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Truth in Lending: 5.9.8 Disclosure of Insurance Charges and Debt Cancellation Agreements

Several types of insurance and debt cancellation agreements are commonly sold by a creditor in connection with a credit transaction (credit life insurance, credit disability insurance, and credit property insurance).630 While the Dodd-Frank Act banned the financing of single premium credit insurance or debt cancellation agreements for closed-end mortgages,631 insurance with monthly premiums and credit unemployment insurance may still be sold in connection with mortgages, and there is no gene

Truth in Lending: 5.9.9 Disclosure of Security Interest Charges

A creditor will often impose a variety of charges allegedly to help perfect its security interest in the consumer’s property. Ordinarily, those charges must be included in the finance charge.642 However, as with credit insurance,643 some of those charges may be excluded from the finance charge if they are correctly itemized and disclosed.644 If the disclosures are made properly, the premiums may be included in the amount financed.

Truth in Lending: 5.9.11 Disclosure of Mortgage Lenders’ Assumption Policy

In a residential mortgage transaction,661 one important factor that could presumably affect the consumer’s decision to enter into the transaction is the creditor’s assumption policy, that is, whether the creditor will allow the next purchaser of the house or manufactured home to assume the payments of the original transaction without any increase in the term, interest rate, or payment amounts.

Truth in Lending: 5.9.12 Disclosure of Required Deposits

Occasionally a creditor will require a consumer to maintain a deposit account (frequently with itself) as a condition of the transaction. For example, a bank might require a loan applicant to open and maintain a $500 savings account as a condition of the loan.

Truth in Lending: 5.10.1.2 Format Requirements

Advertisements are subject to a clear and conspicuous requirement.692 For closed-end transactions not secured by a dwelling, no particular format is prescribed.693 For advertisements related to mortgage loans on or after October 1, 2009, certain terms must be disclosed in larger type than others or must be grouped together.694 There are additional rules for catalogs, multiple page advertisements, and electronic advertisements,

Truth in Lending: 5.10.1.3 Interest Rate or APR?

Generally, if a creditor states a rate for the finance charge it must express it as annual percentage rate.697 If the creditor responds orally to an inquiry about the cost of the credit, it also must state rates expressed as an annual percentage rate; but if the major component of the finance charge consists of interest calculated at a simple interest rate, the creditor also may state the simple annual rate.698 If the interest rate or APR may increase, the advertisement must state that fact.

Truth in Lending: 5.10.1.4 Application of Advertising Rules to Mortgages

The rules pertaining to written or visual advertisements related to closed-end loans do not apply to advertisements of “residential real estate,” unless the CFPB says otherwise by regulation.700 This language appears intended to exempt advertisements for the real estate itself, not advertisements for mortgage loans, and the Regulation Z advertising rule includes many specific rules for advertisement of mortgage loans.701 By contrast, TILA defines a “residential mortgage transaction” as a pur

Truth in Lending: 5.10.2.1 Tax Deductibility Disclosures

In 2005, Congress amended the Act to augment the advertising rules for open-end and closed-end transactions secured by the principal residence of the homeowner in which the extension of credit may exceed the fair market value of the dwelling.705 On July 30, 2008, the FRB issued a final regulation to implement this statutory provision.706 This regulation is applicable to advertising on or after October 1, 2009.

Truth in Lending: 5.11.2.4 CFPB Compliance Resources

The primary sources to review in order to understand and apply these new rules are the relevant provisions of Regulation Z, the related official interpretations, and the supplementary information accompanying the final rule. For secondary sources, the CFPB maintains a website with links to other compliance resources.814 The following resources are housed at that site:

Truth in Lending: 5.11.2.5 Trial Disclosure Program

The Dodd-Frank Act grants the CFPB authority to allow a covered person to conduct a trial program for the purpose of providing trial disclosures to consumers that are designed to improve upon any model form issued by the agency, so long as the program is limited in time and scope and is subject to specified standards and procedures.823 In 2013, the CFPB exercised its authority and announced its “Policy to Encourage Trial Disclosure Programs.”824 This policy is addressed more fully in

Truth in Lending: 5.11.2.7.4 “Projected Payments” section

A separate table under the heading “Projected Payments” must appear on the first page of the loan estimate form underneath the “Loan Terms.” This information includes an itemization of each separate periodic payment or range of payments with an estimate of the taxes, insurance, assessments, and the payments to be made with escrow account funds.856 A periodic payment is the regularly scheduled payment of principal and interest, mortgage insurance premiums, and escrow payments without regard to any final payment that differs from other paymen

Truth in Lending: 5.11.2.7.6.1 General

Using the master heading “Closing Cost Details,” page two of the loan estimate form must contain an itemization of all estimated loan costs associated with the transaction881 broken down into three subheadings, unless the payments and/or interest rate will vary: “Loan Costs”; “Other Costs”; and, “Calculating Cash to Close.”882 If the payments and/or interest rate will change, the “Closing Cost Details” must include an “Adjustable Payment (AP) Table” and/or an “Adjustable Interest Rate (AIR)

Truth in Lending: 5.11.2.7.6.2 “Loan Costs” subsection

Under the heading “Loan Costs,” the creditor must itemize each amount into the following categories: “Origination Charges”; “Services You Cannot Shop For”; and, “Services You Can Shop For.”884 Following this listing, the creditor must total these charges and place the total under “Total Loan Costs.”885 All charges, other than points (see next paragraph) must be listed in alphabetical order by their labels under the applicable subheading.886 T

Truth in Lending: 5.11.2.7.6.3 “Other Costs” subsection

The heading “Other Costs” includes all costs associated with the transaction that do not fit under “Origination Charges,” “Services You Cannot Shop For,” or “Services You Can Shop For.”911 These charges represent services “that are ancillary to the creditor’s decision to evaluate the collateral and the consumer for the loan.”912 This section of the loan estimate form breaks the closing costs into four categories: “Taxes and Other Government Fees”; “Prepaids”; “Initial Escrow Payment at Closi

Truth in Lending: 5.11.2.7.6.4 “Calculating Cash to Close” subsection

Next, the creditor must disclose the total amount of cash or other funds that must be brought to the closing under the “Calculating Cash to Close” heading on page two of the loan estimate form.929 There, the first line contains the “Total Closing Costs” (previously listed), followed by the “Closing Costs to be Financed” on line two.

Truth in Lending: 5.11.2.7.6.5 “Adjustable Payment (AP) Table” subsection

If the periodic principal and interest payments may change after consummation but the change is not due to an adjustment of the interest rate (or if the product is a seasonal payment product), the “Adjustable Payment (AP) Table” subsection must appear under the “Closing Cost Details” master heading.946 If the transaction does not contain such loan terms, the table must not be included.947 For example, the table is not included where the loan contains a fixed interest rate and does not contai