><ul><li>Finance Charge Amount </li></ul>
  37. 39. Examples of Triggering Terms <ul><li>Repayment Terms </li></ul><ul><ul><li>30 Years to Repay </li></ul></ul><ul><ul><li>240 Month Payment Terms </li></ul></ul><ul><ul><li>But Not: “Monthly Payments” or “Take Years to Repay” </li></ul></ul>
  38. 40. Examples of Triggering Terms (cont'd) <ul><li>Payment Amount </li></ul><ul><ul><li>“ Payable with installments of $XY” </li></ul></ul><ul><ul><li>“ $XXXXX Balance Payable in Y Equal Installments” </li></ul></ul>
  39. 41. Examples of Triggering Terms (cont'd) <ul><li>Finance Charge Amount </li></ul><ul><ul><li>“ $XXXXX Total Cost of Credit” </li></ul></ul><ul><ul><li>“ Origination Fee of X%” </li></ul></ul><ul><ul><li>But Not: “No Origination Fee ” </li></ul></ul>
  40. 42. Triggering Term System (cont'd) <ul><li>If any triggering term appears in the advertisement, the following terms must be included: </li></ul><ul><ul><li>Down payment </li></ul></ul><ul><ul><li>Repayment terms </li></ul></ul><ul><ul><li>APR and variable rate statement, if applicable </li></ul></ul>
  41. 43. Disclosure of Required Terms <ul><li>Repayment Terms </li></ul><ul><ul><li>Generally speaking, this means the repayment schedule </li></ul></ul><ul><ul><li>But does not have to correspond to an exact repayment schedule </li></ul></ul>
  42. 44. Disclosure of Required Terms (cont'd) <ul><li>APR </li></ul><ul><ul><li>Use “APR” </li></ul></ul><ul><ul><li>Refer to possibility of increase if variable rate </li></ul></ul>
  43. 45. Disclosure of Required Terms (cont'd) <ul><li>Use of Examples </li></ul><ul><ul><li>Use a “Typical Transaction” </li></ul></ul><ul><ul><li>Call the example what it is </li></ul></ul><ul><ul><li>Use representative terms </li></ul></ul>
  44. 46. Catalogs/Multiple Page Advertisments <ul><li>Table or chart can be used to make required disclosures </li></ul><ul><li>Table must be clearly and conspicuously set forth </li></ul><ul><li>Text mentioning triggering terms must refer to the location of the chart </li></ul>
  45. 47. THE END

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