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Truth in Lending: 9.1.3 Credit Balances Rule for Mortgage Loans

For all consumer credit transactions, including mortgage loans, TILA requires creditors to credit or otherwise refund a balance in excess of one dollar when such balance was created by a transmittal of funds in excess of the total amount due, a rebate of unearned finance charges or insurance premiums, or amounts otherwise owed to or held for the benefit of an obligor.16 The creditor is required to credit the amount to the consumer’s account, refund any part of the amount of the remaining balance upon request of the consumer, and make a good

Truth in Lending: 9.2.1 Overview

The CFPB is required under TILA to prohibit acts or practices in connection with loans that it finds to be unfair, deceptive, or designed to evade the provisions of section 1639.18 The CFPB’s authority to identify and ban unfair, deceptive, or abusive acts and practices has survived constitutional arguments that this provision is void for vagueness.19 In addition, the CFPB is to prohibit acts or practices specifically related to refinancing that it finds to be abusive or otherwise not in the

Truth in Lending: 9.2.2 Remedies for Violations of Regulations Issued Under the CFPB’s Authority to Prohibit Unfair, Deceptive, or Evasive Practices

The FRB first used its authority under then section 1639(l), now 1639(p), to issue regulations in 2008.27 Those regulations addressed a variety of servicing abuses for loans secured by the homeowner’s principal dwelling, set some basic standards for appraisals, and created a new category of higher-priced mortgages, with additional, substantive protections.28

Truth in Lending: 9.3.1 Overview; Scope; Record Retention and Monitoring Requirements

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.37 As part of the sweeping changes in this financial reform bill, Congress amended TILA in Title XIV of the Act to include a variety of substantive provisions relating to mortgage lending and servicing, and to provide for additional damages for certain of these violations.38

Truth in Lending: 9.3.2.1 Overview

Rules issued by the FRB went into effect April 1, 2011,50 and remained in effect until January 1, 2014, when new rules issued by the CFPB, under the Dodd-Frank Act, went into effect for loans with applications made on or after that date.51 The rules are similar, but not the same. Both rules generally prohibit dual compensation and compensation based on the terms of the mortgage, other than the amount of credit extended, although the CFPB’s rules have some significant exceptions.

Truth in Lending: 9.3.2.3 What Is a Mortgage Broker?

Mortgage brokers are defined separately from loan originators. The CFPB accepted, without alteration, the FRB’s definition of mortgage brokers. This definition has important implications for other areas of TILA, including whether or not a loan has HOEPA coverage.60

Truth in Lending: 9.3.2.7.1 Problems with dual compensation

As extensively documented by the Department of Housing and Urban Development, dual compensation, when the broker receives payments both from the homeowner and from a third party, leads to increased costs for the homeowner across the board and decreased transparency in pricing.101 The FRB originally proposed to regulate dual compensation through disclosure, but found that it could not eliminate the harms of dual compensation through disclosure alone.102

Truth in Lending: 9.3.2.8.1 Regulation Z steering prohibitions

Regulation Z prohibits loan originators from steering consumers to a loan based on the fact that the loan originator will receive greater compensation for that transaction from the creditor, unless the consummated transaction is in the consumer’s interest.113 This rule was adopted by the FRB in 2010, before its rulemaking authority was transferred to the Consumer Financial Protection Bureau.114

Truth in Lending: 9.3.2.9 Qualification, Registration, and Licensing of Loan Originators

Mortgage originators are now subject to a “duty of care” requirement, which mandates qualification and registration and licensing.124 Any unique identifier of a mortgage originator provided by the national registry must be provided on all loan documents.125 Practitioners may wish to request production of documents based on the unique identifier to minimize confusion between originators and to increase the provision of relevant documents.

Truth in Lending: 9.6.4.1 General

Lender attempts to avoid HOEPA coverage by undercounting the settlement charges relevant to the points and fees trigger is one of the most widespread abuses in the high-rate home equity market. For this reason, it is critical that practitioners carefully sift through the points and fees charged by the creditor to determine which can be counted toward this trigger.

Truth in Lending: 9.6.5 Prepayment Penalty Trigger

The third HOEPA trigger, added by the Dodd-Frank Act effective for applications received on or after January 10, 2014, is based on a loan’s prepayment penalty provisions.720 A loan is covered by HOEPA where it is a consumer credit transaction secured by the consumer’s principal dwelling, other than a reverse mortgage, and the terms permit the creditor to charge or collect prepayment fees or penalties more than thirty-six months after the transaction closing, or such fees or penalties exceed, in the aggregate, more than 2% of the amount bein

Truth in Lending: 9.6.6.1 Required Disclosures

The disclosure requirements applicable to covered loans are found in 15 U.S.C. § 1639.723 These disclosures do not replace the existing disclosure requirements under “regular” TILA rules found in 15 U.S.C.

Truth in Lending: 9.6.6.6 Tolerances

The APR disclosed in the HOEPA notice must be accurate to within the usual tolerance of 1/8 of 1% for regular transactions and 1/4 of 1% for irregular transactions and the finance charge cannot be understated by more than $100.756 An overdisclosure is not actionable if the overdisclosure is based upon a misallocation of the finance charge. The tolerance rules applicable to rescissions do not affect the APR disclosure on the HOEPA notice, however.

Truth in Lending: 9.6.6.7 Additional Inconsistent Information

Some lenders may add information to the HOEPA notice or may include a separate notice or letter when the HOEPA notice is provided. While a lender can provide more information than required by law, the additional verbiage, if inconsistent with the required language, may violate the clear and conspicuous requirement in 15 U.S.C.