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Truth in Lending: 7.9.6.4 Creditor’s Collection Efforts over the Disputed Amount

The creditor cannot attempt to collect the amount in dispute or related charges prior to resolution of the alleged error.1094 This protection applies even if the ultimate resolution of the dispute is that the consumer does actually owe the disputed amount.1095 In addition to constituting a FCBA violation, an attempt to collect the disputed amount may violate state debt collection or UDAP laws.1096

Truth in Lending: 7.9.6.5.1 FCBA requirements

When a consumer enters into a billing error dispute, the Act’s restrictions on adverse credit reports come into play.1107 Once the consumer has properly notified the card issuer of a billing error, neither the creditor nor its agent may report the disputed amount as delinquent to any person, including a credit reporting agency or a collection agency. Nor may the creditor directly or indirectly threaten to make such a report.1108

Truth in Lending: 7.9.6.5.2 Fair Credit Reporting Act requirements

In addition to FCBA’s credit reporting restrictions, consumers may also have claims under the Fair Credit Reporting Act (FCRA).1118 Under the FCRA, a credit reporting agency must conduct an investigation if a consumer disputes information in the consumer’s credit report.1119 In addition, the creditor must participate in this investigation, and may be liable if it fails to do so.1120 The FCRA also requires creditors to report disputed debts as

Truth in Lending: 9.3.4.2.1 Scope of McCarran-Ferguson Act

The McCarran-Ferguson Act325 was enacted in 1945 by Congress in response to a Supreme Court case which held for the first time that an insurance company doing business across state lines engaged in interstate commerce and that the Sherman Act applied to the business of insurance.326 Prior to that time, the authority to regulate the business of insurance resided solely with the states.

Truth in Lending: 9.3.4.2.2.1 Overview

While section 1639c(d) arguably invalidates, supersedes, or impairs a state law that permits the financing of the relevant credit insurance premiums or fees,330 the McCarran-Ferguson Act only applies if the federal law does not relate specifically to insurance and if the proffered state law regulates the business of insurance.

Truth in Lending: 9.3.5.1 Overview

The Dodd-Frank Act prohibits prepayment penalties for residential mortgage loans356 that are not “qualified mortgages”357 or that have adjustable rates or APRs above a threshold.358 When prepayment penalties are permitted, they are limited in dollar amount and time.359 In order to extend credit with a prepayment penalty, creditors must offer a similar loan to the consumer.

Truth in Lending: 9.3.5.2 Prohibition of Prepayment Penalties for Certain Loans

The Dodd-Frank Act imposes a complete prohibition of prepayment penalties for certain residential mortgage loans.366 This prohibition applies to all residential mortgage loans that do not meet the definition of “qualified mortgage,” have adjustable rates, or are higher-priced mortgage loans.367 Step-rate mortgages, however, may have prepayment penalties if their APR cannot increase after consummation.368

Truth in Lending: 9.3.5.4 Requirement That Consumer Be Offered a Loan Without a Prepayment Penalty

Even when prepayment penalties are permitted, creditors must offer homeowners the option of a mortgage loan without a prepayment penalty.376 This requirement applies even when the offer of credit is extended indirectly, through a mortgage broker.377 When it is extended through a mortgage broker, creditors must both present the mortgage broker with an alternative loan without a prepayment penalty to offer to the consumer and must require the mortgage broker, by agreement, to offer either that

Truth in Lending: 9.3.6 Disclosure and Counseling for Negatively Amortizing Loans

The Dodd-Frank Act establishes disclosure and counseling requirements for loans that involve negative amortization.386 The CFPB has issued implementing regulations, effective for applications received on or after January 10, 2014, for the counseling provisions.387 The CFPB has exempted creditors from complying with the negative amortization disclosures until it adopts regulations implementing the integrated TILA-RESPA disclosures required by the Dodd-Frank Act, and those rules become mandato

Truth in Lending: 9.3.7 Periodic Statements

Periodic statements are required as of January 10, 2014, for all closed-end residential mortgage loans secured by a dwelling.399 Reverse mortgages and timeshares are exempted from this requirement, as are servicers who service fewer than 5,000 loans, all of which they own.400 Periodic statements are also unnecessary where the obligor receives a coupon book that provides the same information, including that related to delinquent accounts.401 F

Truth in Lending: 9.3.4.1 Statutory and Regulatory Ban

The Dodd-Frank Act bans creditors from financing, directly or indirectly, credit insurance and debt cancellation agreements, with an exception for certain unemployment insurance.312 In January 2013, the CFPB issued final amendments to Regulation Z implementing the ban.313 The regulations are effective for applications received on or after January 10, 2014.314 Clarifying amendments to the rules were issued in October 2013.

Truth in Lending: 9.3.8 Arbitration and Restrictions on Court Actions

The Dodd-Frank Act amends TILA by restricting forced arbitration and federal statutory waivers in connection with residential mortgage loans and open-end consumer credit plans secured by the consumer’s principal dwelling.408 The provision prohibits any terms that require arbitration or any other nonjudicial procedure as the method for resolving any controversy.409 The parties can agree to arbitration at any time after a dispute under the transaction arises.

Truth in Lending: 9.4.1 Introduction

On July 30, 2008, the Federal Reserve Board (FRB) announced expanded regulation of most loans secured by the consumer’s principal dwelling originated in most segments of the mortgage market. This rule appeared in a section of Regulation Z.428 It extended to creditors, mortgage brokers, and servicers. The rule addressed abuses related to coerced appraisals and to servicing practices involving dilatory crediting of payments, pyramiding of late fees, and tardy response to requests for payoff statements.

Truth in Lending: 9.4.2.2 Scope

The appraisal independence standards apply to all creditors as well as settlement service providers (“covered persons”)439 extending credit secured by a consumer’s principal dwelling (“covered transactions”)440 who are engaged in the process of “valuation.” Valuation, under the regulations, 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.”

Truth in Lending: 9.4.2.4 Conflicts of Interest

The Dodd-Frank Act broadly prohibits conflicts of interest.458 The implementing regulation sets slightly different rules for employees of creditors or affiliates of creditors depending upon the size of the creditor.459 The purpose gained from the prohibition in the statute seems to be considerably watered down by the permission granted to creditors to use their own employees for the valuation permitted in the regulation.

Truth in Lending: 9.4.2.5 Supervision and Compensation of Appraisers

Creditors and agents are required to compensate “fee appraisers” appropriately.467 A fee appraiser is defined as a “natural person who is a state-licensed or state-certified appraiser and receives a fee for performing an appraisal and who is not an employee of the person engaging the appraiser”468 or the organization that employs state-licensed or state-certified appraisers who are not subject to FIRREA (12 U.S.C.

Truth in Lending: 9.10.1 Introduction

Since October 1, 2009, when an FRB rule became effective, Regulation Z has addressed certain activities of mortgage servicers. The FRB’s rule1135 was issued under its authority to prohibit unfair and deceptive acts and practices in connection with mortgage loans.1136 It applies to loans secured by a principal dwelling and addresses three practices: crediting payments, providing payoff statements, and pyramiding of late fees.

Truth in Lending: 9.10.6.2 Rule Effective January 10, 2014

The Dodd-Frank Act mandates that servicers credit periodic payments on consumer credit transactions secured by a consumer’s principal dwelling as of the date of receipt.1355 Like the FRB rule, there is an exception when a delay in crediting the payment does not result in any charge to the consumer or in the reporting of negative credit information to a consumer reporting agency.1356 Also like the FRB rule, electronic payments are considered received when the servicer receives the payment

Truth in Lending: 9.10.10 Servicer Safe Harbor for Certain Loss Mitigation Plans

The Truth in Lending Act includes a safe harbor for servicers that provide certain loss mitigation plans during a finite time period, shielding the servicers from liability to any particular investor by deeming such actions as meeting the “net present value” requirement in pooling and servicing agreements. Specifically, 15 U.S.C.

Truth in Lending: 9.5.3 Coverage

The rule covers all HPMLs secured by the consumer’s principal dwelling, including purchase loans. The higher-priced mortgage regulation493 applies if the creditor received an application on or after October 1, 2009,494 except for the escrow, appraisal, prepayment, and ability-to-repay provisions.

Truth in Lending: 9.5.4.2 Ability to Repay

The creditor must evaluate the consumer’s ability to repay using the same standards set in the revised rules applicable to HOEPA loans.498 As of January 10, 2014, the relevant ability-to-repay requirements can be found in Regulation Z § 1026.43. These rules are discussed at § 9.3.3, supra.