CFPB Laws and Regulations TILA

CFPB

Laws and Regulations TILA

CFPB April 2015 TILA 1

Truth in Lending Act

The Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., was enacted on May 29, 1968, as title

I of the Consumer Credit Protection Act (Pub. L. 90-321). The TILA, implemented by

Regulation Z (12 CFR 1026), became effective July 1, 1969.

The TILA was first amended in 1970 to prohibit unsolicited credit cards. Additional major

amendments to the TILA and Regulation Z were made by the Fair Credit Billing Act of 1974, the

Consumer Leasing Act of 1976, the Truth in Lending Simplification and Reform Act of 1980,

the Fair Credit and Charge Card Disclosure Act of 1988, the Home Equity Loan Consumer

Protection Act of 1988.

Regulation Z also was amended to implement section 1204 of the Competitive Equality Banking

Act of 1987, and in 1988, to include adjustable rate mortgage loan disclosure requirements. All

consumer leasing provisions were deleted from Regulation Z in 1981 and transferred to

Regulation M (12 CFR 1013).

The Home Ownership and Equity Protection Act of 1994 (HOEPA) amended the TILA. The law

imposed new disclosure requirements and substantive limitations on certain closed-end mortgage

loans bearing rates or fees above a certain percentage or amount. The law also included new

disclosure requirements to assist consumers in comparing the costs and other material

considerations involved in a reverse mortgage transaction and authorized the Federal Reserve

Board to prohibit specific acts and practices in connection with mortgage transactions.

The TILA amendments of 1995 dealt primarily with tolerances for real estate secured credit.

Regulation Z was amended on September 14, 1996 to incorporate changes to the TILA.

Specifically, the revisions limit lenders’ liability for disclosure errors in real estate secured loans

consummated after September 30, 1995. The Economic Growth and Regulatory Paperwork

Reduction Act of 1996 further amended the TILA. The amendments were made to simplify and

improve disclosures related to credit transactions.

The Electronic Signatures in Global and National Commerce Act (the E-Sign Act), 15 U.S.C.

7001 et seq., was enacted in 2000 and did not require implementing regulations. On November

9, 2007, amendments to Regulation Z and the official commentary were issued to simplify the

regulation and provide guidance on the electronic delivery of disclosures consistent with the

E-Sign Act.

In July 2008, Regulation Z was amended to protect consumers in the mortgage market from

unfair, abusive, or deceptive lending and servicing practices. Specifically, the change applied

protections to a newly defined category of “higher-priced mortgage loans” that includes virtually

all closed-end subprime loans secured by a consumer’s principal dwelling. The revisions also

applied new protections to mortgage loans secured by a dwelling, regardless of loan price, and

required the delivery of early disclosures for more types of transactions. The revisions also

These reflect FFIEC-approved procedures.

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banned several advertising practices deemed deceptive or misleading. The Mortgage Disclosure

Improvement Act of 2008 (MDIA) broadened and added to the requirements of the Board’s July

2008 final rule by requiring early Truth in Lending disclosures for more types of transactions and

by adding a waiting period between the time when disclosures are given and consummation of

the transaction. In 2009, Regulation Z was amended to address those provisions. The MDIA also

requires disclosure of payment examples if the loan’s interest rate or payments can change, as

well as disclosure of a statement that there is no guarantee the consumer will be able to refinance

in the future. In 2010, Regulation Z was amended to address these provisions, which became

effective on January 30, 2011.

In December 2008, the Board adopted two final rules pertaining to open-end (not home-secured)

credit. The first rule involved Regulation Z revisions and made comprehensive changes applicable

to several disclosures required for: applications and solicitations, new accounts, periodic

statements, change in terms notifications, and advertisements. The second was a rule published

under the Federal Trade Commission (FTC) Act and was issued jointly with the Office of Thrift

Supervision and the National Credit Union Administration. It sought to protect consumers from

unfair acts or practices with respect to consumer credit card accounts. Before these rules became

effective, however, the Credit Card Accountability Responsibility and Disclosure Act of 2009

(Credit CARD Act) amended the TILA and established a number of new requirements for open-

end consumer credit plans. Several provisions of the Credit CARD Act are similar to provisions in

the Board’s December 2008 TILA revisions and the joint FTC Act rule, but other portions of the

Credit CARD Act address practices or mandate disclosures that were not addressed in these rules.

In light of the Credit CARD Act, the Board, NCUA, and OTS withdrew the substantive

requirements of the joint FTC Act rule. On July 1, 2010, compliance with the provisions of the

Board’s rule that were not impacted by the Credit CARD Act became effective.

The Credit CARD Act provisions became effective in three stages. The provisions effective first

(August 20, 2009) required creditors to increase the amount of notice consumers receive before the

rate on a credit card account is increased or a significant change is made to the account’s terms.

These amendments also allowed consumers to reject such increases and changes by informing the

creditor before the increase or change goes into effect. The provisions effective next (February 22,

2010) involved rules regarding interest rate increases, over-the-limit transactions, and student

cards. Finally, the provisions effective last (August 22, 2010) addressed the reasonableness and

proportionality of penalty fees and charges and re-evaluation of rate increases.

In 2009, Regulation Z was amended following the passage of the Higher Education Opportunity

Act (HEOA) by adding disclosure and timing requirements that apply to lenders making private

education loans.

In 2009, the Helping Families Save Their Homes Act amended the TILA to establish a new

requirement for notifying consumers of the sale or transfer of their mortgage loans. The

purchaser or assignee that acquires the loan must provide the required disclosures no later than

30 days after the date on which it acquired the loan.

In 2010, the Board further amended Regulation Z to prohibit payment to a loan originator that is

based on the terms or conditions of the loan, other than the amount of credit extended. The

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amendment applies to mortgage brokers and the companies that employ them, as well as to

mortgage loan officers employed by depository institutions and other lenders. In addition, the

amendment prohibits a loan originator from directing or “steering” a consumer to a loan that is

not in the consumer’s interest to increase the loan originator’s compensation.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)

amended the TILA to include several provisions that protect the integrity of the appraisal process

when a consumer’s home is securing the loan. The rule also requires that appraisers receive

customary and reasonable payments for their services. The appraiser and loan originator

compensation requirements had a mandatory compliance date of April 6, 2011.

The Dodd-Frank Act generally granted rulemaking authority under the TILA to the Consumer

Financial Protection Bureau (CFPB).

Title XIV of the Dodd-Frank Act included a number of

amendments to the TILA, and in 2013, the CFPB issued rules to implement them. Prohibitions on

mandatory arbitration and waivers of consumer rights, as well as requirements that lengthen the

time creditors must maintain an escrow account for higher-priced mortgage loans, were generally

effective June 1, 2013. The remaining amendments to Regulation Z were effective in January

2014.

These amendments include ability-to-repay requirements for mortgage loans, appraisal

requirements for higher-priced mortgage loans, a revised and expanded test for high-cost

mortgages, as well as additional restrictions on those loans, expanded requirements for servicers of

mortgage loans, refined loan originator compensation rules and loan origination qualification

standards, and a prohibition on financing credit insurance for mortgage loans. The amendments

also established new record retention requirements for certain provisions of the TILA. On October

22, 2014, the CFPB issued a final rule providing an alternative small servicer definition for

nonprofit entities and amended ability to repay exemption for nonprofit entities. The final rule also

provided a cure mechanism for the points and fees limit that applies to qualified mortgages. The

final rule was effective on November 3, 2014, except for one provision that will be effective on

August 1, 2015.

In 2013, the CFPB also revised several open-end credit provisions in Regulation Z. The CFPB

revised the general limitation on the total amount of account fees that a credit card issuer may

require a consumer to pay. Effective March 28, 2013, the limit is 25 percent of the credit limit in

effect when the account is opened and applies only during the first year after account opening. The

CFPB also amended Regulation Z to remove the requirement that card issuers consider the

consumer’s independent ability to pay for applicants who are 21 or older and to permit issuers to

consider income and assets to which such consumers have a reasonable expectation of access. This

change was effective May 3, 2013, with a mandatory compliance date of November 4, 2013.

In 2013, the CFPB further amended Regulation Z as well as Regulation X, the regulation

implementing the Real Estate Settlement Procedures Act (RESPA), to fulfill the mandate in the

The amendment to 12 CFR 1026.35(e) was effective July 24, 2013; the amendments to section 12 CFR 1026.35(b)(2)(iii),

1026.36(a), (b), and (j), and commentary to section 1026.25(c)(2), 1026.35, and 1026.36(a), (b), (d), and (f) in Supp. I to Part

1026, were effective January 1, 2014. These FFIEC examination procedures cover amendments to Regulation Z that were issued by

the CFPB in final form as of January 20, 2015.

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Dodd-Frank Act to integrate the mortgage disclosures under TILA and RESPA sections 4 and 5.

Regulation Z now contains two new forms required for most closed-end consumer mortgage

loans. The Loan Estimate is provided within three business days from application, and the

Closing Disclosure is provided to consumers three business days before loan consummation.

These disclosures must be used for mortgage loans for which the creditor or mortgage broker

receives an application on or after August 1, 2015.

Format of Regulation Z

The rules creditors must follow differ depending on whether the creditor is offering open-end

credit, such as credit cards or home-equity lines, or closed-end credit, such as car loans or

mortgages.

Subpart A (sections 1026.1 through 1026.4) of the regulation provides general information that

applies to open-end and closed-end credit transactions. It sets forth definitions (§1026.2) and

stipulates which transactions are covered and which are exempt from the regulation (§1026.3). It

also contains the rules for determining which fees are finance charges (§1026.4).

Subpart B (sections 1026.5 through 1026.16) relates to open-end credit. It contains rules on

account-opening disclosures (§1026.6) and periodic statements (§§1026.7-8). It also describes

special rules that apply to credit card transactions, treatment of payments (§1026.10).and credit

balances (§1026.11), procedures for resolving credit billing errors (§1026.13), annual percentage

rate calculations (§1026.14), rescission rights (§1026.15), and advertising (§1026.16).

Subpart C (sections 1026.17 through 1026.24) relates to closed-end credit. It contains rules on

disclosures (§§1026.17 - 20), treatment of credit balances (§1026.21), annual percentage rate

calculations (§1026.22), rescission right (§1026.23), and advertising (§1026.24).

Subpart D (sections 1026.25 through 1026.30) contain rules on oral disclosures (§1026.26),

disclosures in languages other than English (§1026.27), record retention (§1026.25), effect on

state laws (§1026.28), state exemptions (§1026.29), and rate limitations (§1026.30).

Subpart E (sections 1026.31 through 1026.45) Subpart E contains special rules for mortgage

transactions. The rules require certain disclosures and provide limitations for closed-end credit

transactions and open-end credit plans that have rates or fees above specified amounts or certain

prepayment penalties (§1026.32). Special disclosures are also required, including the total annual

loan cost rate, for reverse mortgage transactions (§1026.33). The rules also prohibit specific acts

and practices in connection with high-cost mortgages, as defined in 12 CFR 1026.32(a),

(§1026.34); in connection with closed-end higher-priced mortgage loans, as defined in 12 CFR

There are additional regulations that take effect on August 1, 2015, regardless of whether an application has been received on

that date. Specifically, the rule restricts the imposition of fees on a consumer before the consumer has received the Loan Estimate

and indicated an intent to proceed, providing a consumer with a written estimate of terms or costs (prior to providing the Loan

Estimate) without also providing a written statement informing the consumer that the terms or costs may change. The rule also

restricts a creditor from requiring the submission of documents verifying information related to the consumer’s application before

providing the Loan Estimate.

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1026.35(a), (§1026.35); and in connection with an extension of credit secured by a dwelling

(§1026.36). Disclosure requirements, effective August 1, 2015, for most closed-end transactions

secured by real property, as required by 12 CFR 1026.19(e) and (f) are also provided

(§§1026.37-38).

Subpart F (sections 1026.46 through 1026.48) relates to private education loans. It contains

rules on disclosures (§1026.46), limitations on changes in terms after approval (§1026.48), the

right to cancel the loan (§1026.47), and limitations on co-branding in the marketing of private

education loans (§1026.48).

Subpart G (sections 1026.51 through 1026.60) relates to credit card accounts under an open-end

(not home-secured) consumer credit plan (except for §1026.57(c), which applies to all open-end

credit plans). This subpart contains rules regarding credit and charge card application and

solicitation disclosures (§1026.60). It also contains rules on evaluation of a consumer’s ability to

make the required payments under the terms of an account (§1026.51), limits the fees that a

consumer can be required to pay (§1026.52), and contains rules on allocation of payments in

excess of the minimum payment (§1026.53). It also sets forth certain limitations on the imposition

of finance charges as the result of a loss of a grace period (§1026.54), and on increases in annual

percentage rates, fees, and charges for credit card accounts (§1026.55), including the reevaluation

of rate increases (§1026.59). This subpart prohibits the assessment of fees or charges for over-the-

limit transactions unless the consumer affirmatively consents to the creditor’s payment of over-the-

limit transactions (§1026.56). This subpart also sets forth rules for reporting and marketing of

college student open-end credit (§1026.57). Finally, it sets forth requirements for the Internet

posting of credit card accounts under an open-end (not home-secured) consumer credit plan

(§1026.58).

Several appendices contain information such as the procedures for determinations about state

laws, state exemptions and issuance of official interpretations, special rules for certain kinds of

credit plans, model disclosure forms, standards for determining ability to pay, and the rules for

computing annual percentage rates in closed-end credit transactions and total-annual-loan-cost

rates for reverse mortgage transactions.

Official interpretations of the regulation are published in a commentary. Good faith compliance

with the commentary protects creditors from civil liability under the TILA. In addition, the

commentary includes more detailed information on disclosures or other actions required of

creditors. It is virtually impossible to comply with Regulation Z without reference to and reliance

on the commentary.

NOTE: The following narrative does not discuss all the sections of Regulation Z, but rather

highlights only certain sections of the regulation and the TILA.

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Subpart A – General

This subpart contains general information regarding both open-end and closed-end credit

transactions. It sets forth definitions (§1026.2) and sets out which transactions are covered and

which are exempt from the regulation (§1026.3). It also contains the rules for determining which

fees are finance charges (§1026.4).

Purpose of the TILA and Regulation Z

The TILA is intended to ensure that credit terms are disclosed in a meaningful way so consumers

can compare credit terms more readily and knowledgeably. Before its enactment, consumers

were faced with a bewildering array of credit terms and rates. It was difficult to compare loans

because they were seldom presented in the same format. Now, all creditors must use the same

credit terminology and expressions of rates. In addition to providing a uniform system for

disclosures, the act:

• Protects consumers against inaccurate and unfair credit billing and credit card practices;

• Provides consumers with rescission rights;

• Provides for rate caps on certain dwelling-secured loans;

• Imposes limitations on home equity lines of credit and certain closed-end home mortgages;

• Provides minimum standards for most dwelling-secured loans; and

• Delineates and prohibits unfair or deceptive mortgage lending practices.

The TILA and Regulation Z do not, however, tell financial institutions how much interest they

may charge or whether they must grant a consumer a loan.

Summary of Coverage Considerations

– Sections 1026.1 and 1026.2

Lenders must carefully consider several factors when deciding whether a loan requires Truth in

Lending disclosures or is subject to other Regulation Z requirements. The coverage

considerations under Regulation Z are addressed in more detail in the commentary to Regulation

Z. For example, broad coverage considerations are included under section 1026.1(c) of the

regulation and relevant definitions appear in section 1026.2.

Exempt Transactions – Section 1026.3

The following transactions are exempt from Regulation Z:

• Credit extended primarily for a business, commercial, or agricultural purpose;

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• Credit extended to other than a natural person (including credit to government agencies or

instrumentalities);

• Credit in excess of an annually adjusted threshold not secured by real property or by personal

property used or expected to be used as the principal dwelling of the consumer;

• Public utility credit;

• Credit extended by a broker-dealer registered with the Securities and Exchange Commission

(SEC) or the Commodity Futures Trading Commission (CFTC), involving securities or

commodities accounts;

• Home fuel budget plans not subject to a finance charge; and

• Certain student loan programs.

However, when a credit card is involved, generally exempt credit (e.g., business purpose credit)

is subject to the requirements that govern the issuance of credit cards and liability for their

unauthorized use. Credit cards must not be issued on an unsolicited basis and, if a credit card is

lost or stolen, the cardholder must not be held liable for more than $50 for the unauthorized use

of the card. (Comment 3-1)

When determining whether credit is for consumer purposes, the creditor must evaluate all of the

following:

• Any statement obtained from the consumer describing the purpose of the proceeds.

o For example, a statement that the proceeds will be used for a vacation trip would indicate

a consumer purpose.

o If the loan has a mixed-purpose (e.g., proceeds will be used to buy a car that will be used

for personal and business purposes), the lender must look to the primary purpose of the

loan to decide whether disclosures are necessary. A statement of purpose from the

consumer will help the lender make that decision.

o A checked box indicating that the loan is for a business purpose, absent any

documentation showing the intended use of the proceeds could be insufficient evidence

that the loan did not have a consumer purpose.

• The consumer’s primary occupation and how it relates to the use of the proceeds. The higher

the correlation between the consumer’s occupation and the property purchased from the loan

proceeds, the greater the likelihood that the loan has a business purpose. For example,

proceeds used to purchase dental supplies for a dentist would indicate a business purpose.

The Dodd-Frank Act requires that this threshold be adjusted annually by any annual percentage increase in the Consumer Price

Index for Urban Wage Earners and Clerical Workers (CPI-W). Accordingly, based on the annual percentage increase in the CPI-

W as of June 1, 2012, the exemption threshold increased from $51,800 to $53,000, effective January 1, 2013.

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• Personal management of the assets purchased from proceeds. The lower the degree of the

borrower’s personal involvement in the management of the investment or enterprise

purchased by the loan proceeds, the less likely the loan will have a business purpose. For

example, money borrowed to purchase stock in an automobile company by an individual who

does not work for that company would indicate a personal investment and a consumer

purpose.

• The size of the transaction. The larger the size of the transaction, the more likely the loan will

have a business purpose. For example, if the loan is for a $5,000,000 real estate transaction,

that might indicate a business purpose.

• The amount of income derived from the property acquired by the loan proceeds relative to

the borrower’s total income. The lesser the income derived from the acquired property, the

more likely the loan will have a consumer purpose. For example, if the borrower has an

annual salary of $100,000 and receives about $500 in annual dividends from the acquired

property, that would indicate a consumer purpose.

All five factors must be evaluated before the lender can conclude that disclosures are not

necessary. Normally, no one factor, by itself, is sufficient reason to determine the applicability of

Regulation Z. In any event, the financial institution may routinely furnish disclosures to the

consumer. Disclosure under such circumstances does not control whether the transaction is

covered, but can assure protection to the financial institution and compliance with the law.

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Coverage Considerations under Regulation Z

Yes

Yes Yes

Regulation Z does not apply, except for the rules of issuance of and

unauthorized use liability for credit cards. (Exempt credit includes loans

with a business or agricultural purpose, and certain student loans. Credit

extended to acquire or improve rental property that is not owner-occupied

is considered business purpose credit.)

Is the

purpose of

the credit

for

personal,

family or

household

use?

Regulation Z applies

Is the

consumer

credit

extended to a

consumer?

Is the

consumer

credit

extended

by a

creditor?

Is the loan or

credit plan

secured by

real property

or by a

dwelling?

Is the

amount

financed or

credit limit

$50,000 or

less?

The institution is not a “creditor” and Regulation Z does not apply unless at

least one of the following tests is met:

1) The institution extends consumer credit regularly and

a) The obligation is initially payable to the institution and

b) The obligation is either payable by written agreement in more than four

installments or is subject to a finance charge

2) The institution is a card issuer that extends closed-end credit that is subject to

a finance charge or is payable by written agreement in more than four

installments.

3) The institution is not the card issuer, but it imposes a finance charge at the

time of honoring a credit card.

Regulation Z does not apply, but may apply later if the loan

is refinanced for $53,000 or less. If the principal dwelling is

taken as collateral after consummation, rescission rights will

apply and, in the case of open-end credit, billing disclosures

and other provisions of Regulation Z will apply.

Regulation Z does not apply. (Credit that is extended to a land trust is deemed

to be credit extended to a consumer.)

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Determination of Finance Charge and Annual

Percentage Rate (“APR”)

Finance Charge (Open-End and Closed-End Credit)

– Section 1026.4

The finance charge is a measure of the cost of consumer credit represented in dollars and cents.

Along with APR disclosures, the disclosure of the finance charge is central to the uniform credit

cost disclosure envisioned by the TILA.

The finance charge does not include any charge of a type payable in a comparable cash

transaction. Examples of charges payable in a comparable cash transaction may include taxes,

title, license fees, or registration fees paid in connection with an automobile purchase.

Finance charges include any charges or fees payable directly or indirectly by the consumer and

imposed directly or indirectly by the financial institution either as an incident to or as a condition

of an extension of consumer credit. The finance charge on a loan always includes any interest

charges and often, other charges. Regulation Z includes examples, applicable both to open-end

and closed-end credit transactions, of what must, must not, or need not be included in the

disclosed finance charge (§1026.4(b)).

Accuracy Tolerances (Closed-End Credit)

– Sections 1026.18(d) and 1026.23(g)

Regulation Z provides finance charge tolerances for legal accuracy that should not be confused

with those provided in the TILA for reimbursement under regulatory agency orders. As with

disclosed APRs, if a disclosed finance charge were legally accurate, it would not be subject to

reimbursement.

Under the TILA and Regulation Z, finance charge disclosures for open-end credit must be

accurate since there is no tolerance for finance charge errors. However, both the TILA and

Regulation Z permit various finance charge accuracy tolerances for closed-end credit.

Tolerances for the finance charge in a closed-end transaction, other than a mortgage loan, are

generally $5 if the amount financed is less than or equal to $1,000 and $10 if the amount

financed exceeds $1,000. Tolerances for certain transactions consummated on or after September

30, 1995, are noted below.

• Credit secured by real property or a dwelling (closed-end credit only):

o The disclosed finance charge is considered accurate if it is not understated by more than

$100.

o Overstatements are not violations.

• Rescission rights after the three-business-day rescission period (closed-end credit only):

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o The disclosed finance charge is considered accurate if it does not vary from the actual

finance charge by more than one-half of 1 percent of the credit extended or $100,

whichever is greater.

o The disclosed finance charge is considered accurate if it does not vary from the actual

finance charge by more than 1 percent of the credit extended for the initial and

subsequent refinancings of residential mortgage transactions when the new loan is made

at a different financial institution. (This excludes high-cost mortgage loans subject to

section 1026.32, transactions in which there are new advances, and new consolidations.)

• Rescission rights in foreclosure:

o The disclosed finance charge is considered accurate if it does not vary from the actual

finance charge by more than $35.

o Overstatements are not considered violations.

o The consumer can rescind if a mortgage broker fee that should have been included in the

finance charge was not included.

NOTE: Normally, the finance charge tolerance for a rescindable transaction is either 0.5

percent of the credit transaction or, for certain refinancings, 1 percent of the credit

transaction. However, in the event of a foreclosure, the consumer may exercise the right of

rescission if the disclosed finance charge is understated by more than $35.

See the “Finance Charge Tolerances” charts within these examination procedures for help in

determining appropriate finance charge tolerances.

Calculating the Finance Charge (Closed-End Credit)

One of the more complex tasks under Regulation Z is determining whether a charge associated

with an extension of credit must be included in, or excluded from, the disclosed finance charge.

The finance charge initially includes any charge that is, or will be, connected with a specific

loan. Charges imposed by third parties are finance charges if the financial institution requires use

of the third party. Charges imposed by settlement or closing agents are finance charges if the

bank requires the specific service that gave rise to the charge and the charge is not otherwise

excluded. The “Finance Charge Tolerances” charts within this document briefly summarize the

rules that must be considered.

Prepaid Finance Charges – Section 1026.18(b)(3)

A prepaid finance charge is any finance charge paid separately to the financial institution or to a

third party, in cash or by check before or at closing, settlement, or consummation of a

transaction, or withheld from the proceeds of the credit at any time.

Prepaid finance charges effectively reduce the amount of funds available for the consumer’s use;

usually before or at the time the transaction is consummated.

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Examples of finance charges frequently prepaid by consumers are borrower’s points, loan

origination fees, real estate construction inspection fees, odd days’ interest (interest attributable

to part of the first payment period when that period is longer than a regular payment period),

mortgage guarantee insurance fees paid to the Federal Housing Administration, private mortgage

insurance (PMI) paid to such companies as the Mortgage Guaranty Insurance Company (MGIC),

and, in non-real-estate transactions, credit report fees.

Precomputed Finance Charges

A precomputed finance charge includes, for example, interest added to the note amount that is

computed by the add-on, discount, or simple interest methods. If reflected in the face amount of

the debt instrument as part of the consumer’s obligation, finance charges that are not viewed as

prepaid finance charges are treated as precomputed finance charges that are earned over the life

of the loan.

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Finance Charge Chart

FINANCE CHARGE = DOLLAR COST OF CONSUMER CREDIT: It includes any charge payable directly or indirectly by

the consumer and imposed directly or indirectly by the creditor as a condition of or incident to the extension of credit.

CHARGES ALWAYS

INCLUDED

CHARGES INCLUDED

UNLESS CONDITIONS

ARE MET

CONDITIONS

(Any loan)

CHARGES NOT INCLUDED IF BONA

FIDE AND REASONABLE IN AMOUNT

(Residential mortgage transactions and

loans secured by real estate)

CHARGES NEVER

INCLUDED

Charges payable in a comparable

cash transaction.

Fees for unanticipated late

payments

Overdraft fees not agreed to in

writing

Seller’s points

Participation or membership fees

Discount offered by the seller to

induce payment by cash or other

means not involving the use of a

credit card

Interest forfeited as a result of

interest reduction required by law

Charges absorbed by the creditor as

a cost of doing business

Interest

Transaction fees

Loan origination fees Consumer

points

Credit guarantee insurance

premiums

Charges imposed on the creditor for

purchasing the loan, which are

passed on to the consumer

Discounts for inducing payment by

means other than credit

Mortgage broker fees

Other examples: Fee for preparing

TILA disclosures; real estate

construction loan inspection fees;

fees for post-consummation tax or

flood service policy; required credit

life insurance charges

Premiums for credit life, A&H, or

loss of income insurance

Debt cancellation fees

Premiums for property or liability

insurance

Premiums for vendor’s single

interest (VSI) insurance

Security interest charges (filing

fees), insurance in lieu of filing fees

and certain notary fees

Charges imposed by third parties

Charges imposed by third-party

closing agents

Appraisal and credit report fees

Insurance not required, disclosures

are made, and consumer authorizes

Coverage not required, disclosures

are made, and consumer authorizes

Consumer selects insurance

company and disclosures are made

Insurer waives right of subrogation,

consumer selects insurance

company, and disclosures are made

The fee is for lien purposes,

prescribed by law, payable to a third

public official and is itemized and

disclosed

Use of the third party is not required

to obtain loan and creditor does not

retain the charge

Creditor does not require and does

not retain the fee for the particular

service

Application fees, if charged to all

applicants, are not finance charges.

Application fees may include

appraisal or credit report fees.

Fees for title insurance, title examination,

property survey, etc.

Fees for preparing loan documents,

mortgages, and other settlement documents

Amounts required to be paid into escrow, if

not otherwise included in the finance

charge

Notary fees

Pre-consummation flood and pest

inspection fees

Appraisal and credit report fees

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Instructions for the Finance Charge Chart

The finance charge initially includes any charge that is, or will be, connected with a specific

loan. Charges imposed by third parties are finance charges if the creditor requires use of the third

party. Charges imposed on the consumer by a settlement agent are finance charges only if the

creditor requires the particular services for which the settlement agent is charging the borrower

and the charge is not otherwise excluded from the finance charge.

Immediately below the finance charge definition, the chart presents five captions applicable to

determining whether a loan related charge is a finance charge.

The first caption is charges always included. This category focuses on specific charges given in

the regulation or commentary as examples of finance charges.

The second caption, charges included unless conditions are met, focuses on charges that must be

included in the finance charge unless the creditor meets specific disclosure or other conditions to

exclude the charges from the finance charge.

The third caption, conditions, focuses on the conditions that need to be met if the charges

identified to the left of the conditions are permitted to be excluded from the finance charge.

Although most charges under the second caption may be included in the finance charge at the

creditor’s option, third-party charges and application fees (listed last under the third caption)

must be excluded from the finance charge if the relevant conditions are met. However, inclusion

of appraisal and credit report charges as part of the application fee is optional.

The fourth caption, charges not included, identifies fees or charges that are not included in the

finance charge under conditions identified by the caption. If the credit transaction is secured by real

property or the loan is a residential mortgage transaction, the charges identified in the column, if

they are bona fide and reasonable in amount, must be excluded from the finance charge. For

example, if a consumer loan is secured by a vacant lot or commercial real estate, any appraisal fees

connected with the loan must not be included in the finance charge.

The fifth caption, charges never included, lists specific charges provided by the regulation as

examples of those that automatically are not finance charges (e.g., fees for unanticipated late

payments).

Annual Percentage Rate Definition – Section 1026.22

(Closed-End Credit)

Credit costs may vary depending on the interest rate, the amount of the loan and other charges,

the timing and amounts of advances, and the repayment schedule. The APR, which must be

disclosed in nearly all consumer credit transactions, is designed to take into account all relevant

factors and to provide a uniform measure for comparing the cost of various credit transactions.

The APR is a measure of the cost of credit, expressed as a nominal yearly rate. It relates the

amount and timing of value received by the consumer to the amount and timing of payments made.

The disclosure of the APR is central to the uniform credit cost disclosure envisioned by the TILA.

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The value of a closed-end credit APR must be disclosed as a single rate only, whether the loan

has a single interest rate, a variable interest rate, a discounted variable interest rate, or graduated

payments based on separate interest rates (step rates), and it must appear with the segregated

disclosures. Segregated disclosures are grouped together and do not contain any information not

directly related to the disclosures required under section 1026.18.

Since an APR measures the total cost of credit, including costs such as transaction charges or

premiums for credit guarantee insurance, it is not an “interest” rate, as that term is generally

used. APR calculations do not rely on definitions of interest in state law and often include

charges, such as a commitment fee paid by the consumer, that are not viewed by some state

usury statutes as interest. Conversely, an APR might not include a charge, such as a credit report

fee in a real property transaction, which some state laws might view as interest for usury

purposes. Furthermore, measuring the timing of value received and of payments made, which is

essential if APR calculations are to be accurate, must be consistent with parameters under

Regulation Z.

The APR is often considered to be the finance charge expressed as a percentage. However, two

loans could require the same finance charge and still have different APRs because of differing

values of the amount financed or of payment schedules. For example, the APR is 12 percent on a

loan with an amount financed of $5,000 and 36 equal monthly payments of $166.07 each. It is

13.26 percent on a loan with an amount financed of $4,500 and 35 equal monthly payments of

$152.18 each and final payment of $152.22. In both cases the finance charge is $978.52. The

APRs on these example loans are not the same because an APR does not only reflect the finance

charge. It relates the amount and timing of value received by the consumer to the amount and

timing of payments made.

The APR is a function of:

• The amount financed, which is not necessarily equivalent to the loan amount. For example, if

the consumer must pay at closing a separate 1 percent loan origination fee (prepaid finance

charge) on a $100,000 residential mortgage loan, the loan amount is $100,000, but the

amount financed would be $100,000 less the $1,000 loan fee, or $99,000.

• The finance charge, which is not necessarily equivalent to the total interest amount (interest

is not defined by Regulation Z, but rather is defined by state or other federal law). For

example:

o If the consumer must pay a $25 credit report fee for an auto loan, the fee must be

included in the finance charge. The finance charge in that case is the sum of the interest

on the loan (i.e., interest generated by the application of a percentage rate against the loan

amount) plus the $25 credit report fee.

o If the consumer must pay a $25 credit report fee for a home improvement loan secured by

real property, the credit report fee must be excluded from the finance charge. The finance

charge in that case would be only the interest on the loan.

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• The payment schedule, which does not necessarily include only principal and interest (P + I)

payments. For example:

o If the consumer borrows $2,500 for a vacation trip at 14 percent simple interest per

annum and repays that amount with 25 equal monthly payments beginning one month

from consummation of the transaction, the monthly P + I payment will be $115.87, if all

months are considered equal, and the amount financed would be $2,500. If the

consumer’s payments are increased by $2.00 a month to pay a non-financed $50 loan fee

during the life of the loan, the amount financed would remain at $2,500 but the payment

schedule would be increased to $117.87 a month, the finance charge would increase by

$50, and there would be a corresponding increase in the APR. This would be the case

whether or not state law defines the $50 loan fee as interest.

o If the loan above has 55 days to the first payment and the consumer prepays interest at

consummation ($24.31 to cover the first 25 days), the amount financed would be $2,500 -

$24.31, or $2,475.69. Although the amount financed has been reduced to reflect the

consumer’s reduced use of available funds at consummation, the time interval during

which the consumer has use of the $2,475.69, 55 days to the first payment, has not

changed. Since the first payment period exceeds the limitations of the regulation’s minor

irregularities provisions (see §1026.17(c)(4)), it may not be treated as regular. In

calculating the APR, the first payment period must not be reduced by 25 days (i.e., the

first payment period may not be treated as one month).

Financial institutions may, if permitted by state or other law, precompute interest by applying a

rate against a loan balance using a simple interest, add-on, discount or some other method, and

may earn interest using a simple interest accrual system, the Rule of 78’s (if permitted by law) or

some other method. Unless the financial institution’s internal interest earnings and accrual

methods involve a simple interest rate based on a 360-day year that is applied over actual days

(even that is important only for determining the accuracy of the payment schedule), it is not

relevant in calculating an APR, since an APR is not an interest rate (as that term is commonly

used under state or other law). Since the APR normally need not rely on the internal accrual

systems of a bank, it always may be computed after the loan terms have been agreed upon (as

long as it is disclosed before actual consummation of the transaction).

Special Requirements for Calculating the Finance Charge and APR

Proper calculation of the finance charge and APR are of primary importance. The regulation

requires that the terms “finance charge” and “annual percentage rate” be disclosed more

conspicuously than any other required disclosure, subject to limited exceptions. The finance

charge and APR, more than any other disclosures, enable consumers to understand the cost of the

credit and to comparison shop for credit. A creditor’s failure to disclose those values accurately

can result in significant monetary damages to the creditor, either from a class action lawsuit or

from a regulatory agency’s order to reimburse consumers for violations of law.

If an APR or finance charge is disclosed incorrectly, the error is not, in itself, a violation of the

regulation if:

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• The error resulted from a corresponding error in a calculation tool used in good faith by the

financial institution.

• Upon discovery of the error, the financial institution promptly discontinues use of that

calculation tool for disclosure purposes.

• The financial institution notifies the CFPB in writing of the error in the calculation tool.

When a financial institution claims a calculation tool was used in good faith, the financial

institution assumes a reasonable degree of responsibility for ensuring that the tool in question

provides the accuracy required by the regulation. For example, the financial institution might

verify the results obtained using the tool by comparing those results to the figures obtained by

using another calculation tool. The financial institution might also verify that the tool, if it is

designed to operate under the actuarial method, produces figures similar to those provided by the

examples in appendix J to the regulation. The calculation tool should be checked for accuracy

before it is first used and periodically thereafter.

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Subpart B – Open-End Credit

Subpart B relates to open-end credit. It contains rules on account-opening disclosures (§1026.6)

and periodic statements (§§1026.7-.8). It also describes special rules that apply to credit card

transactions, treatment of payments (§1026.10) and credit balances (§1026.11), procedures for

resolving credit billing errors (§1026.13), annual percentage rate calculations (§1026.14),

rescission requirements (§1026.15) and advertising (§1026.16).

Time of Disclosures (Periodic Statements)

– Section 1026.5(b)

For credit card accounts under an open-end (not home-secured) consumer credit plan, creditors

must adopt reasonable procedures designed to ensure that periodic statements are mailed or

delivered at least 21 days prior to the payment due date disclosed on the periodic statement and

that payments are not treated as late for any purpose if they are received within 21 days after

mailing or delivery of the statement. In addition, for all open-end consumer credit accounts with

grace periods, creditors must adopt reasonable procedures designed to ensure that periodic

statements are mailed or delivered at least 21 days prior to the date on which a grace period (if

any) expires and that finance charges are not imposed as a result of the loss of a grace period if a

payment is received within 21 days after mailing or delivery of a statement. For purposes of this

requirement, a “grace period” is defined as a period within which any credit extended may be

repaid without incurring a finance charge due to a periodic interest rate. For non-credit card

open-end consumer plans without a grace period, creditors must adopt reasonable policies and

procedures designed to ensure that periodic statements are mailed or delivered at least 14 days

prior to the date on which the required minimum periodic payment is due. Moreover, the creditor

must adopt reasonable policies and procedures to ensure that it does not treat as late a required

minimum periodic payment received by the creditor within 14 days after it has mailed or

delivered the periodic statement.

Subsequent Disclosures (Open-End Credit)

– Section 1026.9

For open-end, not home-secured credit, the following applies:

Creditors are required to provide consumers with 45 days’ advance written notice of rate

increases and other significant changes to the terms of their credit card account agreements. The

list of “significant changes” includes most fees and other terms that a consumer should be aware

of before use of the account. Examples of such fees and terms include:

• Penalty fees;

• Transaction fees;

• Fees imposed for the issuance or availability of the open-end plan;

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• Grace period; and

• Balance computation method.

Changes that do not require advance notice include:

• Reductions of finance charges;

• Termination of account privileges resulting from an agreement involving a court proceeding;

• The change is an increase in an APR upon expiration of a specified period of time previously

disclosed in writing;

• The change applies to increases in variable APRs that change according to an index not

under the card issuer’s control; and

• Rate increases due to the completion of, or failure of a consumer to comply with, the terms of

a workout or temporary hardship arrangement, if those terms are disclosed prior to

commencement of the arrangement.

A creditor may suspend account privileges, terminate an account, or lower the credit limit

without notice. However, a creditor that lowers the credit limit may not impose an over limit fee

or penalty rate as a result of exceeding the new credit limit without a 45-day advance notice that

the credit limit has been reduced.

For significant changes in terms (with the exception of rate changes, increases in the minimum

payment, certain changes in the balance computation method, and when the change results from

the consumer’s failure to make a required minimum periodic payment within 60 days after the

due date), a creditor must also provide consumers the right to reject the change. If the consumer

does reject the change prior to the effective date, the creditor may not apply the change to the

account (§1026.9(h)(2)(i)).

In addition, when a consumer rejects a change or increase, the creditor must not:

• Impose a fee or charge or treat the account as in default solely as a result of the rejection; or

• Require repayment of the balance on the account using a method that is less beneficial to the

consumer than one of the following methods: (1) the method of repayment prior to the

rejection; (2) an amortization period of not less than five years from the date of rejection; or

(3) a minimum periodic payment that includes a percentage of the balance that is not more

than twice the percentage included prior to the date of rejection.

Finance Charge (Open-End Credit)

– Sections 1026.6(a)(1) & 1026.6(b)(3)

Each finance charge imposed must be individually itemized. The aggregate total amount of the

finance charge need not be disclosed.

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Determining the Balance and Computing the Finance Charge

The examiner must know how to compute the balance to which the periodic rate is applied.

Common methods used are the previous balance method, the daily balance method, and the

average daily balance method, which are described as follows:

• Previous balance method. The balance on which the periodic finance charge is computed is

based on the balance outstanding at the start of the billing cycle. The periodic rate is

multiplied by this balance to compute the finance charge.

• Daily balance method. A daily periodic rate is applied to either the balance on each day in

the cycle or the sum of the balances on each of the days in the cycle. If a daily periodic rate is

multiplied by the balance on each day in the billing cycle, the finance charge is the sum of

the products. If the daily periodic rate is multiplied by the sum of all the daily balances, the

result is the finance charge.

• Average daily balance method. The average daily balance is the sum of the daily balances

(either including or excluding current transactions) divided by the number of days in the

billing cycle. A periodic rate is then multiplied by the average daily balance to determine the

finance charge. If the periodic rate is a daily one, the product of the rate multiplied by the

average balance is multiplied by the number of days in the cycle.

In addition to those common methods, financial institutions have other ways of calculating the

balance to which the periodic rate is applied. By reading the financial institution’s explanation,

the examiner should be able to calculate the balance to which the periodic rate was applied. In

some cases, the examiner may need to obtain additional information from the financial institution

to verify the explanation disclosed. Any inability to understand the disclosed explanation should

be discussed with management, who should be reminded of Regulation Z’s requirement that

disclosures be clear and conspicuous.

When a balance is determined without first deducting all credits and payments made during the

billing cycle, that fact and the amount of the credits and payments must be disclosed.

If the financial institution uses the daily balance method and applies a single daily periodic rate,

disclosure of the balance to which the rate was applied may be stated as any of the following:

• A balance for each day in the billing cycle. The daily periodic rate is multiplied by the

balance on each day and the sum of the products is the finance charge.

• A balance for each day in the billing cycle on which the balance in the account changes. The

finance charge is figured by the same method as discussed previously, but the statement

shows the balance only for those days on which the balance changed.

• The sum of the daily balances during the billing cycle. The balance on which the finance

charge is computed is the sum of all the daily balances in the billing cycle. The daily periodic

rate is multiplied by that balance to determine the finance charge.

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• The average daily balance during the billing cycle. If this is stated, the financial institution

may, at its option, explain that the average daily balance is or can be multiplied by the

number of days in the billing cycle and the periodic rate applied to the product to determine

the amount of interest.

If the financial institution uses the daily balance method, but applies two or more daily

periodic rates, the sum of the daily balances may not be used. Acceptable ways of disclosing

the balances include:

• A balance for each day in the billing cycle;

• A balance for each day in the billing cycle on which the balance in the account changes; or

• Two or more average daily balances. If the average daily balances are stated, the financial

institution may, at its option, explain that interest is or may be determined by 1) multiplying

each of the average daily balances by the number of days in the billing cycle (or if the daily

rate varied during the cycle), 2) by multiplying each of the results by the applicable daily

periodic rate, and 3) adding these products together.

In explaining the method used to find the balance on which the finance charge is computed, the

financial institution need not reveal how it allocates payments or credits. That information may be

disclosed as additional information, but all required information must be clear and conspicuous.

NOTE: Section 1026.54 prohibits a credit card issuer from calculating finance charges based on

balances for days in previous billing cycles as a result of the loss of a grace period (a practice

sometimes referred to as “double-cycle billing”).

Finance Charge Resulting from Two or More Periodic Rates

Some financial institutions use more than one periodic rate in computing the finance charge. For

example, one rate may apply to balances up to a certain amount and another rate to balances

more than that amount. If two or more periodic rates apply, the financial institution must disclose

all rates and conditions. The range of balances to which each rate applies also must be disclosed.

It is not necessary, however, to break the finance charge into separate components based on the

different rates.

Annual Percentage Rate (Open-End Credit)

The disclosed APR on an open-end credit account is accurate if it is within one-eighth of one

percentage point of the APR calculated under Regulation Z.

Determination of APR – Section 1026.14

The basic method for determining the APR in open-end credit transactions involves multiplying

each periodic rate by the number of periods in a year. This method is used in all types of open-

end disclosures, including:

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• The corresponding APR in the initial disclosures;

• The corresponding APR on periodic statements;

• The APR in early disclosures for credit card accounts;

• The APR in early disclosures for home-equity plans;

• The APR in advertising; and

• The APR in oral disclosures.

The corresponding APR is prospective and it does not involve any particular finance charge or

periodic balance.

A second method of calculating the APR is the quotient method. At a creditor’s option, the

quotient method may be disclosed on periodic statements for home-equity plans subject to

section 1026.40 (“HELOCs”).

The quotient method reflects the annualized equivalent of the

rate that was actually applied during a cycle. This rate, also known as the effective APR, will

differ from the corresponding APR if the creditor applies minimum, fixed, or transaction charges

to the account during the cycle. (§1026.14(c))

Brief Outline for Open-End Credit APR Calculations on Periodic Statements

NOTE: Assume monthly billing cycles for each of the calculations below.

I. Basic method for determining the APR in an open-end credit transaction. This is the

corresponding APR. (§1026.14(b))

A. Monthly rate x 12 = APR

II. Optional effective APR that may be disclosed on home-equity line of credit (HELOC)

periodic statements

A. APR when only periodic rates are imposed (§1026.14(c)(1))

1. Monthly rate x 12 = APR

2. (Total finance charge / sum of the balances) x 12 = APR

B. APR when minimum or fixed charge, but not transaction charge imposed.

(§1026.14(c)(2))

If a creditor does not disclose the effective (or quotient method) APR on a HELOC periodic statement, it must instead disclose

the charges (fees and interest) imposed as provided in section 1026.7(a).

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1. (Total finance charge / amount of applicable balance

) x 12 = APR

C. APR when the finance charge includes a charge related to a specific transaction (such as

a cash advance fee), even if the total finance charge also includes any other minimum,

fixed, or other charge not calculated using a periodic rate. (§1026.14(c)(3))

1. (Total finance charge / (all balances + other amounts on which a finance charge was

imposed during the billing cycle without duplication

) x 12 = APR

D. APR when the finance charge imposed during the billing cycle includes a minimum or

fixed charge that does not exceed $.50 for a monthly or longer billing cycles (or pro rata

part of $.50 for a billing cycle shorter than monthly). (§1026.14(c)(4))

1. Monthly rate x 12 = APR

E. APR calculation when daily periodic rates are applicable if only the periodic rate is

imposed or when a minimum or fixed charge (but not a transactional charge is imposed.

(§1026.14(d))

1. (Total finance charge / average daily balance) x 12 = APR

2. (Total finance charge / sum of daily balances) x 365 = APR

Change in Terms Notices for Home Equity Plans Subject to

Section 1026.40 – Section 1026.9(c)

Servicers are required to provide consumers with 15 days’ advance written notice of a change to

any term required to be disclosed under section 1026.6(a) or where the required minimum

periodic payment is increased. Notice is not required when the change involves a reduction of

any component of a finance charge or other charge or when the change results from an

agreement involving a court proceeding. If the creditor prohibits additional extensions of credit

or reduces the credit limit in certain circumstances (if permitted by contract), a written notice

must be provided no later than three business days after the action is taken and must include the

specific reasons for the action. If the creditor requires the consumer to request reinstatement of

credit privileges, the notice also must state that fact.

For the following formulas, the APR cannot be determined if the applicable balance is zero. (§1026.14(c)(2))

Loan fees, points, or similar finance charges that relate to the opening of the account must not be included in the calculation of

the APR.

8 The sum of the balances may include the average daily balance, adjusted balance, or previous balance method. When a portion

of the finance charge is determined by application of one or more daily periodic rates, the sum of the balances also means the

average of daily balances. See Appendix F to Regulation Z.

Cannot be less than the highest periodic rate applied, expressed as an APR. Loan fees, points, or similar finance charges that

relate to the opening of the account must not be included in the calculation of the APR.

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Timely Settlement of Estates – Section 1026.11(c)

Issuers are required to establish procedures to ensure that any administrator of an estate can

resolve the outstanding credit card balance of a deceased account holder in a timely manner. If

an administrator requests the amount of the balance:

• The issuer is prohibited from imposing additional fees on the account;

• The issuer is required to disclose the amount of the balance to the administrator in a timely

manner (safe harbor of 30 days); and

• If the balance is paid in full within 30 days after disclosure of the balance, the issuer must

waive or rebate any trailing or residual interest charges that accrued on the balance following

the disclosure.

Minimum Payments – Section 1026.7(b)(12)

For credit card accounts under an open-end credit plan, card issuers generally must disclose on

periodic statements an estimate of the amount of time and the total cost (principal and interest)

involved in paying the balance in full by making only the minimum payments, and an estimate of

the monthly payment amount required to pay off the balance in 36 months and the total cost

(principal and interest) of repaying the balance in 36 months. Card issuers also must disclose a

minimum payment warning, and an estimate of the total interest that a consumer would save if

that consumer repaid the balance in 36 months, instead of making minimum payments.

Advertising for Open-End Plans– Section 1026.16

The regulation requires that loan product advertisements provide accurate and balanced

information, in a clear and conspicuous manner, about rates, monthly payments, and other loan

features. The advertising rules ban several deceptive or misleading advertising practices,

including representations that a rate or payment is “fixed” when in fact it can change.

If an advertisement for credit states specific credit terms, it must state only those terms that

actually are or will be arranged or offered by the creditor. If any finance charges or other charges

are set forth in an advertisement, the advertisement must also clearly and conspicuously state the

following:

• Any minimum, fixed, transaction, activity or similar charge that is a finance charge under

section 1026.4 that could be imposed;

• Any periodic rate that may be applied expressed as an APR as determined under section

1026.14(b). If the plan provides for a variable periodic rate, that fact must be disclosed; and

• Any membership or participation fee that could be imposed.

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If any finance charges or other charge or payment terms are set forth, affirmatively or negatively,

in an advertisement for a home-equity plan subject to the requirements of section 1026.40, the

advertisement also must clearly and conspicuously set forth the following:

• Any loan fee that is a percentage of the credit limit under the plan and an estimate of any

other fees imposed for opening the plan, stated as a single dollar amount or a reasonable

range;

• Any periodic rate used to compute the finance charge, expressed as an APR as determined

under section 1026.14(b); and

• The maximum APR that may be imposed in a variable-rate plan.

Regulation Z’s open-end home-equity plan advertising rules include a clear and conspicuous

standard for home-equity plan advertisements, consistent with the approach taken in the

advertising rules for consumer leases under Regulation M. Commentary provisions clarify how

the clear and conspicuous standard applies to advertisements of home-equity plans with

promotional rates or payments, and to Internet, television, and oral advertisements of home-

equity plans. The regulation allows alternative disclosures for television and radio

advertisements for home-equity plans. The regulation also requires that advertisements

adequately disclose not only promotional plan terms, but also the rates or payments that will

apply over the term of the plan.

Regulation Z also contains provisions implementing the Bankruptcy Abuse Prevention and

Consumer Protection Act of 2005, which requires disclosure of the tax implications of certain

home-equity plans.

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Subpart C – Closed-End Credit

Subpart C relates to closed-end credit. It contains rules on disclosures (§§1026.17-.20), treatment

of credit balances (§1026.21), annual percentage rate calculations (§1026.22), rescission rights

(§1026.23), and advertising (§1026.24).

The TILA-RESPA integrated disclosures must be given for most closed-end transactions secured

by real property for which the creditor receives an application on or after August 1, 2015. The

TILA-RESPA integrated disclosures do not apply to HELOCs, reverse mortgages, or mortgages

secured by a mobile home or by a dwelling that is not attached to real property. Truth in Lending

disclosures (TIL disclosures) and the Consumer Handbook on Adjustable Rate Mortgages

(CHARM) booklet must still be provided for certain limited closed-end loan transactions.

I. Disclosures, Generally

A. Timing

Generally, all disclosures provided to consumers must be made clearly and conspicuously in

writing, in a form that the consumer may keep ((§§1026.17(a), 1026.37(o), 1026.38(t)).

However, the timing of the disclosures may change depending on the transaction (§§1026.19(a),

1026.19(e)(1)(iii), 1026.19(f)(1)(ii), 1026.19(g)).

Disclosures in connection with non-mortgage closed-end loans and specified housing assistance

loan programs for low- and moderate-income consumers must be provided before consummation

of the transaction (§§1026.3(h), 1026.17(b) and 1026.18)).

For most closed-end transactions secured by real property for which the creditor receives an

application on or after August 1, 2015 (including construction-only loans, loans secured by

vacant land or by 25 or more acres, and credit extended to certain trusts for tax or estate planning

purposes), disclosures must be provided in accordance with the timing requirements outlined in

12 CFR 1026.19(e), (f) and (g). Generally, a creditor is required to mail or deliver the Loan

Estimate within three business days of receipt of the consumer’s loan application and to ensure

that the consumer receives the Closing Disclosure no later than three business days before loan

consummation (§§1026.19(e)(iii), 1026.19(f)(1)(ii)). If the loan is a purchase transaction, the

special information booklet must also be provided within three business days of receipt of the

consumer’s application (§1026.19(g)). The specifics of these disclosure timing requirements are

further discussed below, including a discussion about revised disclosures.

Mortgage loans not subject to 12 CFR 1026.19(e) and (f) (e.g., reverse mortgages, and chattel-

dwelling loans) have different disclosure requirements. For reverse mortgages, disclosures must

be delivered or mailed to the consumer no later than the third business day after a creditor

receives the consumer’s written application (§1026.19(a)). For chattel-dwelling mortgage loans,

disclosures must be provided to the consumer prior to consummation of the loan (§1026.17(b)).

Revised disclosures are also required within three business days of consummation if certain

mortgage loan terms change (§1026.19(a)(2)). For loans like reverse mortgages, the consumer

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will receive the Good Faith Estimate (GFE), HUD-1 Settlement Statement (HUD-1), and Truth

in Lending disclosures as required under the applicable sections of both TILA and RESPA.

Consumers receive TIL disclosures for chattel-dwelling loans that are not secured by land, but

the GFE and the HUD-1 are not required. Finally, certain variable rate transactions secured by a

dwelling have additional disclosure obligations with specific timing requirements both prior to

and after consummation (see §§1026.20(c) and (d) below).

B. Basis for Disclosures

1. Generally

Disclosures provided for closed-end transactions must reflect the credit terms to which the

parties will be legally bound as of the outset of the credit transaction. If information required for

the disclosures is unknown, the creditor may provide the consumer with an estimate, using the

best information reasonably available. The disclosure must be clearly marked as an estimate.

Variable and Adjustable Rate

If the terms of the legal obligation allow the financial institution, after consummation of the

transaction, to increase the APR, the financial institution must furnish the consumer with certain

information on variable rates. Variable rate disclosures are not applicable to rate increases

resulting from delinquency, default, assumption, acceleration, or transfer of the collateral.

Some of the more important transaction-specific variable rate disclosure requirements follow.

• Disclosures for variable rate loans must be given for the full term of the transaction and must

be based on the terms in effect at the time of consummation.

• If the variable rate transaction includes either a seller buy-down that is reflected in a contract

or a consumer buy-down, the disclosed APR should be a composite rate based on the lower

rate for the buy-down period and the rate that is the basis for the variable rate feature for the

remainder of the term.

• If the initial rate is not determined by the index or formula used to make later interest rate

adjustments, as in a discounted variable rate transaction, the disclosed APR must reflect a

composite rate based on the initial rate for as long as it is applied and, for the remainder of

the term, the rate that would have been applied using the index or formula at the time of

consummation (i.e., the fully indexed rate).

o If a loan contains a rate or payment cap that would prevent the initial rate or payment, at

the time of the adjustment, from changing to the fully indexed rate, the effect of that rate

or payment cap needs to be reflected in the disclosures.

o The index at consummation need not be used if the contract provides a delay in the

implementation of changes in an index value (e.g., the contract indicates that future rate

changes are based on the index value in effect for some specified period, like 45 days

before the change date). Instead, the financial institution may use any rate from the date

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of consummation back to the beginning of the specified period (e.g., during the previous

45-day period).

• If the initial interest rate is set according to the index or formula used for later adjustments,

but is set at a value as of a date before consummation, disclosures should be based on the

initial interest rate, even though the index may have changed by the consummation date.

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II. Finance Charge, Amount Financed and APRs

A. Finance Charge – Section 1026.18(c)

The aggregate total amount of the finance charge must be disclosed for all loans. An itemization

of the amount financed is required (except as provided in 12 CFR 1026.18(c)(2) or (c)(3)), unless

the loan is subject to 12 CFR 1026.19(e) and (f) (i.e., most closed-end mortgage loans).

Amount Financed – Section 1026.18(b), 1026.38(o)

1. Definition

The amount financed is the net amount of credit extended for the consumer’s use. It should not

be assumed that the amount financed under the regulation is equivalent to the note amount,

proceeds, or principal amount of the loan. The amount financed normally equals the total of

payments less the finance charge.

To calculate the amount financed, all amounts and charges connected with the transaction, either

paid separately or included in the note amount, must first be identified. Any prepaid,

precomputed, or other finance charge must then be determined.

The amount financed must not include any finance charges. If finance charges have been

included in the obligation (either prepaid or precomputed), they must be subtracted from the face

amount of the obligation when determining the amount financed. The resulting value must be

reduced further by an amount equal to any prepaid finance charge paid separately. The final

resulting value is the amount financed.

When calculating the amount financed, finance charges (whether in the note amount or paid

separately) should not be subtracted more than once from the total amount of an obligation.

Charges not in the note amount and not included in the finance charge (e.g., an appraisal fee paid

separately in cash on a real estate loan) are not required to be disclosed under Regulation Z and

must not be included in the amount financed.

In a multiple advance construction loan, proceeds placed in a temporary escrow account and

awaiting disbursement in draws to the developer are not considered part of the amount financed

until actually disbursed. Thus, if the entire commitment amount is disbursed into the lender’s

escrow account, the lender must not base disclosures on the assumption that all funds were

disbursed immediately, even if the lender pays interest on the escrowed funds.

2. Calculating the Amount Financed

A consumer signs a note secured by real property in the amount of $5,435. The note amount

includes $5,000 in proceeds disbursed to the consumer, $400 in precomputed interest, $25 paid

to a credit reporting agency for a credit report, and a $10 service charge. Additionally, the

consumer pays a $50 loan fee separately in cash at consummation. The consumer has no other

debt with the financial institution. The amount financed is $4,975.

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The amount financed may be calculated by first subtracting all finance charges included in the

note amount ($5,435 - $400 - $10 = $5,025). The $25 credit report fee is not a finance charge

because the loan is secured by real property. The $5,025 is further reduced by the amount of

prepaid finance charges paid separately, for an amount financed of $5,025 - $50 = $4,975. The

answer is the same whether finance charges included in the obligation are considered prepaid or

precomputed finance charges.

The financial institution may treat the $10 service charge as an addition to the loan amount and not

as a prepaid finance charge. If it does, the loan principal would be $5,000. The $5,000 loan

principal does not include either the $400 or the $10 precomputed finance charge in the note. The

loan principal is increased by other amounts that are financed which are not part of the finance

charge (the $25 credit report fee) and reduced by any prepaid finance charges (the $50 loan fee, not

the $10 service charge) to arrive at the amount financed of $5,000 + $25 - $50 = $4,975.

Conversely, the financial institution may treat the $10 service charge as a prepaid finance charge.

If it does, the loan principal would be $5,010. The $5,010 loan principal does not include the

$400 precomputed finance charge. The loan principal is increased by other amounts that are

financed which are not part of the finance charge (the $25 credit report fee) and reduced by any

prepaid finance charges (the $50 loan fee and the $10 service charge withheld from loan

proceeds) to arrive at the same amount financed of $5,010 + $25 - $50- $10 = $4,975.

B. Payment Schedule – Section 1026.18(g)

For transactions that are not subject to 12 CFR 1026.19(e) and (f), the disclosed payment

schedule must reflect all components of the finance charge. It includes all payments scheduled to

repay loan principal, interest on the loan, and any other finance charge payable by the consumer

after consummation of the transaction.

However, any finance charge paid separately before or at consummation (e.g., odd days’ interest)

is not part of the payment schedule. It is a prepaid finance charge that must be reflected as a

reduction in the value of the amount financed.

At the creditor’s option, the payment schedule may include amounts beyond the amount financed

and finance charge (e.g., certain insurance premiums or real estate escrow amounts such as taxes

added to payments). However, when calculating the APR, the creditor must disregard such amounts.

If the obligation is a renewable balloon payment instrument that unconditionally obligates the

financial institution to renew the short-term loan at the consumer’s option or to renew the loan

subject to conditions within the consumer’s control, the payment schedule must be disclosed

using the longer term of the renewal period or periods. The long-term loan must be disclosed

with a variable rate feature.

If there are no renewal conditions or if the financial institution guarantees to renew the obligation

in a refinancing, the payment schedule must be disclosed using the shorter balloon payment term.

The short-term loan must be disclosed as a fixed rate loan, unless it contains a variable rate

feature during the initial loan term.

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C. Annual Percentage Rate (Closed-End Credit) – Section

1026.22

1. Calculating the Annual Percentage Rate – Section 1026.22

The APR must be determined under one of the following:

• The actuarial method, which is defined by Regulation Z and explained in appendix J to the

regulation.

• The U.S. Rule, which is permitted by Regulation Z and briefly explained in appendix J to the

regulation. The U.S. Rule is an accrual method that seems to have first surfaced officially in

an early nineteenth century United States Supreme Court case, Story v. Livingston, 38 U.S.

359 (1839).

Whichever method is used by the financial institution, the rate calculated will be accurate if it is

able to “amortize” the amount financed while it generates the finance charge under the accrual

method selected. Financial institutions also may rely on minor irregularities and accuracy

tolerances in the regulation, both of which effectively permit somewhat imprecise, but still legal,

APRs to be disclosed.

2. Accuracy Tolerances

The disclosed APR on a closed-end transaction is accurate for:

• Regular transactions (which include any single advance transaction with equal payments and

equal payment periods, or an irregular first payment period and/or a first or last irregular

payment), if it is within one-eighth of 1 percentage point of the APR calculated under

Regulation Z (§1026.22(a)(2)).

• Irregular transactions (which include multiple advance transactions and other transactions not

considered regular), if it is within one-quarter of 1 percentage point of the APR calculated

under Regulation Z (§1026.22(a)(3)).

• Mortgage transactions, if it is within one-eighth of 1 percentage point for regular transactions

or one-quarter of 1 percentage point for irregular transactions or if:

i. The rate results from the disclosed finance charge, and:

(A) The disclosed finance is considered accurate under 12 CFR 1026.18(d)(1) or

1026.38(o)(2), as applicable; or

(B) The disclosed finance charge is calculated incorrectly but is considered accurate

for purposes of rescission, under 12 CFR 1026.23(g) or (h), whichever applies.

(§1026.22(a)(4))

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ii. The disclosed finance charge is calculated incorrectly but is considered accurate under 12

CFR 1026.18(d)(1) or 1026.38(o)(2), as applicable, or 12 CFR 1026.23 (g) or (h), and

either:

(A) The finance charge is understated and the disclosed APR is also understated but

is closer to the actual APR than the APR that would be considered accurate

under section 1026.22(a)(4); or

(B) The disclosed finance charge is overstated and the disclosed APR is also

overstated but is closer to the actual APR than the APR that would be

considered accurate under section 1026.22(a)(4).

For example, in an irregular transaction subject to a tolerance of ¼th of 1 percentage

point, if the actual APR is 9.00% and a $75 omission from the finance charge

corresponds to a rate of 8.50% that is considered accurate under section 1026.22(a)(4), a

disclosed APR of 8.65% is considered accurate under section 1026.22(a)(5). However, a

disclosed APR below 8.50% or above 9.25% would not be considered accurate.

3. Construction Loans – Section 1026.17(c)(6) & Appendix D

Construction and certain other multiple advance loans pose special problems in computing the

finance charge and APR. In many instances, the amount and dates of advances are not

predictable with certainty since they depend on the progress of the work. Regulation Z provides

that the APR and finance charge for such loans may be estimated for disclosure.

At its option, the financial institution may rely on the representations of other parties to acquire

necessary information (for example, it might look to the consumer for the dates of advances). In

addition, if either the amounts or dates of advances are unknown (even if some of them are

known), the financial institution may, at its option, use appendix D to the regulation to make

calculations and disclosures. The finance charge and payment schedule obtained through

appendix D may be used with volume one of the CFPB’s APR tables or with any other

appropriate computation tool to determine the APR. If the financial institution elects not to use

appendix D, or if appendix D cannot be applied to a loan (e.g., appendix D does not apply to a

combined construction-permanent loan if the payments for the permanent loan begin during the

construction period), the financial institution must make its estimates under section

1026.17(c)(2) and calculate the APR using multiple advance formulas.

On loans involving a series of advances under an agreement to extend credit up to a certain

amount, a financial institution may treat all of the advances as a single transaction or disclose

each advance as a separate transaction. If advances are disclosed separately, disclosures must

be provided before each advance occurs, with the disclosures for the first advance provided

before consummation.

In a transaction that finances the construction of a dwelling that may or will be permanently

financed by the same financial institution, the construction-permanent financing phases may be

disclosed in one of three ways listed below.

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• As a single transaction, with one disclosure combining both phases.

• As two separate transactions, with one disclosure for each phase.

• As more than two transactions, with one disclosure for each advance and one for the

permanent financing phase.

If two or more disclosures are furnished, buyer’s points or similar amounts imposed on the

consumer may be allocated among the transactions in any manner the financial institution

chooses, as long as the charges are not applied more than once. In addition, if the financial

institution chooses to give two sets of disclosures and the consumer is obligated for both

construction and permanent phases at the outset, both sets of disclosures must be given to the

consumer initially, before consummation of each transaction occurs.

If the creditor requires interest reserves for construction loans, special appendix D rules apply

that can make the disclosure calculations quite complicated. The amount of interest reserves

included in the commitment amount must not be treated as a prepaid finance charge.

If the lender uses appendix D for construction-only loans with required interest reserves, the

lender must estimate construction interest using the interest reserve formula in appendix D. The

lender’s own interest reserve values must be completely disregarded for disclosure purposes.

If the lender uses appendix D for combination construction-permanent loans, the calculations can

be much more complex. Appendix D is used to estimate the construction interest, which is then

measured against the lender’s contractual interest reserves.

If the interest reserve portion of the lender’s contractual commitment amount exceeds the

amount of construction interest estimated under appendix D, the excess value is considered part

of the amount financed if the lender has contracted to disburse those amounts whether they

ultimately are needed to pay for accrued construction interest. If the lender will not disburse the

excess amount if it is not needed to pay for accrued construction interest, the excess amount must

be ignored for disclosure purposes.

4. 360-Day and 365-Day Years – Section 1026.17(c)(3)

Confusion often arises over whether to use the 360-day or 365-day year in computing interest,

particularly when the finance charge is computed by applying a daily rate to an unpaid balance.

Many single payment loans or loans payable on demand are in this category. There are also loans

in this category that call for periodic installment payments. Regulation Z does not require the use

of one method of interest computation in preference to another (although state law may). It does,

however, permit financial institutions to disregard the fact that months have different numbers of

days when calculating and making disclosures. This means financial institutions may base their

disclosures on calculation tools that assume all months have an equal number of days, even if

their practice is to take account of the variations in months to collect interest.

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For example, a financial institution may calculate disclosures using a financial calculator based

on a 360-day year with 30-day months, when, in fact, it collects interest by applying a factor of

1/365 of the annual interest rate to actual days.

Disclosure violations may occur, however, when a financial institution applies a daily interest

factor based on a 360-day year to the actual number of days between payments. In those

situations, the financial institution must disclose the higher values of the finance charge, the

APR, and the payment schedule resulting from this practice.

For example, a 12 percent simple interest rate divided by 360 days results in a daily rate of

.033333 percent. If no charges are imposed except interest, and the amount financed is the same

as the loan amount, applying the daily rate on a daily basis for a 365-day year on a $10,000 one

year, single payment, unsecured loan results in an APR of 12.17 percent (.033333% x 365 =

12.17%), and a finance charge of $1,216.67. There would be a violation if the APR were

disclosed as 12 percent or if the finance charge were disclosed as $1,200 (12% x $10,000).

However, if there are no other charges except interest, the application of a 360-day year daily

rate over 365 days on a regular loan would not result in an APR in excess of the one eighth of

one percentage point APR tolerance unless the nominal interest rate is greater than 9 percent. For

irregular loans, with one-quarter of 1 percentage point APR tolerance, the nominal interest rate

would have to be greater than 18 percent to exceed the tolerance.

NOTE: Notwithstanding the APR tolerance, a creditor’s disclosures must reflect the terms of the

legal obligation between the parties (§1026.17(c)(1)), and the APR must be determined in

accordance with either the actuarial method or the U.S. Rule method (§1026.22(a)(1)). A creditor

may not ignore, for disclosure purposes, the effects of applying a 360-day year daily rate over

365 days. (Comment 1026.17(c)(3)-1.ii)

D. Required Deposit – Section 1026.18(r)

A required deposit, with certain exceptions, is one that the financial institution requires the

consumer to maintain as a condition of the specific credit transaction. It can include a

compensating balance or a deposit balance that secures the loan. The effect of a required deposit

is not reflected in the APR. Also, a required deposit is not a finance charge since it is eventually

released to the consumer. A deposit that earns at least 5 percent per year need not be considered

a required deposit.

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III. Transactions with TILA-RESPA Integrated

Disclosures - Generally

On December 31, 2013, the CFPB published a final rule implementing Sections 1098(2) and

1100A(5) of the Dodd-Frank Act, which directed the CFPB to publish a single, integrated

disclosure for mortgage loan transactions, which includes mortgage loan disclosure requirements

under TILA and sections 4 and 5 of RESPA. The amendments in the final rule, referred to as the

“TILA-RESPA Integrated Disclosure Rule” or “TRID,” are applicable to covered closed-end

mortgage loans for which a creditor or mortgage broker receives an application on or after

August 1, 2015. As a result, Regulation Z now houses the integrated forms, timing, and related

disclosure requirements for most closed-end consumer mortgage loans.

The new integrated disclosures are not used to disclose information about reverse mortgages, home

equity lines of credit (HELOCs), chattel-dwelling loans such as loans secured by a mobile home or

by a dwelling that is not attached to real property (i.e., land), or other transactions not covered by

the TILA-RESPA Integrated Disclosure Rule. The final rule also does not apply to loans made by a

creditor who makes five or fewer mortgages in a year. Creditors originating these types of

mortgages must continue to use, as applicable, the GFE, HUD-1, and TIL disclosures.

Most closed-end mortgage loans are exempt from the requirement to provide the GFE, HUD-1,

and servicing disclosure requirements of 12 CFR 1024.6, 1024.7, 1024.8, 1024.10, and

1024.33(a). Instead, these loans are subject to disclosure, timing, and other requirements under

TILA and Regulation Z. Specifically, the aforementioned provisions do not apply to the

following federally related mortgage loans:

• Loans subject to the special disclosure (TILA-RESPA Integrated Disclosure) requirements

for certain closed-end consumer credit transactions secured by real property set forth in 12

CFR 1026.19(e), (f), and (g); or

• Certain no-interest loans secured by subordinate liens made for the purpose of down payment

or similar home buyer assistance, property rehabilitation assistance, energy efficiency

assistance, or foreclosure avoidance or prevention. (§1026.3(h))

NOTE: A creditor may not use the TILA-RESPA Integrated Disclosure forms instead of the

GFE, HUD-1, and TIL forms for transactions that continue to be covered by TILA or RESPA

that require those disclosures (e.g., reverse mortgages).

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Summary of Applicable Disclosure Requirements:

Use TILA-RESPA Integrated Disclosures

(See Regulation Z):

•

Most closed-end mortgage loans,

including:

Construction-only loans

Loans secured by vacant land or by

25 or more acres

Continue to use existing TIL and RESPA

disclosures (as applicable):

•

HELOCs (subject to disclosure

requirements under 12 CFR 1026.40)

•

Reverse mortgages

(subject to

existing TIL and GFE disclosures)

•

Chattel-secured mortgages (i.e.,

mortgages secured by a mobile home or

by a dwelling that is not attached to real

property, such as land) (subject to

existing TIL disclosures, and not

RESPA)

NOTE: In both cases, there is a partial exemption from these disclosures under 12 CFR

1026.3(h) for

loans secured by subordinate liens and associated with certain housing

assistance loan programs for low- and moderate-income persons.

Creditors making closed-end consumer credit transactions secured by real property, and subject to

the provisions of 12 CFR 1026.19(e) and (f), must provide consumers with a Loan Estimate under

12 CFR 1026.37, Closing Disclosure under 12 CFR 1026.38, the special information booklet as

required by RESPA, under 12 CFR 1026.19(g), and, as applicable for ARM transactions, the

CHARM booklet. The special information booklet is described in further detail below.

A. Early disclosures (Loan Estimate) – Section

1026.19(e)

Section 1026.19(e) requires the creditor to provide good faith estimates of the Loan Estimate

disclosures required by 12 CFR 1026.37 (see subpart E for information on the content, form, and

format of the disclosure). The creditor generally must deliver or place in the mail the Loan

Estimate no later than three business days after receiving the consumer’s application, and no

later than seven business days before consummation. (§1026.19(e)(1)(i) and (iii))

Generally, the creditor is responsible for ensuring that the Loan Estimate and its delivery meet

the rule’s content, delivery, and timing requirements. (See §§1026.19(e) and 1026.37.) If a

mortgage broker receives a consumer’s application, the mortgage broker may provide the Loan

Estimate to the consumer on the creditor’s behalf. If it does so, the mortgage broker must comply

with all requirements of 12 CFR 1026.19(e), as well as the three-year record retention

requirements in 12 CFR 1026.25(c). (§1026.19(e)(1)(ii)) The creditor is expected to maintain

communication with mortgage brokers to ensure that the Loan Estimate and its delivery satisfy

An open-end reverse mortgage receives open-end disclosures, not a GFE or HUD-1.

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the rule’s requirements, and the creditor is legally responsible for any errors or defects.

(§1026.19(e)(1)(ii); Comment 19(e)(1)(ii) -1 and -2)

Timing – Loan Estimate – early disclosures. The Loan Estimate must be delivered or placed in

the mail to the consumer no later than the third business day after the creditor or mortgage broker

receives the consumer’s application for a mortgage loan. (§1026.19(e)(1)(iii)(A)) If the Loan

Estimate is not provided to the consumer in person, the consumer is considered to have received

the Loan Estimate three business days after it is delivered or placed in the mail (this applies to

electronic delivery as well). (§1026.19(e)(1)(iv); Comment 19(e)(1)(iv)-2). Other than for

transactions secured by a consumer’s interest in a timeshare plan, the Loan Estimate must be

delivered or placed in the mail no later than the seventh business day before consummation

(§1026.19(e)(1)(iii)(B) and (C)).

For purposes of the TILA-RESPA Integrated Disclosures rule, an “application” is defined in 12

CFR 1026.2(a)(3)(ii). For transactions subject to 12 CFR 1026.19(e), (f), or (g), an application

consists of the submission of the following six pieces of information:

• The consumer’s name;

• The consumer’s income;

• The consumer’s social security number to obtain a credit report;

• The property address;

• An estimate of the value of the property; and

• The mortgage loan amount sought.

This definition of application is similar to the definition under Regulation X (§1024.2(b)), except

that it does not include the seventh “catch-all” element of that definition, that is, “any other

information deemed necessary by the loan originator.”

An application may be submitted in written or electronic format, and includes a written record of

an oral application. (Comment 2(a)(3)-1)

This definition of application does not prevent a creditor from collecting whatever additional

information it deems necessary in connection with the request for the extension of credit.

However, once a consumer has submitted

the six pieces of information discussed above to the

creditor for purposes of obtaining an extension of credit, the creditor has an application for

purposes of the requirement for delivery of the Loan Estimate to the consumer and must abide by

the three business day timing requirement. (Comment 2(a)(3)-1)

When a consumer uses an online application system that allows the information to be saved, the application must be submitted

before the Loan Estimate timing requirements are triggered.

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If the creditor determines, within the three business day period, that the consumer’s application

will not or cannot be approved on the terms requested by the consumer, or if the consumer

withdraws the application within that period, the creditor does not have to provide the Loan

Estimate. However, if the creditor does not provide the Loan Estimate, it will not have complied

with the Loan Estimate requirements if it later consummates the transaction on the terms

originally applied for by the consumer. If a consumer amends an application and a creditor

determines the amended application may proceed, then the creditor is required to comply with

the Loan Estimate requirements, including delivering or mailing a Loan Estimate within three

business days of receiving the amended or resubmitted application. (Comment 19(e)(1)(iii)-3)

A “business day” for purposes of providing the Loan Estimate is a day on which the creditor’s

offices are open to the public for carrying out substantially all of its business functions.

(Comment 19(e)(1)(iii)-1, §1026.2(a)(6))

NOTE: The term “business day” is defined differently for other purposes, including counting

days to ensure the consumer receives the Closing Disclosure on time. (§§1026.2(a)(6),

1026.19(e)(1)(iii)(B) and (e)(1)(iv), and 1026.19(f)(1)(ii)(A) and (f)(1)(iii)) For these other

purposes, business day means all calendar days except Sundays and the legal public holidays

specified in 5 U.S.C. 6103(a). (§1026.2(a)(6); Comment 2(a)(6)-2; Comments 19(e)(1)(iii)-1 and

19(f)(1)(ii)-1)

Creditors are required to act in good faith and exercise due diligence in obtaining information

necessary to complete the Loan Estimate. (Comment 17(c)(2)(i)-1) Normally, creditors may rely

on the representations of other parties in obtaining information. (§1026.17(c)(2)(i))

NOTE: There may be some information that is not reasonably available to the creditor at the time

the Loan Estimate is made. In these instances, except as otherwise provided in 12 CFR 1026.19,

1026.37, and 1026.38, the creditor may use estimates even though it knows that more precise

information will be available by the point of consummation. However, new disclosures may be

required under 12 CFR 1026.17(f) or 1026.19. (Comment 17(c)(2)(i)-1) When estimated figures

are used, they must be designated as such on the Loan Estimate. (Comment 17(c)(2)(i)-2)

The consumer may modify or waive the seven business day waiting period after receiving the

Loan Estimate if the consumer determines that the mortgage loan is needed to meet a bona fide

personal financial emergency that necessitates consummating the credit transaction before the

end of the waiting period. (§1026.19(e)(1)(v)) Whether a consumer has a bona fide personal

financial emergency is determined by the facts surrounding the consumer’s individual situation.

One example is the imminent sale of the consumer’s home at foreclosure, where the foreclosure

sale will proceed unless loan proceeds are made available to the consumer during the waiting

period. (§1026.19(e)(1)(v); Comment 19(e)(1)(v)-1). To modify or waive the waiting period, the

consumer must give the creditor a dated written statement that describes the emergency,

specifically modifies or waives the waiting period, and is signed by all consumers primarily

liable on the legal obligation. (§1026.19(e)(1)(v)) The creditor may not provide the consumer

with a pre-printed waiver form. (§1026.19(e)(1)(v))

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Good faith requirement and tolerances. Creditors are responsible for ensuring that the figures

stated in the Loan Estimate are made in good faith and consistent with the best information

reasonably available to the creditor at the time they are disclosed. (§1026.19(e)(3); Comment

19(e)(3)(iii)-1 through -3) Whether or not a Loan Estimate was made in good faith is determined

by calculating the difference between the estimated charges originally provided in the Loan

Estimate and the actual charges paid by or imposed on the consumer in the Closing Disclosure.

(§1026.19(e)(3)(i) and (ii)). Generally, if the charge paid by or imposed on the consumer exceeds

the amount originally disclosed on the Loan Estimate, it is not in good faith. (§1026.19(e)(3)(i))

As long as the creditor’s estimate is consistent with the best information reasonably available,

and the creditor charges the consumer less than the amount disclosed on the Loan Estimate, the

Loan Estimate is considered to be in good faith. (§1026.19(e)(3)(i))

The general rule is that the estimated closing cost is in good faith if the charge does not exceed

the amount disclosed in the Loan Estimate. Unless there is an exception, the creditor may not

charge more than the amounts disclosed on the Loan Estimate. (§1026.19(e)(3)(i) A creditor may

charge the consumer more than the amount disclosed in the Loan Estimate, and the estimate may

still be considered to be in good faith in specific circumstances. For certain charges, there are

different tolerances when charges exceed the amounts disclosed.

Zero tolerance. For charges other than those that are specifically excepted, as noted below,

creditors may not charge consumers more than the amount disclosed on the Loan Estimate, other

than for changed circumstances that permit a revised Loan Estimate. (§1026.19(e)(3)(i) and (iv)

The zero tolerance charges include but are not limited to the following:

• Fees paid to the creditor, mortgage broker, or an affiliate of either (§1026.19(e)(3)(ii)(B));

• Fees paid to an unaffiliated third party if the creditor did not permit the consumer to shop for

a third-party service provider for a settlement service (§1026.19(e)(3)(ii)(C)) or transfer

taxes. (Comments 19(e)(3)(i)-1 and -4)

10% Cumulative tolerance. Charges for third-party services and recording fees paid by or

imposed on the consumer are grouped together and are subject to a 10% cumulative tolerance.

This means the creditor may charge the consumer more than the amount disclosed on the Loan

Estimate for any of these charges so long as the total sum of the charges added together does not

exceed the sum of all such charges disclosed on the Loan Estimate by more than 10%.

(§1026.19(e)(3)(ii)(A)). These charges are:

• Recording fees (Comment 19(e)(3)(ii)-4);

• Charges for third-party services where:

o The charge is not paid to the creditor or the creditor’s affiliate (§1026.19(e)(3)(ii)(B)); and

o The consumer is permitted by the creditor to shop for the third-party service, and the

consumer selects a third-party service provider on the creditor’s written list of service

providers. (§1026.19(e)(3)(ii)(C); §1026.19(e)(1)(vi); Comment 19(e)(1)(vi)-1 through 7))

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Variances permitted without tolerance limits. Creditors may charge consumers more than the

amount disclosed on the Loan Estimate without any tolerance limitation for certain costs or

terms, but only if the original estimated charge, or lack of an estimated charge for a particular

service, was based on the best information reasonably available to the creditor at the time the

disclosure was provided. (§1026.19(e)(3)(iii)) These charges are:

• Prepaid interest; property insurance premiums; amounts placed into an escrow, impound,

reserve or similar account. (§1026.19(e)(3)(iii)(A)-(C))

• For services required by the creditor if the creditor permits the consumer to shop and the

consumer selects a third-party service provider not on the creditor’s written list of service

providers. (§1026.19(e)(3)(iii)(D))

• Charges paid to third-party service providers for services not required by the creditor (may be

paid to affiliates of the creditor). (§1026.19(e)(3)(iii)(E))

List of services for which a consumer may shop. In addition to the Loan Estimate, if the

consumer is permitted to shop for a settlement service, the creditor, no later than three business

days after receiving the application, must provide the consumer with a written list of services for

which the consumer can shop. This list must:

• Identify at least one available settlement service provider for each service, and

• State that the consumer may choose a different provider of that service.

(§1026.19(e)(3)(ii)(C) and (e)(1)(vi)(C))

NOTE: When a creditor allows a consumer to shop for a third-party service and the

consumer chooses a service provider not identified on the creditor’s list, the charge is not

subject to a tolerance limitation.

Refunds within 60 days of consummation. If the amounts paid by the consumer at closing exceed

the amounts disclosed on the Loan Estimate beyond the applicable tolerance threshold, the

creditor must refund the excess to the consumer no later than 60 calendar days after

consummation. (§1026.19(f)(2)(v))

• For charges subject to zero tolerance, any amount charged beyond the amount disclosed on

the Loan Estimate must be refunded to the consumer. (§1026.19(e)(3)(i))

• For charges subject to a 10% cumulative tolerance, to the extent the total sum of the charges

added together exceeds the sum of all such charges disclosed on the Loan Estimate by more

than 10%, the difference must be refunded to the consumer. (§1026.19(e)(3)(ii))

Loan Estimate - Revisions and Corrections. Creditors generally are bound by the original Loan

Estimate and must determine the estimate’s good faith by calculating the difference between the

estimated charges originally provided and the actual charges paid by the consumer. For purposes

of determining whether the estimates are in good faith, the creditor may use a revised estimate of

a charge instead of the amount originally disclosed if the revision is due to one of the reasons set

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out in specific circumstances in 12 CFR 1026.19(e)(3)(iv)(A) through (F). Specific

circumstances include:

Changed circumstances – increased settlement charges. Changed circumstances that occur

after the Loan Estimate is provided to the consumer that cause estimated settlement charges

to increase more than is permitted under the TILA-RESPA Integrated Disclosure rule

(§1026.19(e)(3)(iv)(A)).

• A creditor may provide and use a revised Loan Estimate redisclosing a settlement charge and

compare that revised estimate to the amount imposed on the consumer for purposes of

determining good faith if changed circumstances cause the estimated charge to increase or, in

the case of charges subject to the 10% cumulative tolerance under 12 CFR 1026.19(e)(3)(ii),

cause the sum of those charges to increase by more than the 10% tolerance.

(§1026.19(e)(3)(iv)(A); Comment 19(e)(3)(iv)(A)-1) Examples of changed circumstances

affecting settlement costs include (Comment 19(e)(3)(iv)(A)-2):

o A natural disaster that damages the property or otherwise results in additional closing costs;

o A creditor’s estimate of title insurance is no longer valid because the title insurer goes out

of business; or

o New information not relied on when the Loan Estimate was provided is discovered, such

as a neighbor of the seller filing a claim contesting the property boundary.

Changed circumstances – consumer eligibility. Changed circumstances that occur after the

Loan Estimate is provided to the consumer that affect the consumer’s eligibility for the terms

for which the consumer applied or the value of the security for the loan

(§1026.19(e)(3)(iv)(B)).

NOTE: A changed circumstance permitting a revised Loan Estimate under 12 CFR

1026.19(e)(3)(iv)(A) and (B) is:

• An extraordinary event beyond the control of any interested party or other unexpected event

specific to the consumer or transaction (§1026.19(e)(3)(iv)(A)(1));

• Information specific to the consumer or transaction that the creditor relied upon when

providing the original Loan Estimate and that was inaccurate or changed after the disclosures

were provided (§1026.19(e)(3)(iv)(A)(2)); or

• New information specific to the consumer or transaction that the creditor did not rely on

when providing the original Loan Estimate. (§1026.19(e)(3)(iv)(A)(3))

Change in eligibility. A creditor also may provide and use a revised Loan Estimate if a

changed circumstance affected the consumer’s creditworthiness or the value of the security

for the loan and resulted in the consumer being ineligible for an estimated loan term

previously disclosed. (§1026.19(e)(3)(iv)(B) and Comment 19(e)(3)(iv)(B)-1) This may

occur when a changed circumstance causes a change in the consumer’s eligibility for specific

loan terms disclosed on the Loan Estimate, which in turn results in increased cost for a

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settlement service beyond the applicable tolerance threshold. (Comment 19(e)(3)(iv)(A)-2)

For example:

• The creditor relied on the consumer’s representation to the creditor of a $90,000 annual

income, but underwriting determines that the consumer’s annual income is only $80,000.

• There are two co-applicants applying for a mortgage loan and the creditor relied on a

combined income when providing the Loan Estimate, but one applicant subsequently

becomes unemployed.

Revisions requested by the consumer. The consumer requests revisions to the credit terms or

the settlement that cause the estimated charge to increase. For example, a consumer grants a

power of attorney authorizing a family member to consummate the transaction on the

consumer’s behalf, and the creditor provides revised disclosures reflecting the fee to record

the power of attorney. (Comment 19(e)(3)(iv)(C)-1)

Rate locks after initial Loan Estimate. If the interest rate for the loan was not locked when

the Loan Estimate was provided and, upon being locked at some later time, points or lender

credits for the mortgage loan change, the creditor is required to provide a revised Loan

Estimate no later than three business days after the interest rate is locked and may use the

revised Loan Estimate to compare to points and lender credits charged. The revised Loan

Estimate must reflect the revised interest rate as well as any revisions to the points disclosed

on the Loan Estimate pursuant to 12 CFR 1026.37(f)(1), lender credits, and any other interest

rate dependent charges and terms that have changed due to the new interest rate.

(§1026.19(e)(3)(iv)(D); Comment 19(e)(3)(iv)(D)-1)

Expiration of Loan Estimate. If the consumer indicates an intent to proceed with the

transaction more than 10 business days after the Loan Estimate was delivered or placed in the

mail to the consumer, a creditor may use a revised Loan Estimate. (§1026.19(e)(3)(iv)(E);

Comment 19(e)(3)(iv)(E)-1) No justification is required for the change to the original

estimate of a charge other than the lapse of 10 business days.

Construction loans. In addition to the circumstances described above, creditors also may use

a revised Loan Estimate where the transaction involves financing of new construction and the

creditor reasonably expects that settlement will occur more than 60 calendar days after the

original Loan Estimate has been provided. (§1026.19(e)(3)(iv)(F)) Creditors may use revised

Loan Estimates in this circumstance only when the original Loan Estimate clearly and

conspicuously stated that at any time prior to 60 days before consummation, the creditor may

issue revised disclosures. (Comment 19(e)(3)(iv)(F)-1)

NOTE: Section 1026.19(e)(3) does not include technical errors, miscalculations, or

underestimations of charges as reasons for which creditors are permitted to provide revised

Loan Estimates.

Timing – Loan Estimate – revised disclosures. The general rule is that the creditor must deliver

or place in the mail the revised Loan Estimate to the consumer no later than three business days

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after receiving the information sufficient to establish that one of the reasons for the revision has

occurred. (§1026.19(e)(4)(i); comment 19(e)(4)(i)-1)

The creditor may not provide a revised Loan Estimate on or after the date the creditor provides the

consumer with the Closing Disclosure. (§1026.19(e)(4)(ii); Comment 19(e)(4)(ii)-1.ii) Because the

Closing Disclosure must be received by the consumer no later than three business days before

consummation, this means the consumer must receive a revised Loan Estimate no later than four

business days prior to consummation. (§1026.19(e)(4)(ii); Comment 19(e)(4)(ii)-1.ii)

NOTE: Generally a creditor is required to provide a revised Loan Estimate within three business

days of receiving information sufficient to establish the changed circumstance or other triggering

event (or in the case of a rate lock, the next business day). In some circumstances, the creditor

may already have provided a Closing Disclosure and thus be unable to provide a revised Loan

Estimate. However, if there are less than four business days between the date the creditor would

be required to provide a revised disclosure and consummation, creditors may provide consumers

with a Closing Disclosure reflecting any revised charges resulting from the changed

circumstance and rely on those figures (rather than the amounts disclosed on the Loan Estimate)

for purposes of determining good faith and the applicable tolerance. Comment 19(e)(4)(ii)-1

provides illustrative examples.

Predisclosure activity (§1026.19(e)(2)(i)(A)). A creditor or other person generally may not

impose any fee on a consumer in connection with the consumer’s application for a mortgage

transaction until the consumer has received the Loan Estimate and has indicated intent to proceed

with the transaction. (§1026.19(e)(2)(i)(A)) This restriction includes limits on imposing:

• Application fees;

• Appraisal fees;

• Underwriting fees; and

• Other fees imposed on the consumer.

The only exception to this exclusion is for a bona fide and reasonable fee for obtaining a

consumer’s credit report. (§1026.19(e)(2)(i)(B); Comment 19(e)(2)(i)(A)-1 through -5 and

Comment 19(e)(2)(i)(B)-1)

Documentation of intent to proceed. To satisfy the record retention requirements of §1026.25,

the creditor must document the consumer’s communication of the intent to proceed.

(§1026.19(e)(2)(i)(A)) A consumer indicates intent to proceed with the transaction when the

consumer communicates, in any manner, that the consumer chooses to proceed after the Loan

Estimate has been delivered, unless a particular manner of communication is required by the

creditor. (§1026.19(e)(2)(i)(A)) This may include:

• Oral communication in person immediately upon delivery of the Loan Estimate; or

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• Oral communication over the phone, written communication via email, or signing a pre-

printed form after receipt of the Loan Estimate.

A consumer’s silence is not indicative of intent to proceed. (Comment 19(e)(2)(i)(A)-2)

Written information for consumers before the Loan Estimate is provided. (§1026.19(e)(2)(ii)) A

creditor or other person may provide a consumer with estimated terms or costs prior to the

consumer receiving the Loan Estimate, if the person clearly and conspicuously states at the top

of the front of the first page of the written estimate and in font size no smaller than 12-point font

“Your actual rate, payment, and costs could be higher. Get an official Loan Estimate before

choosing the loan.” (§1026.19(e)(2)(ii); Comment 19(e)(2)(ii)-1) In addition, the written estimate

may not have headings, content, and format substantially similar to the Loan Estimate or the

Closing Disclosure. (§1026.19(e)(2)(ii); Comment 19(e)(2)(ii)-1)

The CFPB has provided a model of the required statement in form H-26 of appendix H to

Regulation Z.

Verification of information before the Loan Estimate is provided. A creditor or other person may

not condition providing the Loan Estimate on a consumer submitting documents verifying

information related to the consumer’s mortgage loan application before providing the Loan

Estimate. (§1026.19(e)(2)(iii); comment 19(e)(2)(iii)-1)

B. Final Disclosures (Closing Disclosure) – Section

1026.19(f)

For loans that require a Loan Estimate (i.e., most closed-end mortgage loans secured by real

property) and that proceed to closing, creditors must provide a new final disclosure reflecting the

actual terms of the transaction; it is called the Closing Disclosure. The form integrates and

replaces the HUD-1 and the final TIL disclosure for these transactions. The creditor is generally

required to ensure that the consumer receives the Closing Disclosure no later than three business

days before consummation of the loan. (§1026.19(f)(1)(ii))

NOTE: If the creditor mails the disclosure six business days prior to consummation, it can

assume that it was received three business days after sending. (1026.19(f)(1)(iii); Comment

19(f)(1)(iii))

• The Closing Disclosure generally must contain the actual terms and costs of the transaction.

(§1026.19(f)(1)(i)) Creditors may estimate disclosures using the best information reasonably

available when the actual term or cost is not reasonably available to the creditor at the time

the disclosure is made. However, creditors must act in good faith and use due diligence in

obtaining the information. The creditor normally may rely on the representations of other

parties in obtaining the information, including, for example, the settlement agent. The

creditor is required to provide corrected disclosures containing the actual terms of the

transaction at or before consummation. (Comments 19(f)(1)(i)-2, -2.i, and -2.ii)

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• The Closing Disclosure must be in writing and contain the information prescribed in 12 CFR

1026.38. The creditor must disclose only the specific information set forth in 12 CFR

1026.38(a) through (s), as shown in the CFPB’s form in appendix H-25. (§1026.38(t))

• If the actual terms or costs of the transaction change prior to consummation, the creditor must

provide a corrected disclosure that contains the actual terms of the transaction and complies

with the other requirements of 12 CFR 1026.19(f), including the timing requirements, and

requirements for providing corrected disclosures due to subsequent changes. (Comment

19(f)(1)(i)-1)

• New three-day waiting period. If the creditor provides a corrected disclosure, it must provide

the consumer with an additional three-business-day waiting period prior to consummation if

the annual percentage rate becomes inaccurate, the loan product changes, or a prepayment

penalty is added to the transaction. (§1026.19(f)(2)(ii)

“Consummation” occurs when the consumer becomes contractually obligated to the creditor on

the loan, not, for example, when the consumer becomes contractually obligated to a seller on a

real estate transaction. The time when a consumer becomes contractually obligated to the

creditor on the loan depends on applicable state law. (§1026.2(a)(13) and Comment 2(a)(13)-1)

Timing and Delivery - Closing Disclosure. Generally, the creditor is responsible for ensuring

that the consumer receives the Closing Disclosure form no later than three business days before

consummation. (§1026.19(f)(1)(ii)(A); Comment 19(f)(1)(v)-3) The creditor also is responsible

for ensuring that the Closing Disclosure meets the content, delivery, and timing requirements.

(§§1026.19(f) and 1026.38) For timeshare transactions, the creditor must ensure that the

consumer receives the Closing Disclosure no later than consummation. (§1026.19(f)(1)(ii)(B))

If the Closing Disclosure is provided in person, it is considered received by the consumer on the

day it is provided. If it is mailed or delivered electronically, the consumer is considered to have

received the Closing Disclosure three business days after it is delivered or placed in the mail.

(§1026.19(f)(1)(iii); Comment 19(f)(1)(ii)-2)

However, if the creditor has evidence that the consumer received the Closing Disclosure earlier

than three business days after it is mailed or delivered, it may rely on that evidence and consider

it to be received on that date. (Comments 19(f)(1)(iii)-1 and -2)

Multiple consumers. In transactions that are not rescindable, the Closing Disclosure may be

provided to any consumer with primary liability on the obligation. (§1026.17(d)) In rescindable

transactions, the creditor must provide the Closing Disclosure separately and meet the timing

requirements for each consumer who has the right to rescind under TILA (see §1026.23).

Settlement agents. Creditors may contract with settlement agents to have the settlement agent

provide the Closing Disclosure to consumers on the creditor’s behalf, provided that the

settlement agent complies with all relevant requirements of 12 CFR 1026.19(f).

(§1026.19(f)(1)(v)) Creditors and settlement agents also may agree to divide responsibility with

regard to completing the Closing Disclosure, with the settlement agent assuming responsibility to

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complete some or all the Closing Disclosure. (Comment 19(f)(1)(v)-4) Any such creditor must

maintain communication with the settlement agent to ensure that the Closing Disclosure and its

delivery satisfy the requirements described above, and the creditor is legally responsible for any

errors or defects. (§1026.19(f)(1)(v) and Comment 19(f)(1)(v)-3) In transactions involving a

seller, the settlement agent is required to provide the seller with the Closing Disclosure reflecting

the actual terms of the seller’s transaction no later than the day of consummation.

(§1026.19(f)(4)(i) and (ii))

NOTE: “Business day” has a different meaning for purposes of providing the Closing Disclosure

than it is for purposes of providing the Loan Estimate after receiving a consumer’s application.

For purposes of providing the Closing Disclosure, the term business day means all calendar days

except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a). (See §§1026.2(a)(6),

1026.19(f)(1)(ii)(A) and (f)(1)(iii))

Three-business-day waiting period. The loan may not be consummated less than three business

days after the Closing Disclosure is received by the consumer. If a settlement is scheduled during

the waiting period, the creditor generally must postpone settlement, unless the consumer

determines that the extension of credit is necessary to meet a bona fide personal financial

emergency and waives the waiting period. The written waiver describes the emergency,

specifically modifies or waives the waiting period, and bears the signature of all consumers who

are primarily liable on the legal obligation. Pre-printed forms for this purpose are prohibited.

(§1026.19(f)(1)(iv))

Average charges. In general, the amount imposed on the consumer for any settlement service

must not exceed the amount the settlement service provider actually received for that service.

However, an average charge may be imposed instead of the actual amount received for a

particular service, as long as the average charge satisfies the following conditions

(§1026.19(f)(3)(i)-(ii); Comment 19(f)(3)(i)-1):

• The average charge is no more than the average amount paid for that service by or on behalf

of all consumers and sellers for a class of transactions;

• The creditor or settlement service provider defines the class of transactions based on an

appropriate period of time, geographic area, and type of loan;

• The creditor or settlement service provider uses the same average charge for every

transaction within the defined class; and

• The creditor or settlement service provider does not use an average charge:

o For any type of insurance;

o For any charge based on the loan amount or property value; or

o If doing so is otherwise prohibited by law.

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Closing Disclosures - Revisions and Corrections (§1026.19(f)(2)). Creditors must re-disclose

terms or costs on the Closing Disclosure if certain changes occur to the transaction after the

Closing Disclosure was first provided that cause the disclosures to become inaccurate. There are

three categories of changes that require a corrected Closing Disclosure containing all changed

terms. (§1026.19(f)(2))

• Changes that occur before consummation that require a new three-business-day waiting

period. (§1026.19(f)(2)(ii))

• Changes that occur before consummation and do not require a new three-business-day

waiting period. (§1026.19(f)(2)(i))

• Changes that occur after consummation. (§1026.19(f)(2)(iii))

Changes before consummation requiring new waiting period. If one of the following occurs after

delivery of the Closing Disclosure and before consummation, the creditor must provide a

corrected Closing Disclosure containing all changed terms and ensure that the consumer receives

it no later than three business days before consummation. (§1026.19(f)(2)(ii); Comment

19(f)(2)(ii)-1)

• The disclosed APR becomes inaccurate. If the annual percentage rate (APR) previously

disclosed becomes inaccurate, the creditor must provide a corrected Closing Disclosure with

the corrected APR disclosure and all other terms that have changed. The APR’s accuracy is

determined according to 12 CFR 1026.22. (§1026.19(f)(2)(ii)(A))

• The loan product changes. If the loan product is changed, causing the product description

disclosed to become inaccurate, the creditor must provide a corrected Closing Disclosure

with the corrected loan product and all other terms that have changed. (§1026.19(f)(2)(ii)(B))

• A prepayment penalty is added. If a prepayment penalty is added to the transaction, the

creditor must provide a corrected Closing Disclosure with the prepayment penalty provision

disclosed and all other terms that have changed. (§1026.19(f)(2)(ii)(C))

The consumer may waive this period if the consumer is facing a bona fide personal financial

emergency. (§1026.19(f)(1)(iv))

Changes before consummation not requiring new waiting period; consumer’s right to inspect.

For any other changes before consummation that do not fall under the three categories above

(i.e., related to the APR, loan product, or the addition of a prepayment penalty), the creditor still

must provide a corrected Closing Disclosure with any terms or costs that have changed and

ensure that the consumer receives it. For these changes, there is no additional three-business-day

waiting period required. The creditor must ensure only that the consumer receives the revised

Closing Disclosure at or before consummation. (§1026.19(f)(2)(i); Comment 19(f)(2)(i)-1

through -2)

However, a consumer has the right to inspect the Closing Disclosure during the business day

before consummation. (§1026.19(f)(2)(i)) If a consumer asks to inspect the Closing Disclosure

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the business day before consummation, the Closing Disclosure presented to the consumer must

reflect any adjustments to the costs or terms that are known to the creditor at the time the

consumer inspects it. (§1026.19(f)(2)(i))

A creditor may satisfy the obligation to provide the Closing Disclosure by ensuring that a

settlement agent that provides a consumer with the disclosures complies with the requirements of

12 CFR 1026.19(f). (§1026.19(f)(1)(v) and Comment 19(f)(2)(i)-2)

Changes due to events occurring after consummation. Creditors must provide a corrected

Closing Disclosure if an event in connection with the settlement occurs during the 30-calendar-

day period after consummation that causes the Closing Disclosure to become inaccurate and

results in a change to an amount paid by the consumer from what was previously disclosed.

(§1026.19(f)(2)(iii); Comment 19(f)(2)(iii)-1)

When a post-consummation event requires a corrected Closing Disclosure, the creditor must

deliver or place in the mail a corrected Closing Disclosure not later than 30 calendar days after

receiving information sufficient to establish that such an event has occurred. (§1026.19(f)(2)(iii);

Comment 19(f)(2)(iii)-1) In transactions involving a seller, the settlement agent must provide the

seller with a revised Closing Disclosure if an event occurs within 30 days of consummation that

makes the disclosures inaccurate as they relate to the amount actually paid by the seller. The

settlement agent must deliver or mail a corrected closing disclosure no later than 30 days from

receiving information that establishes the Closing Disclosure is inaccurate and results in a

change to an amount actually paid by the seller from what was previously disclosed.

(§1026.19(f)(4)(ii))

Changes due to clerical errors. The creditor must provide a revised Closing Disclosure to correct

non-numerical clerical errors no later than 60 calendar days after consummation.

(§1026.19(f)(2)(iv)) An error is clerical if it does not affect a numerical disclosure and does not

affect the timing, delivery, or other requirements imposed by 12 CFR 1026.19(e) or (f).

(Comment 19(f)(2)(iv)-1)

Refunds related to the good faith analysis. The creditor can cure a tolerance violation of 12 CFR

1026.19(e)(3)(i) or (ii) by providing a refund to the consumer and delivering or placing in the

mail a corrected Closing Disclosure that reflects the refund no later than 60 calendar days after

consummation. (§1026.19(f)(2)(v))

C. Special Information Booklet - Section §1026.19(g)

Creditors generally must provide a copy of the “Shopping for Your Home Loan: Settlement Cost

Booklet

” (otherwise known as the special information booklet) to consumers who apply for a

consumer credit transaction secured by real property. This requirement is not limited to closed-

The Bureau has developed an updated version of the booklet titled “Your home loan toolkit: a step-by-step guide.” This

version is has been updated to include Dodd-Frank Act amendments and the new Loan Estimate and Closing Disclosures that are

effective August 1, 2015.

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end transactions and applies to most consumer credit transactions secured by real property,

except in a few circumstances (see below). The special information booklet is required pursuant

to Section 5 of RESPA (12 U.S.C. 2604) and is published by the CFPB to help consumers

applying for federally related mortgage loans understand real estate transactions.

(§1026.19(g)(1))

• If the consumer is applying for a HELOC subject to 12 CFR 1026.40, the creditor (or

mortgage broker) can provide a copy of the brochure entitled “When Your Home is On the

Line: What You Should Know About Home Equity Lines of Credit” instead of the special

information booklet. (§1026.19(g)(1)(ii))

• The creditor need not provide the special information booklet if the consumer is applying for

a real property-secured consumer credit transaction that does not have the purpose of

purchasing a one-to-four family residential property, such as a refinancing, a closed-end loan

secured by a subordinate lien, or a reverse mortgage. (§1026.19(g)(1)( iii))

Creditors must deliver or place in the mail the special information booklet not later than three

business days after receiving the consumer’s loan application. (§1026.19(g)(1)(i))

If the creditor denies the consumer’s application or if the consumer withdraws the application

before the end of the three-business-day period, the creditor need not provide the special

information booklet. (§1026.19(g)(1)(i); Comment 19(g)(1)(i)-3)

When two or more persons apply together for a loan, the creditor may provide a copy of the

special information booklet to just one of them. (Comment 19(g)(1)-2)

If the consumer uses a mortgage broker, the mortgage broker must provide the special

information booklet and the creditor need not do so. (§1026.19(g)(1)(i))

Creditors generally are required to use the booklets designed by the CFPB and may make only

limited changes to the special information booklet. (§1026.19(g)(2)) The CFPB may issue

revised or alternative versions of the special information booklet from time to time in the future.

Creditors should monitor the Federal Register for notice of updates. (Comment 19(g)(1)-1)

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IV. Loans receiving non-TILA-RESPA Integrated

Disclosures, Generally

Creditors making closed-end loans to consumers not subject to the TILA-RESPA Integrated

Disclosures Rule (i.e., other than loans where 12 CFR 1026.19(e) and (f) require the Loan

Estimate and the Closing Disclosure) must provide the consumer with the Truth in Lending

(TIL) disclosure, as outlined in 12 CFR 1026.17 and 1026.18. Creditors engaged in specified

housing assistance programs for low- and moderate-income consumers would also provide their

consumers with the TIL Disclosure. (§1026.3(h))

TIL Disclosure. The TIL disclosure provided for these loans includes a payment schedule.

(§1026.18(g)) The disclosed payment schedule must reflect all components of the finance

charge. It includes all payments scheduled to repay loan principal, interest on the loan, and any

other finance charge payable by the consumer after consummation of the transaction.

However, any finance charge paid separately before or at consummation (e.g., odd days’ interest)

is not part of the payment schedule. It is a prepaid finance charge that must be reflected as a

reduction in the value of the amount financed.

At the creditor’s option, the payment schedule may include amounts beyond the amount financed

and finance charge (e.g., certain insurance premiums or real estate escrow amounts such as taxes

added to payments). However, when calculating the APR, the creditor must disregard such amounts.

If the obligation is a renewable balloon payment instrument that unconditionally obligates the

financial institution to renew the short-term loan at the consumer’s option or to renew the loan

subject to conditions within the consumer’s control, the payment schedule must be disclosed

using the longer term of the renewal period or periods. The long-term loan must be disclosed

with a variable rate feature.

If there are no renewal conditions or if the financial institution guarantees to renew the obligation

in a refinancing, the payment schedule must be disclosed using the shorter balloon payment term.

The short-term loan must be disclosed as a fixed rate loan, unless it contains a variable rate

feature during the initial loan term.

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V.Variable and Adjustable Rate Transactions;

Sections 1026.18(f), 1026.20(c) and (d)

A. Closed-end transactions generally

If the terms of the legal obligation allow the financial institution, after consummation of the

transaction, to increase the APR, the financial institution must furnish the consumer with certain

information on variable rates. In addition, variable rate disclosures are not applicable to rate

increases resulting from delinquency, default, assumption, acceleration, or transfer of the collateral.

Some of the more important transaction-specific variable rate disclosure requirements follow.

• Disclosures for variable rate loans must be given for the full term of the transaction and must

be based on the terms in effect at the time of consummation.

• If the variable rate transaction includes either a seller buy-down that is reflected in a contract

or a consumer buy-down, the disclosed APR should be a composite rate based on the lower

rate for the buy-down period and the rate that is the basis for the variable rate feature for the

remainder of the term.

• If the initial rate is not determined by the index or formula used to make later interest rate

adjustments, as in a discounted variable rate transaction, the disclosed APR must reflect a

composite rate based on the initial rate for as long as it is applied and, for the remainder of

the term, the rate that would have been applied using the index or formula at the time of

consummation (i.e., the fully indexed rate).

o If a loan contains a rate or payment cap that would prevent the initial rate or payment, at

the time of the adjustment, from changing to the fully indexed rate, the effect of that rate

or payment cap needs to be reflected in the disclosures.

o The index at consummation need not be used if the contract provides a delay in the

implementation of changes in an index value (e.g., the contract indicates that future rate

changes are based on the index value in effect for some specified period, like 45 days

before the change date). Instead, the financial institution may use any rate from the date

of consummation back to the beginning of the specified period (e.g., during the previous

45-day period).

• If the initial interest rate is set according to the index or formula used for later adjustments,

but is set at a value as of a date before consummation, disclosures should be based on the

initial interest rate, even though the index may have changed by the consummation date.

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B. Adjustable Rate Mortgage Disclosures

1. Disclosure of Initial Rate Change for Adjustable Rate

Mortgages – Section 1026.20(d)

Creditors, assignees, or servicers

(referred to collectively as creditors) of adjustable rate

mortgages, or ARMs, secured by the consumer’s principal dwelling and with terms of more

than one year are generally required to provide consumers with certain information pertaining

to the ARM’s initial rate change.

This information must be provided in a disclosure that is

separate from all other documents, and the disclosure must be provided between 210 and 240

days before the first payment at the adjusted rate is due. If the first payment at a new rate is

due within the first 210 days after consummation, the creditor must provide the rate change

disclosure at consummation.

Disclosures required under this section must provide consumers with information related to the

timing and nature of the rate change. If the new rate pursuant to the change disclosed is not

known and the creditor provides an estimate, the rate must be identified as an estimate. If the

creditor is using an estimate, it must be based on the index within 15 business days prior to the

date of the disclosure. The calculation is made using the index reported in the source of

information that the creditor uses in the explanation of how the interest rate is determined.

Disclosures required under section 1026.20(d) must also include, among others:

• The date of the disclosure.

• A statement explaining that the time period that the current rate has been in effect is ending,

that the current rate is expiring, and that a change in the rate may result in a change in the

required payment; providing the effective date of the change and a schedule of any future

changes; and describing any other changes to the loan terms, features, or options taking effect

on the same date (including expiration of interest-only or payment-option features).

• A table containing the current and new interest rates, the current and new payments,

including the date the new payment is due, and for interest-only or negative amortization

loans, the amount of the current and new payment allocated to principal, interest, and escrow

(if applicable).

NOTE: The new payment allocation disclosed is the expected payment allocation for the first

payment for which the new interest rate will apply.

Creditors, assignees, and servicers are all subject to the requirements of this section 1026.20(d). Creditors, assignees, and

servicers may decide among themselves which of them will provide the required disclosures. However, establishing a business

relationship where one party agrees to provide disclosures on behalf of the other parties does not absolve all other parties from

their legal obligations.

Exemptions to disclosure requirements are covered in the section titled, “Exemptions to the Adjustable Rate Mortgage

Disclosure Requirements – Sections 1026.20(c)(1)(ii) and (d)(1)(ii)” below.

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• An explanation of how the interest rate is determined, including (among other things) an

explanation of the index or formula used to determine the new rate and the margin.

• Any limitations on the interest rate or payment increase for each scheduled increase and over

the life of the loan. Creditors must also include a statement regarding the extent to which

such limitations result in foregone interest rate increases and the earliest date such foregone

interest rate increases may apply to future interest rate adjustments.

• An explanation of how the new payment is determined, including an explanation of the index

or formula used to determine the new rate, including the margin, the expected loan balance

on the date of the rate adjustment, and the remaining loan term or any changes to the term

caused by the rate change.

• If the creditor is using an estimated rate or payment, a statement that the actual new interest

rate and new payment will be provided to the consumer between two and four months prior

to the first payment at the new rate.

• For negative amortization loans, creditors must provide a statement indicating that the new

payment will not be allocated to pay loan principal and will not reduce the balance of the

loan; instead, the payment will only apply to part of the interest, thereby increasing the

amount of principal.

• A statement indicating the circumstances under which any prepayment penalty may be

imposed, the time period during which it may be imposed, and a statement that the consumer

may contact the servicer for additional information, including the maximum amount of the

penalty that may be charged to the consumer.

• The telephone number of the creditor, assignee, or servicer for use if the consumer

anticipates that he or she may not be able to make the new payments.

• A statement providing specified alternatives (which include refinancing, selling the property,

loan modification, and forbearance) available if the consumer anticipates not being able to

make the new payment.

• A website address for either the CFPB’s or the Department of Housing and Urban

Development’s (HUD) list of homeownership counselors and counseling organizations, the

HUD toll-free telephone number to access the HUD list of homeownership counselors and

counseling organizations, and the CFPB’s website address for state housing finance

authorities contact information.

• For more information pertaining to the required format of the disclosures required under

section 1026.20(d), please see section 1026.20(d)(3) and the model and sample forms H-

4(D)(3) and (4) in Appendix H.

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2. Disclosure of Rate Adjustments Resulting in Payment

Changes – Section 1026.20(c)

Creditors, assignees, or servicers

(referred to collectively as creditors) of ARMs secured by a

consumer’s principal dwelling with a term greater than one year are generally required to provide

consumers with disclosures prior to the adjustment of the interest rate on the mortgage,

if the

interest rate change will result in a payment change as follows:

• For ARMs where the payment changes along with a rate change, disclosures must be

provided to consumers between 60 and 120 days before the first payment at the new amount

is due.

• For ARMs where the payment changes in connection with a uniformly scheduled interest rate

adjustment occurring every 60 days (or more frequently), the disclosures must be provided

between 25 and 120 days before the first payment at the new amount is due.

• For ARMs originated prior to January 10, 2015, in which the contract requires the adjusted

interest and payment to be calculated based on an index that is available on a date less than

45 days prior to the adjustment date, disclosures must be provided between 25 and 120 days

before the first payment at the new amount is required.

• For ARMs where the first adjustment occurs within 60 days of consummation and the new

interest rate disclosed at the time was an estimate, the disclosures must be provided as soon

as practicable, but no less than 25 days before the first payment at the new amount is due.

Disclosures required under section 1026.20(c) must contain specific information, which includes,

among others:

• A statement explaining that the time period during which the consumer’s current rate has

been in effect is ending and that the rate and payment will change; when the interest rate will

change; dates when additional interest rate adjustments are scheduled to occur; and any other

change in loan terms or features that take effect on the same date that the interest rate and

payment change, such as an expiration of interest-only treatment or payment-option feature.

• A table explaining the current and new interest rates; the current and new payments,

including the date the new payment is due; and for interest-only or negative amortizing loans,

the amount of the current and new payment allocated to principal, interest, and amounts for

escrow (if applicable).

Creditors, assignees, and servicers are all subject to the requirements of section 1026.20(c). Creditors, assignees, and servicers

may decide among themselves which of them will provide the required disclosures. However, establishing a business relationship

where one party agrees to provide disclosures on behalf of the other parties does not absolve all other parties from their legal

obligations.

Exemptions to disclosure requirements are covered in the section titled, “Exemptions to the Adjustable Rate Mortgage

Disclosure Requirements – Sections 1026.20(c)(1)(ii) and (d)(1)(ii)” below.

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• An explanation of how the new interest rate is determined, including (among other things)

the index or formula used to determine the new rate and the margin, and any application of

previously foregone interest rate increases from past adjustments;

• Any limitations on the interest rate and payment increase for each scheduled increase for the

duration of the loan. Creditors must also include a statement regarding the extent to which

such limitations result in foregone interest rate increases and the earliest date such foregone

interest rate increases may apply to future interest rate adjustments.

• An explanation of how the new payment is determined, including an explanation of the index

or formula used to determine the new rate, including the margin, the expected loan balance

on the date of the rate adjustment, and the remaining loan term or any changes to the term

caused by the rate change;

• For negative amortization loans, creditors must provide a statement indicating that the new

payment will not reduce the balance of the loan, rather, the payment will only apply to part of

the interest, thereby increasing the amount of principal; and

• A statement indicating the circumstances under which any prepayment penalty may be

imposed, the time period during which it may be imposed, and a statement that the consumer

may contact the servicer for additional information, including the maximum amount of the

penalty that may be charged to the consumer.

For more information pertaining to the required format of the disclosures required under section

1026.20(c), please see section 1026.20(c)(3) and the model and sample forms H-4(D)(1) and (2)

in Appendix H.

3. Exemptions to the Adjustable Rate Mortgage Disclosure

Requirements – Sections 1026.20(c)(1)(ii) and (d)(1)(ii)

Disclosures under sections 1026.20(c) and (d) are not required for ARMs with a term of one year

or less. Likewise, disclosures under section 1026.20(c) are not required if the first interest rate and

payment adjustment occurs within the first 210 days and the new rate disclosed at consummation

pursuant to section 1026.20(d) was not an estimate. ARM disclosures for payment changes are

exempt under section 1026.20(c)(1)(ii)(C) where the servicer is a debt collector under the Fair

Debt Collection Practices Act (FDCPA) and a consumer has exercised the right under FDCPA

section 805(c) to prohibit debt collector communications regarding the debt.

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Closed-End Credit: Finance Charge Accuracy Tolerances

* See 15 U.S.C. 1602(bb)

Is this a

closed-end

credit

TILA

claim

asserting

rescission

rights?

Finance charge

tolerance is

$35.

An overstated

finance charge

is not

considered a

violation.

Is the

rescission

claim a

defense to

foreclosure

action?

Is the

transaction

secured by

real estate or

dwelling?

Did the

transaction

originate before

9/30/95?

Yes

Is the

transaction a

refinancing?

Yes

Finance charge

tolerance is $200

for

understatements.

An overstated

finance charge is

not considered a

violation.

Finance charge

tolerance is

$100 for

understatements.

An overstated

finance charge

is not

considered a

violation.

The finance charge shall

be considered accurate

if it is not more than $5

above or below the

exact finance charge in

a transaction involving

an amount financed of

$1,000 or less, or not

more than $10 above or

below the exact finance

charge in a transaction

involving an amount

financed of more than

$1,000.

Finance charge tolerance is 1%

of the loan amount or $100,

whichever is greater.

Yes

Does the

refinancing

involve a

consolidation or

new advance?

Yes

Is the

transaction a

high-cost

mortgage

loan?*

Finance charge

tolerance is

one-half of 1%

of the loan

amount or $100,

whichever is

greater.

An overstated

finance charge is

not considered a

violation.

Yes

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Closed-End Credit: Accuracy and Reimbursement Tolerances for

UNDERSTATED FINANCE CHARGES

Is the loan secured by real estate or a

dwelling?

Yes

Is the disclosed FC understated

by more than $100 (or $200 if

the loan originated before

9/30/95)?

Yes

FC Violation

No violation

FC violation

No violation

FC violation

Yes

Is the disclosed FC

understated by more than

$10?

Is the disclosed FC

understated by more than

$5?

Yes

Is the amount financed greater

than $1,000?

Is the loan

term greater

than 10

years?

Yes

Is the loan a

regular loan?

Yes

Is the disclosed FC plus the FC

reimbursement tolerance (based

on a one-quarter of 1 percentage

point APR tolerance) less than

the correct FC?

Is the disclosed FC plus the FC

reimbursement tolerance (based

on a one-eighth of 1 percentage

point APR tolerance) less than

the correct FC?

Yes

No reimbursement

Subject to

reimbursement

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Closed-End Credit: Accuracy Tolerances for

OVERSTATED FINANCE CHARGES

Is the loan secured by real estate or a

dwelling?

Yes

Is the amount financed greater

than $1,000?

Yes

Is the disclosed FC less

$10 greater than the

correct FC?

Is the disclosed FC less

$5 greater than the

correct FC?

Yes

violation

FC violation

Yes

No violation

FC violation

No violation

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Closed-End Credit: Accuracy Tolerances for

OVERSTATED APRs

APR Violation

No violation

Yes

Was the finance charge disclosure error the cause

of the APR disclosure error?

APR Violation

Yes

Is the finance charge disclosed greater than

the correct finance charge?

Is this a “regular” loan?

Yes

Is the disclosed APR greater than the correct

APR by more than one-eighth of one percentage

point?

Is the disclosed APR greater than the correct

APR by more than one-quarter of one

percentage point?

No violation

Yes

Is the loan secured by real estate or a dwelling?

Yes No

APR Violation

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Closed-End Credit: Accuracy and Reimbursement Tolerances for

UNDERSTATED APRs

Is the loan a “regular” loan?

Yes

Is the disclosed APR understated by

more than one-quarter of one percentage

point?

Is the disclosed APR understated by

more than one-eighth of one

percentage point?

No violation

Yes

Is the loan secured by real estate or a dwelling?

APR violation

Yes

Is the finance charge understated by more than:

• $100 if the loan originated on or after 9/30/95?

• $200 if the loan originated before 9/30/95?

APR violation

Was the finance charge disclosure error the cause of

the APR disclosure error?

Yes

No violation

APR violation

Is the loan term greater than 10 years?

Yes

Is the loan a “regular” loan?

Is the disclosed APR understated by

more than one-quarter of one percentage

point?

Is the disclosed APR understated by

more than one-eighth of one percentage

point?

Yes

No reimbursement

Subject to reimbursement

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VI. Refinancings – Section 1026.20(a)

When an obligation is satisfied and replaced by a new obligation to the original financial

institution (or a holder or servicer of the original obligation) and is undertaken by the same

consumer, it must be treated as a refinancing for which a complete set of new disclosures must

be furnished. A refinancing may involve the consolidation of several existing obligations,

disbursement of new money to the consumer, or the rescheduling of payments under an existing

obligation. In any form, the new obligation must completely replace the earlier one to be

considered a refinancing under the regulation. The finance charge on the new disclosure must

include any unearned portion of the old finance charge that is not credited to the existing

obligation. (§1026.20(a))

The following transactions are not considered refinancings even if the existing obligation is

satisfied and replaced by a new obligation undertaken by the same consumer:

• A renewal of an obligation with a single payment of principal and interest or with periodic

interest payments and a final payment of principal with no change in the original terms.

• An APR reduction with a corresponding change in the payment schedule.

• An agreement involving a court proceeding.

• Changes in credit terms arising from the consumer’s default or delinquency.

• The renewal of optional insurance purchased by the consumer and added to an existing

transaction, if required disclosures were provided for the initial purchase of the insurance.

However, even if it is not accomplished by the cancellation of the old obligation and substitution

of a new one, a new transaction subject to new disclosures results if the financial institution:

• Increases the rate based on a variable rate feature that was not previously disclosed; or

• Adds a variable rate feature to the obligation.

If, at the time a loan is renewed, the rate is increased, the increase is not considered a variable

rate feature. It is the cost of renewal, similar to a flat fee, as long as the new rate remains fixed

during the remaining life of the loan. If the original debt is not canceled in connection with

such a renewal, the regulation does not require new disclosures. Also, changing the index of a

variable rate transaction to a comparable index is not considered adding a variable rate feature

to the obligation.

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VII. Escrow Cancellation Disclosures – Section

1026.20(e)

Escrow Closing Notice. Before cancelling an escrow account, an Escrow Closing Notice must be

provided to any consumers for whom an escrow account was established in connection with a

closed-end consumer credit transaction secured by a first lien on real property or a dwelling,

except for reverse mortgages. (§1026.20(e)(1)) For this purpose, the term escrow account has the

same meaning given to it as under Regulation X, 12 CFR 1024.17(b), and the term servicer has

the same meaning given to it as under Regulation X, 12 CFR 1024.2(b). There are two

exceptions to the requirement to provide the notice:

• Creditors and servicers are not required to provide the notice if the escrow account that is

being cancelled was established solely in connection with the consumer’s delinquency or

default on the underlying debt obligation. (Comment 20(e)(1)-2)

• Creditors and servicers are not required to provide the notice when the underlying debt

obligation for which an escrow account was established is terminated, including by

repayment, refinancing, rescission, and foreclosure. (Comment 20(e)(1)-3)

For loans subject to the Escrow Closing Notice requirement, if the creditor or servicer cancels

the escrow account at the consumer’s request, the creditor or servicer must ensure that the

consumers receive the notice no later than three business days (i.e., all calendar days except

Sundays and the legal public holidays (see §§1026.2(a)(6), 1026.19(f)(1)(ii)(A) and (f)(1)(iii))

before the consumer’s escrow account is canceled. (§1026.20(e)(5)(i)) If the creditor or servicer

cancels the escrow account and the cancellation is not at the consumer’s request, the creditor or

servicer must ensure that the consumer receives the notice no later than 30 business days before

the closure of the consumer's escrow account. (§1026.20(e)(5)(ii) If the Escrow Closing Notice is

not provided to the consumer in person, the consumer is considered to have received the notice

three business days after it is delivered or placed in the mail. (§1026.20(e)(5)(iii)

The creditor or servicer must disclose (§1026.20(e)(1)-(2)):

• The date on which the account will be closed;

• That an escrow account may also be called an impound or trust account;

• The reason why the escrow account will be closed;

• That without an escrow account, the consumer must pay all property costs, such as taxes and

homeowner’s insurance, directly, possibly in one or two large payments a year;

• A table, titled “Cost to you,” that contains an itemization of the amount of any fee the

creditor or servicer imposes on the consumer in connection with the closure of the

consumer’s escrow account, labeled “Escrow Closing Fee,” and a statement that the fee is for

closing the escrow account;

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• Under the reference “In the future”:

o The consequences if the consumer fails to pay property costs, including the actions that a

state or local government may take if property taxes are not paid and the actions the

creditor or servicer may take if the consumer does not pay some or all property costs,

such as adding amounts to the loan balance, adding an escrow account to the loan, or

purchasing a property insurance policy on the consumer’s behalf that may be more

expensive and provide fewer benefits than a policy that the consumer could obtain

directly;

o A telephone number that the consumer can use to request additional information about

the cancellation of the escrow account;

o Whether the creditor or servicer offers the option of keeping the escrow account open

and, as applicable, a telephone number the consumer can use to request that the account

be kept open; and

o Whether there is a cut-off date by which the consumer can request that the account be

kept open.

The creditor or servicer may also, at its option, disclose (§1026.20(e)(3)):

• The creditor or servicer’s name or logo;

• The consumer’s name, phone number, mailing address, and property address;

• The issue date of the notice;

• The loan number; or

• The consumer’s account number.

In addition, the disclosures must:

• Contain a required heading that is more conspicuous than and precedes the required

disclosures discussed above. (§1026.20(e)(4))

• Be clear and conspicuous. This standard generally requires that the disclosures in the Escrow

Closing Notice be in a reasonably understandable form and readily noticeable to the

consumer. (Comment 20(e)(2)-1)

• Be written in 10-point font, at a minimum. (§1026.20(e)(4))

• Be grouped together on the front side of a one-page document. The disclosures must be

separate from all other materials, with the headings, content, order, and format substantially

similar to model form H-29 in appendix H to Regulation Z. (§1026.20(e)(4))

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VIII. Closed-end Advertising – Section 1026.24

If an advertisement for credit states specific credit terms, it must state only those terms that

actually are or will be arranged or offered by the creditor.

Disclosures required by this section must be made “clearly and conspicuously.” To meet this

standard in general, credit terms need not be printed in a certain type size nor appear in any

particular place in the advertisement. For advertisements for credit secured by a dwelling, a

clear and conspicuous disclosure means that the required information is disclosed with equal

prominence and in close proximity to the advertised rates or payments triggering the required

disclosures.

If an advertisement states a rate of finance charge, it must state the rate as an “annual percentage

rate,” using that term. If the APR may be increased after consummation, the advertisement must

state that fact.

If an advertisement is for credit not secured by a dwelling, the advertisement must not state any

other rate, except that a simple annual rate or periodic rate that is applied to an unpaid balance

may be stated in conjunction with, but not more conspicuously than, the APR.

If an advertisement is for credit secured by a dwelling, the advertisement must not state any other

rate, except that a simple annual rate that is applied to an unpaid balance may be stated in

conjunction with, but not more conspicuously than, the APR. That is, an advertisement for credit

secured by a dwelling may not state a periodic rate, other than a simple annual rate, that is

applied to an unpaid balance.

“Triggering terms” – The following are triggering terms that require additional disclosures:

• The amount or percentage of any down payment;

• The number of payments or period of repayment;

• The amount of any payment; and

• The amount of any finance charge.

An advertisement stating a triggering term must also state the following terms as applicable:

• The amount or percentage of any down payment;

• The terms of repayment, which reflect the repayment obligations over the full term of the

loan, including any balloon payment; and

• The “annual percentage rate,” using that term, and, if the rate may be increased after

consummation, that fact.

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For any advertisement secured by a dwelling, other than television or radio advertisements, that

states a simple annual rate of interest and more than one simple annual rate of interest will apply

over the term of the advertised loan, the advertisement must state in a clear and conspicuous

manner:

• Each simple rate of interest that will apply. In variable-rate transactions, a rate determined by

adding an index and margin must be disclosed based on a reasonably current index and

margin.

• The period of time during which each simple annual rate of interest will apply.

• The APR for the loan.

The regulation prohibits the following seven deceptive or misleading acts or practices in

advertisements for closed-end mortgage loans:

• Stating that rates or payments for loans are “fixed” when those rates or payments can vary

without adequately disclosing that the interest rate or payment amounts are “fixed” only for a

limited period of time, rather than for the full term of the loan;

• Making comparisons between actual or hypothetical credit payments or rates and any

payment or rate available under the advertised product that are not available for the full term

of the loan, with certain exceptions for advertisements for variable rate products;

• Characterizing the products offered as “government loan programs,” “government-supported

loans,” or otherwise endorsed or sponsored by a federal or state government entity even

though the advertised products are not government-supported or -sponsored loans;

• Displaying the name of the consumer’s current mortgage lender, unless the advertisement

also prominently discloses that the advertisement is from a mortgage lender not affiliated

with the consumer’s current lender;

• Making claims of debt elimination if the product advertised would merely replace one debt

obligation with another;

• Creating a false impression that the mortgage broker or lender is a “counselor” for the

consumer; and

• In foreign-language advertisements, providing certain information, such as a low

introductory “teaser” rate, in a foreign language, while providing required disclosures only in

English.

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Subpart D – Miscellaneous

Subpart D contains rules on oral disclosures (§1026.26), disclosures in languages other than

English (§1026.27), record retention (§1026.25), effect on state laws (§1026.28), state

exemptions (§1026.29), and rate limitations (§1026.30).

Record Retention – Section 1026.25

As a general rule, the creditor must retain evidence of compliance with Regulation Z (other than

advertising requirements under §§1026.16 and 1026.24, and other than certain requirements for

mortgage loans) for two years after the date disclosures are required to be made or action is

required to be taken. (§1026.25(a)) This includes, for example, evidence that the creditor

properly handled adverse credit reports in connection with amounts subject to a billing dispute

under 12 CFR 1026.13, and properly handled the refunding of credit balances under 12 CFR

1026.11 and 1026.21. The creditor may retain the evidence by any method that reproduces

records accurately (including computer programs) (Comment 25(a)-2). A creditor must permit

the enforcing agency to inspect its relevant records for compliance. (§1026.25(b))

The record retention period for mortgage loans is generally three years. (§1026.25(c)) A creditor

must retain evidence of compliance with the requirements of 12 CFR 1026.19(e) and (f) for three

years after the later of the date of consummation, the date disclosures are required to be made, or

the date the action is required to be taken. (§1026.25(c)(1)(i))

For Closing Disclosures, the record retention period is five years. The creditor must retain

completed closing disclosures required by 12 CFR 1026.19(f)(1)(i) or (f)(4)(i), and all

documents related to such disclosures, for five years after consummation. (§1026.25(c)(1)(ii)(A))

If a creditor sells, transfers, or otherwise disposes of its interest in a mortgage loan subject to 12

CFR 1026.19(f) and does not service the mortgage loan, the creditor must provide a copy of the

closing disclosures to the owner or servicer of the mortgage, and the new owner or servicer must

retain such disclosures for the remainder of the five-year period.

For loan originator compensation, creditors and loan originator organizations must retain

records-related requirements for mortgage loan originator compensation and the compensation

agreement that governs those payments for three years after the date of payment.

(§1026.25(c)(2))

A creditor must retain evidence to show compliance with the minimum standards for loans

secured by a dwelling in 12 CFR 1026.43 for three years after consummation of a transaction

covered by that section. (§1026.25(c)(3))

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Relationship to State Law – TILA 111 and Sections

1026.28, .29

State laws providing rights, responsibilities, or procedures for consumers or financial institutions

for consumer credit contracts may be:

• Preempted by federal law;

• Not preempted by federal law; or

• Substituted in lieu of the TILA and Regulation Z requirements.

State law provisions are preempted to the extent that they contradict the requirements in the

following chapters of the TILA and the implementing sections of Regulation Z:

• Chapter 1, “General Provisions,” which contains definitions and acceptable methods for

determining finance charges and annual percentage rates.

• Chapter 2, “Credit Transactions,” which contains disclosure requirements, rescission rights,

and certain credit card provisions.

• Chapter 3, “Credit Advertising,” which contains consumer credit advertising rules and APR

oral disclosure requirements.

For example, a state law would be preempted if it required a bank to use the terms “nominal

annual interest rate” in lieu of “annual percentage rate.”

Conversely, state law provisions are generally not preempted under federal law if they call for,

without contradicting chapters 1, 2, or 3 of the TILA or the implementing sections of Regulation

Z, either of the following:

• Disclosure of information not otherwise required. A state law that requires disclosure of the

minimum periodic payment for open-end credit, for example, would not be preempted

because it does not contradict federal law.

• Disclosures more detailed than those required. A state law that requires itemization of the

amount financed, for example, would not be preempted, unless it contradicts federal law by

requiring the itemization to appear with the disclosure of the amount financed in the

segregated closed-end credit disclosures.

The relationship between state law and chapter 4 of the TILA (“Credit Billing”) involves two

parts. The first part is concerned with sections 161 (correction of billing errors) and 162

(regulation of credit reports) of the act; the second part addresses the remaining sections of

chapter 4.

State law provisions are preempted if they differ from the rights, responsibilities, or procedures

contained in sections 161 or 162. An exception is made, however, for state law that allows a

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consumer to inquire about an account and requires the bank to respond to such inquiry beyond

the time limits provided by federal law. Such a state law would not be preempted for the extra

time period.

State law provisions are preempted if they result in violations of sections 163 through 171 of

chapter 4. For example, a state law that allows the card issuer to offset the consumer’s credit-

card indebtedness against funds held by the card issuer would be preempted, since it would

violate 12 CFR 1026.12(d). Conversely, a state law that requires periodic statements to be sent

more than 14 days before the end of a free-ride period would not be preempted, since no

violation of federal law is involved.

A bank, state, or other interested party may ask the CFPB to determine whether state law

contradicts chapters 1 through 3 of the TILA or Regulation Z. They also may ask if the state law is

different from, or would result in violations of, chapter 4 of the TILA and the implementing

provisions of Regulation Z. If the CFPB determines that a disclosure required by state law (other

than a requirement relating to the finance charge, APR, or the disclosures required under section

1026.32) is substantially the same in meaning as a disclosure required under the act or Regulation

Z, generally creditors in that state may make the state disclosure in lieu of the federal disclosure.

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Subpart E – Special Rules for Certain Home

Mortgage Transactions

Subpart E contains special rules for mortgage transactions. Section 1026.32 requires certain

disclosures and provides limitations for closed-end credit transactions and open-end credit plans

that have rates or fees above specified amounts or certain prepayment penalties. Section 1026.33

requires special disclosures, including the total annual loan cost rate, for reverse mortgage

transactions. Section 1026.34 prohibits specific acts and practices in connection with high-cost

mortgages, as defined in 12 CFR 1026.32(a). Section 1026.35 provides requirements for higher-

priced mortgage loans. Section 1026.36 prohibits specific acts and practices in connection with

an extension of credit secured by a dwelling. Sections 1026.37 and 1026.38 set forth disclosure

requirements for most closed-end transactions secured by real property, as required by 12 CFR

1026.19(e) and (f).

General Rules – Section 1026.31

The requirements and limitations of this subpart are in addition to, and not in lieu of, those

contained in other subparts of Regulation Z. The disclosures for high-cost, reverse mortgage, and

higher-priced mortgage transactions must be made clearly and conspicuously in writing, in a

form that the consumer may keep and in compliance with specific timing requirements.

Requirements for High-Cost Mortgages – Section 1026.32

The requirements of this section generally apply to a high-cost mortgage, which is a consumer

credit transaction secured by the consumer’s principal dwelling (subject to the exemptions

discussed below) that meets any one of the following three coverage tests.

• The APR will exceed the average prime offer rate (APOR), as defined in section

1026.35(a)(2), applicable for a comparable transaction as of the date the interest rate is set by:

o More than 6.5 percentage points for first-lien transactions (other than as described below);

o More than 8.5 percentage points for first-lien transactions where the dwelling is personal

property and the loan amount is less than $50,000; or

o More than 8.5 percentage points for subordinate-lien transactions.

• The total points and fees (see definition below) for the transaction will exceed:

o For transactions with a loan amount of $20,000 or more, five percent of the total loan

amount; or

o For transactions with a loan amount of less than $20,000, the lesser of eight percent of the

total transaction amount or $1,000 for the calendar year 2014.

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The $20,000 and $1,000 dollar amounts will be adjusted annually based on changes in the

Consumer Price Index and will be reflected in official interpretations of section 1026.32(a)(1)(ii).

The official interpretation of section 1026.32(a)(1)(ii) also contains a historical list of dollar

amount adjustments for transactions originated prior to January 10, 2014.

NOTE: The “total loan amount” (using the face amount of the note) for closed-end credit is

calculated by taking the amount financed (see §1026.18(b)) and deducting any cost listed in

sections 1026.32(b)(1)(iii), (iv), or (vi) that is both included in points and fees and financed by

the creditor. The “total loan amount” for open-end credit is the credit plan limit when the account

is opened.

• The terms of the loan contract or open-end credit agreement permit the creditor to charge a

prepayment penalty (see definition below) more than 36 months after consummation or

account opening, or prepayment penalties that exceed more than two percent of the amount

prepaid (§1026.32(a)(1)(iii)).

NOTE: Section 1026.32(d)(6) prohibits prepayment penalties for high-cost mortgages. However,

if a mortgage loan has a prepayment penalty that may be imposed more than 36 months after

consummation or account opening or that is greater than two percent of the amount prepaid, the

loan is a high-cost mortgage regardless of interest rate or fees. Therefore, the prepayment penalty

coverage test above effectively bans transactions of the types subject to HOEPA coverage that

permit creditors to charge prepayment penalties that exceed the prescribed limits.

Exemptions from HOEPA Coverage – Section 1026.32(a)(2)

• Reverse mortgage transactions subject to section 1026.33;

• A transaction that finances the initial construction of a dwelling;

• A transaction originated by a Housing Finance Agency, where the Housing Finance Agency

is the creditor for the transaction; or

• A transaction originated pursuant to the United States Department of Agriculture’s Rural

Development Section 502 Direct Loan Program.

Determination of APR for High-Cost Mortgages – Section 1026.32(a)(3)

The APR used to determine whether a mortgage is a high-cost mortgage is calculated differently

than the APR that is used on TILA disclosures. Specifically, the APR for HOEPA coverage is

based on the following:

• If the APR will not vary during the length of the loan or credit plan (i.e., for fixed-rate

transactions), the interest rate in effect as of the date the interest rate for the transaction is set

(§1026.32(a)(3)(i));

• If the interest rate may vary during the term of the loan or credit plan in accordance with an

index, the interest rate that results from adding the maximum margin permitted at any time

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during the term of the loan or credit plan to the index rate in effect as of the date the interest

rate for the transaction is set, or to the introductory interest rate, whichever is greater

(§1026.32(a)(3)(ii)); or

• If the interest rate may or will vary during the term of the loan or credit plan other than as

described above (i.e., as in a step-rate transaction), the maximum interest rate that may be

imposed during the life of the loan or credit plan. (§1026.32(a)(3)(iii))

Points and Fees for High-Cost Mortgages – Section 1026.32(b)

NOTE: Points and fees calculations for high-cost mortgages depend upon whether the

transaction is closed end or open end.

For a closed-end transaction, calculate the points and fees by including the following charges

(§1026.32(b)(1)):

• All items included in the finance charge under sections 1026.4(a) and (b), except that the

following items are excluded:

o Interest or the time-price differential;

o Any premiums or other charges imposed in connection with a federal or state agency

program for any guaranty or insurance that protects the creditor against the consumer’s

default or other credit loss (i.e., up-front and annual FHA premiums, VA funding fees,

and USDA guarantee fees);

o Premiums or other charges for any guaranty or insurance that protects creditors against

the consumer’s default or other credit loss and IS NOT in connection with a federal or

state agency program (i.e., private mortgage insurance (PMI) premiums) as follows:

 The entire amount of any premiums or other charges payable after consummation

(i.e., monthly or annual PMI premiums); or

 If the premium or other charge is payable at or before consummation, the portion of

any such premium or other charge that is not in excess of the permissible up-front

mortgage insurance premium for FHA loans, but only if the premium or charge is

refundable on a pro rata basis and the refund is automatically issued upon the

notification of the satisfaction of the underlying mortgage loan. The permissible up-

front mortgage insurance premiums for FHA loans are published in HUD Mortgagee

Letters, available online at:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/l

etters/mortgagee.

o Bona fide third-party charges not retained by the creditor, loan originator, or an affiliate

of either, unless the charge is required to be included under section 1026.32(b)(1)(i)(C),

(iii), or (v);

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o Up to two bona fide discount points payable by the consumer in connection with the

transaction, provided that the interest rate without any discount does not exceed:

 The APOR for a comparable transaction by more than one percentage point; or

 If the transaction is secured by personal property, the average rate for a loan insured

under Title I of the National Housing Act by more than one percentage point, or

o If no discount points have been excluded above, then up to one bona fide discount point

payable by the consumer in connection with the transaction, provided that the interest rate

without any discount does not exceed:

 The APOR for a comparable transaction by more than two percentage points; or

 If the transaction is secured by personal property, the average rate for a loan insured

under Title I of the National Housing Act by more than two percentage points.

NOTE: In the case of a closed-end plan, a bona fide discount point means an amount equal to

one percent of the loan amount paid by the consumer that reduces the interest rate or time-

price differential applicable to the transaction based on a calculation that is consistent with

established industry practices for determining the amount of reduction in the interest rate or

time-price differential appropriate for the amount of discount points paid by the consumer.

(§1026.32(b)(3))

• All compensation paid directly or indirectly by a consumer or creditor to a loan originator (as

defined in section 1026.36(a)(1) that can be attributed to the transaction at the time the

interest rate is set unless:

o That compensation is paid by a consumer to a mortgage broker, as defined in section

1026.36(a)(2), and already has been included in points and fees under section

1026.32(b)(1)(i);

o That compensation is paid by a mortgage broker, as defined in section 1026.36(a)(2), to a

loan originator that is an employee of the mortgage broker;

o That compensation is paid by a creditor to a loan originator that is an employee of the

creditor; or

• All items listed in section 1026.4(c)(7), other than amounts held for future taxes, unless ALL

of the following conditions are met:

o The charge is reasonable;

o The creditor receives no direct or indirect compensation in connection with the charge;

and

o The charge is not paid to an affiliate of the creditor.

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• Premiums or other charges paid at or before consummation, whether paid in cash or financed,

for any credit life, credit disability, credit unemployment, or credit property insurance, or for

any other life, accident, health, or loss-of-income insurance for which the creditor is a

beneficiary, or any payments directly or indirectly for any debt cancellation or suspension

agreement or contract.

• The maximum prepayment penalty that may be charged or collected under the terms of the

mortgage or credit plan; and

• The total prepayment penalty incurred by the consumer if the consumer refinances an

existing mortgage loan, or terminates an existing open-end credit plan in connection with

obtaining a new mortgage loan, with a new mortgage transaction extended by the current

holder of the existing loan, a servicer acting on behalf of the current holder, or an affiliate of

either.

For an open-end credit plan, points and fees mean the following charges that are known at or

before account opening: (§1026.32(b)(2))

• All items included in the finance charge under sections 1026.4(a) and (b), except that the

following items are excluded:

o Interest or the time-price differential;

o Any premiums or other charges imposed in connection with a federal or state agency

program for any guaranty or insurance that protects the creditor against the consumer’s

default or other credit loss (i.e., up-front and annual FHA premiums, VA funding fees,

and USDA guarantee fees);

o Premiums or other charges for any for guaranty or insurance that protects creditors

against the consumer’s default or other credit loss and IS NOT in connection with a

federal or state agency program (i.e., private mortgage insurance (PMI) premiums) as

follows:

 If the premium or other charge is payable after account opening, the entire amount of

such premium or other charge, or

 If the premium or other charge is payable at or before account opening, the portion of

any such premium or other charge that is not in excess of the permissible up-front

mortgage insurance premium for FHA loans, but only if the premium or charge is

refundable on a pro rata basis and the refund is automatically issued upon the

notification of the satisfaction of the underlying mortgage loan. The permissible up-

front mortgage insurance premiums for FHA loans are published in HUD Mortgagee

Letters, available online at:

http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/l

etters/mortgagee

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o Bona fide third-party charges not retained by the creditor, loan originator, or an affiliate

of either, unless the charge is required to be included under section 1026.32(b)(2)(i)(C),

(iii), or (iv);

o Up to two bona fide discount points payable by the consumer in connection with the

transaction, provided that the interest rate without any discount does not exceed:

 The APOR by more than one percentage point; or

 If the transaction is secured by personal property, the average rate for a loan insured

under Title I of the National Housing Act by more than one percentage point, or

o If no discount points have been excluded above, then up to one bona fide discount point

payable by the consumer in connection with the transaction, provided that the interest rate

without any discount does not exceed:

 The APOR by more than two percentage points; or

 If the transaction is secured by personal property, the average rate for a loan insured

under Title I of the National Housing Act by more than two percentage points.

NOTE: A bona fide discount point means an amount equal to one percent of the credit

limit when the account is opened, paid by the consumer, that reduces the interest rate or

time-price differential applicable to the transaction based on a calculation that is

consistent with established industry practices for determining the amount of reduction in

the interest rate or time-price differential appropriate for the amount of discount points

paid by the consumer. (§1026.32(b)(3)(ii))

• All compensation paid directly or indirectly by a consumer or creditor to a loan originator (as

defined in section 1026.36(a)(1) that can be attributed to the transaction at the time the

interest rate is set unless:

o That compensation is paid by a consumer to a mortgage broker, as defined in section

1026.36(a)(2) and already has been included in points and fees under section

1026.33(b)(2)(i);

o That compensation is paid by a mortgage broker as defined in section 1026.36(a)(2) to a

loan originator that is an employee of the mortgage broker; or

o That compensation is paid by a creditor to a loan originator that is an employee of the

creditor, or

o That compensation is paid by a retailer of manufactured homes to its employee.

NOTE: A person is not a loan originator if the person does not take a consumer credit application

or offer or negotiate credit terms available from a creditor to that consumer based on the

consumer’s financial characteristics, but the person performs purely administrative or clerical tasks

on behalf of a person who does engage in such activities. An employee of a manufactured home

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retailer who does not take a consumer credit application, offer or negotiate credit terms, or advise a

consumer on credit terms is not a loan originator. For purposes of section 1026.36(a), “credit

terms” include rates, fees or other costs, and a consumer’s financial characteristics include any

factors that may influence a credit decision, such as debts, income, assets or credit history.

• All items listed in section 1026.4(c)(7), other than amounts held for future taxes, unless ALL

of the following conditions are met:

o The charge is reasonable;

o The creditor receives no direct or indirect compensation in connection with the charge;

and

o The charge is not paid to an affiliate of the creditor.

• Premiums or other charges paid at or before account opening for any credit life, credit

disability, credit unemployment, or credit property insurance, or for any other life, accident,

health, or loss-of-income insurance for which the creditor is a beneficiary, or any payments

directly or indirectly for any debt cancellation or suspension agreement or contract.

• The maximum prepayment penalty that may be charged or collected under the terms of the

credit plan; and

• The total prepayment penalty incurred by the consumer if the consumer refinances an

existing closed-end credit transaction with an open-end credit plan, or terminates an existing

open-end credit plan in connection with obtaining a new open-end credit with the current

holder of the existing transaction or plan, a servicer acting on behalf of the current holder, or

an affiliate of either.

In addition to the charges listed above, points and fees for open-end credit plans also include the

following items:

• Fees charged for participation in the credit plan, payable at or before account opening, as

described in section 1026.4(c)(4), and

• Any transaction fee that will be charged to draw funds on the credit line, as described in

section 1026.32(b)(2)(viii).

Prepayment Penalty Definition – Section 1026.32(b)(6)

For closed-end credit transactions, a prepayment penalty is a charge imposed for paying all or

part of the transaction’s principal before the date on which the principal is due with limited

exceptions.

For open-end credit plans, a prepayment penalty is a charge imposed by the creditor if the

consumer terminates the credit plan prior to the end of its term.

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NOTE: Waived, bona fide third-party charges that are later imposed if the closed-end transaction

is prepaid or the consumer terminates the open-end credit plan sooner than 36 months after

consummation or account opening are not considered prepayment penalties.

NOTE: For closed-end transactions insured by the Federal Housing Administration and

consummated before January 21, 2015, interest charged consistent with the monthly interest

accrual amortization method is not a prepayment penalty, so long as the interest is charged

consistent with the monthly interest accrual amortization method used for those loans. See

Comment 32(b)(6)-1(iv).

High-Cost Mortgage Disclosures – Section 1026.32(c)

In addition to the other disclosure requirements of Regulation Z, high-cost mortgages require

certain additional information to be disclosed in conspicuous type size to consumers before

consummation of the transaction or account opening. These disclosures include:

• Notice to the consumer using the required language in section 1026.32(c)(1);

• The annual percentage rate (§1026.32(c)(2));

• Specified information concerning the regular or minimum periodic payment and the amount

of any balloon payment, if permitted under the high-cost mortgage limitations in section

1026.32(d); (§1026.32(c)(3))

• For variable-rate transactions, a statement that the interest and monthly payment may

increase, and the amount of the single maximum monthly payment based on the maximum

interest rate required to be included in the contract; (§1026.32(c)(4)) and

• The total amount borrowed for closed-end credit transactions or the credit limit for the plan

when the account is opened for an open-end credit plan. (§1026.32(c)(5))

NOTE: For closed-end credit transactions, if the amount borrowed includes charges to be

financed under section 1026.34(a)(10), this fact must be stated, grouped together with the

disclosure of amount borrowed. The disclosure of the amount borrowed will be treated as

accurate if it is not more than $100 above or below the amount required to be disclosed.

High-Cost Mortgage Limitations – Section 1026.32(d)

Certain loan terms, including negative amortization, interest rate increases after default, and

prepayment penalties are prohibited for high-cost mortgages. Others, including balloon payments

and due-on-demand clauses, are restricted.

• Balloon payments, defined as payments that are more than two times a regular periodic

payment, are generally prohibited for high-cost mortgages. (§1026.32(d)(1)(i)) However,

balloon payments are allowed in certain limited circumstances.

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o For closed-end transactions, balloon payments are permitted when (a) the loan has a

payment schedule that is adjusted to seasonal or irregular income of the consumer; (b) the

loan is a “bridge” loan made in connection with the purchase of a new dwelling and

matures in 12 months or less; (c) the creditor is a small creditor operating predominantly

in rural or underserved areas that meets the criteria set forth in section 1026.43(f) for

small creditor rural or underserved balloon-payment qualified mortgages; or, (d) until

January 10, 2016, the creditor is a small creditor that meets the criteria set forth in

1026.43(e)(6)) for temporary balloon-payment qualified mortgages. (§1026.32(d)(1)(ii))

o For an open-end credit plan where the terms of the plan provide for a draw period where

no payment is required, followed by a repayment period where no further draws may be

taken, the initial payment required after conversion to the repayment phase of the credit

plan is not considered a “balloon” payment. However, if the terms of an open-end credit

plan do not provide for a separate draw period and repayment period, the balloon

payment limitation applies. (§1026.32(d)(1)(iii))

• Acceleration clauses or demand features are limited and may only permit creditors to accelerate

and demand repayment of the entire outstanding balance of a high-cost mortgage if:

o There is fraud or material misrepresentation by the consumer in connection with the loan

(§1026.32(d)(8)(i));

o The consumer fails to meet the repayment terms of the agreement for any outstanding

balance that results in a default on the loan (§1026.32(d)(8)(ii)); or

o There is any action (or inaction) by the consumer that adversely affects the rights of the

creditor’s security interest for the loan, such as the consumer failing to pay required taxes

on the property. (§1026.32(d)(8)(iii) and comments 32(d)(8)(iii)-1 and -2)

Prohibited Acts or Practices in Connection with High-Cost

Mortgages – Section 1026.34

In addition to the requirements in section 1026.32, Regulation Z imposes additional requirements

for high-cost mortgages, several of which are discussed below.

Refinancing Within One-Year – Section 1026.34(a)(3)

A creditor or assignee cannot refinance a consumer’s high-cost mortgage into a second high-cost

mortgage within the first year of the origination of the first loan, unless the second high-cost

mortgage is in the consumer’s interest.

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Repayment Ability for High-Cost Mortgages

– Section 1026.34(a)(4)

Among other requirements, a creditor extending high-cost mortgage credit subject to section

1026.32 must not make such loans without regard to the consumer’s repayment ability as of

consummation or account opening as applicable. (§1026.34(a)(4))

For closed-end credit transactions that are high-cost mortgages, section 1026.34(a)(4) requires a

creditor to comply with the repayment ability requirements set forth in section 1026.43.

For open-end credit plans that are high-cost mortgages, a creditor may not open a credit plan for

a consumer where credit is or will be extended without regard to the consumer’s repayment

ability as of account opening, including the consumer’s current and reasonably expected income,

employment, assets other than the collateral, and current obligations, including any mortgage-

related obligations.

• For the purposes of these open-end requirements, mortgage-related obligations include,

among other things, property taxes, premiums and fees for mortgage-related insurance that

are required by the creditor, fees and special assessments such as those imposed by a

condominium association, and similar expenses required by another credit obligation

undertaken prior to or at account opening and secured by the same dwelling that secures the

high-cost mortgage transaction. (§1026.34(a)(4)(i))

• A creditor must also verify both current obligations and the amounts of income or assets that

it relies on to determine repayment ability using W-2s, tax returns, payroll receipts, financial

institution records, or other third-party documents that provide reasonably reliable evidence

of the consumer’s income or assets (§1026.34(a)(4)(ii)).

For open-end high-cost mortgages, a presumption of compliance is available but only if the

creditor:

• Verifies the consumer’s repayment ability as required under section 1026.34(a)(4)(ii));

• Determines the consumer’s repayment ability taking into account current obligations and

mortgage-related obligations, using the largest required minimum periodic payment based on

the assumptions that:

o The consumer borrows the full credit line at account opening with no additional

extensions of credit;

o The consumer makes only required minimum periodic payments during the draw period

and any repayment period; and

o If the APR can increase, the maximum APR that is included in the contract applies to the

plan at account opening and will apply during the draw and any repayment period.

(§1026.34(a)(4)(iii)(B))

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• Assesses the consumer’s repayment ability, taking into account either the ratio of total debts

to income or the income the consumer will have after paying current obligations.

(§1026.34(a)(4)(iii)(C))

NOTE: No presumption of compliance will be available for an open-end high-cost mortgage

transaction in which the regular periodic payments, when aggregated, do not fully amortize the

outstanding principal balance except for transactions with balloon payments permitted under

section 1026.32(d)(1)(ii).

High-Cost Mortgage Pre-Loan Counseling

– Section 1026.34(a)(5)

Creditors that originate high-cost mortgages must receive written certification that the consumer

has obtained counseling on the advisability of the mortgage from a counselor approved by HUD,

or if permitted by HUD, a state housing finance authority (specific content for the certifications

can be found in section 1026.34(a)(5)(iv)). Counseling must occur after the consumer receives a

good faith estimate or initial TILA disclosure required by section 1026.40 (or, for transactions

where neither of those disclosures are provided, the disclosures required by section 1026.32(c)).

Additionally, counseling cannot be provided by a counselor who is employed by, or affiliated

with, the creditor. A creditor may pay the fees for counseling but is prohibited from conditioning

the payment of fees upon the consummation of the mortgage transaction or, if the consumer

withdraws his or her application, upon receipt of the certification. However, a creditor may

confirm that a counselor provided counseling to the consumer prior to paying these fees. Finally,

a creditor is prohibited from steering a consumer to a particular counselor.

Recommended Default – Section 1026.34(a)(6)

Creditors (and mortgage brokers) are prohibited from recommending or encouraging a

consumer to default on an existing loan or other debt prior to, and in connection with, the

consummation or account opening of a high-cost mortgage that refinances all or any portion

of the existing loan or debt.

Loan Modification and Deferral Fees

– Section 1026.34(a)(7)

Creditors, successors-in-interest, assignees, or any agents of these parties may not charge a

consumer any fee to modify, renew, extend, or amend a high-cost mortgage, or to defer any

payment due under the terms of the mortgage.

Late Fees – Section 1026.34(a)(8)

Late payment charges for a high-cost mortgage must be permitted by the terms of the loan

contract or open-end agreement and may not exceed four percent of the amount of the payment

that is past due. Late payment charges are permitted only if payment is not received by the end of

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the 15-day period beginning on the day the payment is due or, where interest on each installment

is paid in advance, by the end of the 30-day period beginning on the day the payment is due.

Creditors are also prohibited from “pyramiding” late fees—that is, charging late payments if any

delinquency is attributable only to a late payment charge that was imposed due to a previous late

payment, and the payment otherwise is considered a full payment for the applicable period (and

any allowable grace period). If a consumer fails to make a timely payment by the due date, then

subsequently resumes making payments but has not paid all past due payments, the creditor can

continue to impose late payment charges for the payments outstanding until the default is cured.

Fees for Payoff Statements – Section 1026.34(a)(9)

A creditor or servicer may not charge a fee for providing consumers (or authorized

representatives) with a payoff statement on a high-cost mortgage. Payoff statements must be

provided to consumers within five business days after receiving the request for a statement. A

creditor or servicer may charge a processing fee to cover the cost of providing the payoff

statement by fax or courier only, provided that such fee may not exceed an amount that is

comparable to fees imposed for similar services provided in connection with a non-high-cost

mortgage and that a payoff statement be made available to the consumer by an alternative

method without charge. If a creditor charges a fee for providing a payoff statement by fax or

courier, the creditor must disclose the fee prior to charging the consumer and must disclose to the

consumer that other methods for providing the payoff statement are available at no cost. Finally,

a creditor is permitted to charge a consumer a reasonable fee for additional payoff statements

during a calendar year in which four payoff statements have already been provided without

charge other than permitted processing fees.

Reverse Mortgages – Section 1026.33

A reverse mortgage is a non-recourse transaction secured by the consumer’s principal dwelling that

ties repayment (other than upon default) to the homeowner’s death or permanent move from, or

transfer of the title of, the home. Special disclosure requirements apply to reverse mortgages.

Higher-Priced Mortgage Loans – Section 1026.35(a)

A mortgage loan subject to section 1026.35 (higher-priced mortgage loan) is a closed-end

consumer credit transaction secured by the consumer’s principal dwelling with an APR that

exceeds the average prime offer rate for a comparable transaction as of the date the interest rate

is set by:

• 1.5 or more percentage points for loans secured by a first lien on a dwelling where the

amount of the principal obligation at the time of consummation does not exceed the

maximum principal obligation eligible for purchase by Freddie Mac;

• 2.5 or more percentage points for loans secured by a first lien on a dwelling, where the

amount of the principal obligation at the time of consummation exceeds the maximum

principal obligation eligible for purchase by Freddie Mac; or

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• 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling.

Average prime offer rate means an APR that is derived from average interest rates, points, and

other loan pricing terms currently offered to consumers by a representative sample of creditors

for mortgage transactions that have low-risk pricing characteristics. The CFPB publishes average

prime offer rates for a broad range of types of transactions in a table updated at least weekly, as

well as the methodology it uses to derive these rates. These rates are available on the website of

the Federal Financial Institutions Examination Council (FFIEC).

http://www.ffiec.gov/ratespread/newcalchelp.aspx

Additionally, creditors extending mortgage loans subject to 1026.43(c) must verify a consumer’s

ability to repay as required by section 1026.43(c).

Finally, the regulation prohibits creditors from structuring a home-secured loan that does not

meet the definition of open-end credit as an open-end plan to evade these requirements.

Higher-Priced Mortgage Loans Escrow Requirement

– Section 1026.35(b)

In general, a creditor may not extend a higher-priced mortgage loan (including high-cost

mortgages that also meet the definition of a higher-priced mortgage loan), secured by a first lien

on a principal dwelling unless an escrow account is established before consummation for

payment of property taxes and premiums for mortgage-related insurance required by the creditor.

An escrow account for a higher-priced mortgage loan need not be established for:

• a transaction secured by shares in a cooperative,

• a transaction to finance the initial construction of a dwelling,

• a temporary or “bridge” loan with a term of 12 months or less, or

• a reverse mortgage subject to section 1026.33.

There is also a limited exemption that allows creditors to establish escrow accounts for property

taxes only (rather than for both property taxes and insurance) for loans secured by dwellings in a

“common interest community” under section 1026.35(b)(2)(ii), where dwelling ownership

requires participation in a governing association that is obligated to maintain a master insurance

policy insuring all dwellings. (§1026.35(b)(2)(ii))

An exemption to the higher-priced mortgage loan escrow requirement is available for first-lien

higher-priced mortgage loans made by certain creditors that operate predominantly in “rural” or

“underserved” areas. To make use of this exemption, a creditor must:

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1. Have made, during any of the three preceding calendar years, over half its covered

transactions in counties that meet the definition of “rural” or “underserved” as laid out in the

regulation,

2. Together with any affiliates must not have made more than 500 covered transactions in the

preceding calendar year,

3. Must have had less than $2 billion in total assets as of the end of the preceding calendar

year,

and

4. Together with any affiliates must not maintain escrow accounts for any extensions of

consumer credit secured by real property or a dwelling that it or its affiliate currently

services. However, such creditors (and their affiliates) are permitted to offer an escrow

account to accommodate distressed borrowers and may continue to maintain escrow accounts

established to comply with the rule for applications received on or after April 1, 2010, and

before January 1, 2014 without losing the exemption.

For first-lien higher-priced mortgage loans originated by a creditor that would not be required to

establish an escrow account based on the above exemption, if that creditor has obtained a

commitment for a higher-priced mortgage loan to be acquired by another company that is not

eligible for the exemption, an escrow account must be established. Since an escrow account will

be established for this loan, however, note that if the creditor that has obtained a commitment for

the higher-priced mortgage loan to be acquired by a non-exempt company would like to remain

eligible for the exemption above, neither the creditor nor its affiliates can service the loan on or

beyond the second periodic payment under the terms of the loan.

A creditor or servicer may cancel an escrow account only upon the earlier of termination of the

underlying loan, or a cancellation request from the consumer five years or later after

consummation. However, a creditor or servicer is not permitted to cancel an escrow account,

even upon request from the consumer, unless the unpaid principal balance of the higher-priced

mortgage loan is less than 80 percent of the original value of the property securing the loan and

the consumer is not currently delinquent or in default on the loan. (§1026.35(b)(3))

The regulation generally defines these two terms by reference to “urban influence codes” (for “rural”) and HMDA data (for

“underserved”). To ease compliance, however, the CFPB will post on its public website a list of “rural” and “underserved”

counties that creditors may rely on as a safe harbor. See comment 35(b)(2)(iv)-1.

The asset threshold will be adjusted automatically each year, based on the year-to-year change in the average of the Consumer

Price Index for Urban Wage Earners and Clerical Workers.

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Higher-Priced Mortgage Loans Appraisal Requirement

– Section 1026.35(c)

General Requirements, Exception, and Safe Harbor

A creditor may not extend a higher-priced mortgage loan without first obtaining a written

appraisal of the property to be mortgaged. The appraisal must be performed by a state-certified

or licensed appraiser (defined in part as an appraiser who conducts the appraisal in conformity

with the Uniform Standards of Professional Appraisal Practice (USPAP) and the requirements

applicable to appraisers in title IX of FIRREA and its implementing regulations). The appraisal

must include a physical visit of the interior of the dwelling. The appraisal requirements do not

apply to:

• Qualified mortgages (QM) under 12 CFR 1026.43 or under rules on qualified mortgages

adopted by HUD or VA, (or, if promulgated, by USDA or RHS), including mortgages that

meet the QM criteria for these rules and are insured, guaranteed, or administered by those

agencies;

• An extension of credit equal to or less than the applicable threshold amount that is published

in the official staff commentary to the regulation, which is adjusted every year as applicable

to reflect increases in the Consumer Price Index for Urban Wage Earners and Clerical

Workers;

• A transaction secured by a mobile home, boat, or trailer;

• A transaction to finance the initial construction of a dwelling;

• A loan with maturity of 12 months or less, if the purpose of the loan is a “bridge” loan

connected with the acquisition of a dwelling intended to become the consumer’s principal

dwelling;

• A reverse mortgage transaction subject to 12 CFR 1026.33(a)

• A refinancing secured by a first lien, as defined in 12 CFR 1026.20(a) (except that the

creditor need not be the original creditor or a holder or servicer of the original obligation),

provided that the refinancing meets the following criteria:

o The credit risk of the refinancing is retained by the person that held the credit risk of the

existing obligation and there is no commitment, at consummation, to transfer the credit

risk to another person; or, the refinancing is insured or guaranteed by the same Federal

government agency that insured or guaranteed the existing obligation;

The higher-priced mortgage loans appraisal requirement was adopted pursuant to an interagency rulemaking conducted by the

Board, the CFPB, the FDIC, FHFA, NCUA, and OCC. The Board codified the rule at 12 CFR 226.43, and the OCC codified the

rule at 12 CFR Part 34 and 12 CFR Part 164. There is no substantive difference among these three sets of rules.

From January 1, 2015, through December 31, 2015, the threshold amount is $25,500.

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o The regular periodic payments under the refinance loan do not:

 Cause the principal balance to increase;

 Allow the consumer to defer repayment of principal; or

 Result in a balloon payment, as defined in 12 CFR 1026.18(s)(5)(i).

o The proceeds from the refinancing are used solely to satisfy the existing obligation and

amounts attributed solely to the costs of the refinancing.

• A transaction secured by a manufactured home under the following conditions:

o If the transaction is for a new manufactured home and land, the exemption shall only

apply to the requirement that the appraiser conduct a physical visit of the interior of the

new manufactured home.

o If the transaction is for a manufactured home and not land, for which the creditor obtains

one of the following and provides a copy to the consumer no later than three business

days prior to consummation of the transaction:

 For a new manufactured home, the manufacturer's invoice for the manufactured home

securing the transaction, provided that the date of manufacture is no earlier than 18

months prior to the creditor's receipt of the consumer's application for credit;

 A cost estimate of the value of the manufactured home securing the transaction

obtained from an independent cost service provider; or

 A valuation, as defined in 12 CFR 1026.42(b)(3), of the manufactured home

performed by a person who has no direct or indirect interest, financial or otherwise, in

the property or transaction for which the valuation is performed and has training in

valuing manufactured homes.

o Transactions secured by an existing (used) manufactured home and land are not exempt

from the appraisal requirement.

A creditor may obtain a safe harbor for compliance with section 1026.35(c)(3)(i) by ordering that

the appraisal be completed in conformity with USPAP and the requirements applicable to

appraisers in title IX of FIRREA and its implementing regulations, verifying that the appraiser is

certified or licensed through the National Registry; and confirming that the written appraisal

contains the elements listed in Appendix N of Regulation Z. In addition, the creditor must have

no actual knowledge that the facts or certifications contained in the appraisal are inaccurate

(§1026.35(c)(3)(ii)).

Prior to July 18, 2015, appraisal requirements do not apply to transactions secured in whole or in part by a manufactured home

(12 CFR 1026.35(c)(2)). This section describes how the exemption will work under an amendment to the rule that takes effect on

July 18, 2015.

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Additional Appraisals

The appraisal provisions in section 1026.35(c) also require creditors to obtain an additional

written appraisal before extending a higher-priced mortgage loan in two instances:

• First, when the dwelling that is securing the higher-priced mortgage loan was acquired by the

seller 90 or fewer days prior to the consumer’s agreement to purchase the property and the

price of the property has increased by more than 10 percent.

• Additionally, when the dwelling was acquired by the seller between 91 and 180 prior to the

consumer’s agreement to purchase the property, and the price of the property has increased

by more than 20 percent.

A creditor must obtain an additional interior appraisal meeting the same requirements as the first

appraisal (written report by a certified or licensed appraiser in compliance with USPAP and

FIRREA based upon an interior property visit), unless the creditor can demonstrate, by

exercising reasonable diligence, that the circumstances necessitating an additional appraisal do

not apply. A creditor can meet the reasonable diligence requirement if it bases its determination

on information contained in certain written source documents (such as a copy of the seller’s

recorded deed or a copy of a property tax bill). See Appendix O. If, after exercising reasonable

diligence, the creditor is unable to determine whether the circumstances necessitating an

additional appraisal apply, the creditor must obtain an additional appraisal.

If the creditor is required to obtain an additional written appraisal, the two required appraisals

must be conducted by different appraisers. Each appraisal obtained must include a physical visit

of the interior of the dwelling. In instances where two appraisals are required, creditors are

allowed to charge for only one of the two appraisals.

One of the two required written appraisals must contain an analysis of the difference between the

price at which the seller obtained the property and the price the consumer agreed to pay to

acquire the property, an analysis of changes in market conditions between when the seller

acquired the property and when the consumer agreed to purchase the property, and a review of

improvements made to the property between the two dates.

The higher-priced mortgage loan additional appraisal requirements do not apply to the extension

of credit that finances the acquisition of a property:

• From a local, state, or federal government agency;

• From a person who acquired title to the property through foreclosure, deed-in-lieu of

foreclosure, or other similar judicial or non-judicial procedures as a result of the person’s

exercise of rights as the holder of a defaulted mortgage;

• From a non-profit entity as part of a local, state, or federal government program permitted to

acquire single-family properties for resale from a person who acquired title through

foreclosure, deed in lieu of foreclosure, or other similar judicial or non-judicial procedures;

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• From a person who acquired title to the property by inheritance or by court order as a result

of a dissolution of marriage, civil union, or domestic partnership, or of partition of joint or

marital assets;

• From an employer or relocation agency in connection with the relocation of an employee;

• From a servicemember who received a deployment or permanent change of station order

after the servicemember purchased the property;

• Located in a federal disaster area if the requirements of title XI of FIRREA have been waived

by the federal financial institutions regulatory agencies for as long as that waiver would

apply; or

• Located in a rural county as defined by the CFPB in section 1026.35(b)(2)(iv)(A).

Application Disclosures and Copy of Appraisal

Finally, creditors must provide consumers who apply for a loan covered by the appraisal

requirements in section 1026.35(c) with a disclosure providing information relating to appraisals.

A creditor must provide consumers with disclosures no later than the third business day after the

creditor receives an application for a higher-priced mortgage loan, or no later than the third

business day after the loan requested becomes a higher-priced mortgage loan. Additionally, a

creditor must provide, at no cost to the consumer, a copy of each written appraisal performed in

connection with a loan covered by the appraisal requirements in section 1026.35(c) no later than

three business days prior to consummation or, if the loan will not be consummated, no later than

30 days after the creditor determines that the loan will not be consummated.

Prohibited Acts or Practices in Connection with Credit

Secured by a Consumer’s Dwelling – Section 1026.36

Loan Originator – Section 1026.36(a)

The term “loan originator” means a person who, in expectation of direct or indirect

compensation or other monetary gain or for direct or indirect compensation or other monetary

gain, performs any of the following activities:

• Takes an application, offers, arranges, assists a consumer in obtaining or applying to obtain,

negotiates, or otherwise obtains or makes an extension of consumer credit for another person;

Creditors may use the disclosure required under the Equal Credit Opportunity Act (ECOA) valuations rule to satisfy the

disclosure requirements of the higher-priced mortgage loans appraisal rule for loans covered by both. After August 1, 2015, the

new Loan Estimate model form appraisal language required by the TILA-RESPA Integrated Disclosure Rule

(§1026.37(m)(1)(iii)) will meet the requirements of both the ECOA valuations rule (12 CFR 1002.14(a)(2)) and the higher-priced

mortgage loans appraisal rule.

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• Through advertising or other means of communication represents to the public that such

person can or will perform any of these activities.

The term “loan originator” includes an employee, agent, or contractor of the creditor or loan

originator organization if the employee, agent, or contractor meets this definition. The term “loan

originator” also includes a creditor that engages in loan origination activities if the creditor does

not finance the transaction at consummation out of the creditor’s own resources, including by

drawing on a bona fide warehouse line of credit or out of deposits held by the creditor.

The term “loan originator” does not include:

• A person who performs purely administrative or clerical tasks on behalf of a person who

takes applications or offers or negotiates credit terms;

• An employee of a manufactured home retailer who does not take a consumer credit

application, offer or negotiate credit terms, or advise consumers on available credit terms;

• A person that performs only real estate brokerage activity and is licensed or registered in

accordance with applicable state law, unless that person is compensated by a creditor or loan

originator for a consumer credit transaction subject to section 1026.36;

• A seller financer that meets the criteria established in sections 1026.36(a)(4) or (a)(5); or

• A servicer, or a servicer’s employees, agents, and contractors who offer or negotiate the

terms of a mortgage for the purpose of renegotiating, modifying, replacing, or subordinating

principal of an existing mortgage where consumers are behind in their payments, in default,

or have a reasonable likelihood of becoming delinquent or defaulting. This exception does

not, however, apply to such persons if they refinance a mortgage or assign a mortgage to a

different consumer.

An “individual loan originator” is a natural person who meets the definition of “loan

originator.” Finally, a “loan originator organization” is any loan originator that is not an

individual loan originator. A loan originator organization would include banks, thrifts, finance

companies, credit unions and mortgage brokers.

Prohibited Loan Originator Compensation: Payments Based

on a Term of a Transaction – Section 1026.36(d)(1)

With limited exceptions, loan originators cannot receive (and no person can pay directly or

indirectly), compensation in connection with closed-end consumer credit transactions secured by

a dwelling based on a term of a transaction, the terms of multiple transactions, or the terms of

multiple transactions by multiple individual loan originators. The loan originator compensation

provisions do not apply to open-end home-equity lines of credit or to credit secured by a

consumer’s interest in a timeshare plan described in 11 U.S.C. 101(53D).

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A “term of a transaction” is any right or obligation of the parities to a credit transaction. The

amount of credit extended is not a term of a transaction, provided that such compensation is

based on a fixed percentage of the amount of credit extended (but may be subject to a minimum

or maximum dollar amount).

NOTE: A review of whether compensation, which includes salaries, commissions, and any

financial or similar incentive, is based on the terms of a transaction requires an objective

analysis. If compensation would have been different if a transaction term had been different, then

the compensation is prohibited. The regulation does not prevent compensating loan originators

differently on different transactions, provided the difference is not based on a term of a

transaction or on a proxy for a term of a transaction (a factor that consistently varies with a term

or terms of the transaction over a significant number of transactions and which the loan

originator has the ability to manipulate).

An individual loan originator may receive (and a person may pay):

• Compensation in the form of a contribution to a defined contribution plan that is a designated

tax-advantage plan unless the contribution is tied to the terms of the individual’s

transaction(s); (§1026.36.(d)(1)(iii))

• Compensation in the form of a benefit under a defined benefit plan that is a designated tax-

advantaged plan (§1026.36(d)(1)(iii))

• Compensation under a non-deferred profits-based compensation plan provided that:

o The compensation paid to an individual loan originator is not directly or indirectly based

on the terms of the individual’s transaction(s); and

o Either:

 The compensation paid to the individual loan originator does not exceed 10 percent

(in aggregate) of the individual loan originator’s total compensation corresponding to

the time period for which the compensation under the non-deferred profits-based

compensation plan is paid; or

 The individual loan originator was the loan originator of 10 or fewer transactions

during the 12 months preceding the date the compensation was determined.

(§1026.36(d)(1)(iv))

For more information pertaining to permissible compensation, see the commentary to section

1026.36(d).

In addition to the requirements listed here, section 1026.25(c) imposes specific record retention requirements for creditors and

loan originator organizations that compensate loan originators.

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Prohibited Loan Originator Compensation:

Dual Compensation – Section 1026.36(d)(2)

Loan originators that receive compensation directly from consumers in consumer credit

transactions secured by a dwelling, (except for open-end home-equity lines of credit or to loans

secured by a consumer’s interest in a timeshare plan) may not receive additional compensation

directly or indirectly from any other person in connection with that transaction.

(§1026.36(d)(1)(i)(A)(1)) This prohibition includes compensation received from a third-party

to the transaction to pay for some or all of the consumer’s costs. (§1026.36(d)(1)(i)(B))

Further, a person is prohibited from compensating a loan originator when that person “knows

or has reason to know” that the consumer has paid compensation to the loan originator.

(§1026.36(d)(2)(i)(A)(2))

However, even if a loan originator organization receives compensation directly from a consumer,

the organization can compensate the individual loan originator, subject to section 1026.36(d)(1).

(§1026.36(d)(2)(i)(C))

Prohibition on Steering – Section 1026.36(e)

Loan originators are prohibited from directing or “steering” consumers to loans based on the fact

that the originator will receive greater compensation for the loan from the creditor than in other

transactions the originator offered or could have offered to the consumer, unless the

consummated transaction is in the consumer’s interest. A loan originator complies with the

prohibition on steering (but not the loan originator compensation provisions) by obtaining loan

options from a significant number of the creditors with which the loan originator regularly does

business and, for each loan type in which the consumer has expressed interest, presenting the

consumer with loan options for which the loan originator believes in good faith the consumer

likely qualifies, provided that the presented loan options include all of the following:

• The loan with the lowest interest rate;

• The loan with the lowest interest rate without certain enumerated risky features (such as

prepayment penalties, negative amortization, or a balloon payment in the first seven years); and

• The loan with the lowest total dollar amount of discount points, origination points or

origination fees (or, if two or more loans have the same total dollar amount of discount

points, origination points or origination fees, the loan with the lowest interest rate that has the

lowest total dollar amount of discount points, origination points or origination fees).

The anti-steering provisions do not apply to open-end home-equity lines of credit or to loans

secured by a consumer’s interest in a timeshare plan.

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Loan Originator Qualification Requirements

– Section 1026.36(f)

Individual loan originators and loan originator organizations must, when required under state or

federal law, be registered and licensed under those laws, including the Safe and Fair

Enforcement for Mortgage Licensing Action of 2008 (SAFE Act).

Loan originator

organizations other than government agencies or state housing finance agencies must:

• Comply with all applicable state law requirements for legal existence and foreign

qualification; (§1026.36(f)(1))

• Ensure that each individual loan originator who works for the loan originator organization

(e.g., an employee, under a brokerage agreement) is licensed or registered to the extent the

individual is required to be licensed or registered under the SAFE Act prior to acting as a

loan originator in a consumer credit transaction secured by a dwelling. (§1026.36(f)(2))

The requirements are different for loan originator organizations whose employees are not

required to be licensed and are not licensed pursuant to 12 CFR section 1008.103 or state SAFE

Act implementing laws (including employees of depository institutions and bona fide non-

profits). For their employees hired on or after January 1, 2014 (or hired before this date but not

subject to any statutory or regulatory background standards at the time, or for any individual loan

originators regardless of when hired that the organization believes, based on reliable information

do not meet the qualification standards), loan originator employers must obtain before the

individual acts as a loan originator in a consumer credit transaction secured by a dwelling:

• A criminal background check through the Nationwide Mortgage Licensing System and

Registry (NMLSR) or, in the case of an individual loan originator who is not a registered

loan originator under NMLSR, a criminal background check from a law enforcement agency

or commercial service; (§1026.36(f)(3)(i)(A))

• A credit report from a consumer reporting agency (as defined in section 603(p) of the Fair

Credit Reporting Act) secured, where applicable, in compliance with section 604(b) of

FCRA; (§1026.36(f)(3)(i)(B)) and

• Information from the NMLSR about any administrative, civil, or criminal findings by any

government jurisdiction or, in the case of an individual loan originator who is not a registered

loan originator under the NMLSR, such information from the individual loan originator.

(§1026.36(f)(3)(i)(C))

Section 1026.36(f) applies to closed-end consumer credit transactions secured by a dwelling except a loan that is secured by a

consumer’s interest in a timeshare plan described in 11 U.S.C. 101(53D). For purposes of 1026.36(f), a loan originator includes

all creditors that engage in loan origination activities, not just those who table fund.

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Based on the information obtained above and any other information reasonably available, the

loan originator employer must determine for such an employee prior to allowing the individual to

act as a loan originator in a consumer credit transaction secured by a dwelling:

• That the individual has not been convicted of, or pleaded guilty or nolo contendere to, a

felony in a domestic or military court during the preceding seven-year period or, in the case

of a felony involving an act of fraud, dishonesty, a breach of trust, or money laundering, at

any time; and (§1026.36(f)(3)(ii)(A)(1))

NOTE: Whether the conviction of a crime is considered a felony is determined by whether

the conviction was classified as a felony under the law of the jurisdiction under which the

individual is convicted. Additionally, a loan originator organization may employ an

individual with a felony conviction (or a plea of nolo contendere) as a loan originator if that

individual has received consent from the FDIC, (or the FRB, as applicable) the NCUA, or the

Farm Credit Administration under their own applicable statutory authority.

(§1026.36(f)(3)(iii))

• Has demonstrated financial responsibility, character, and general fitness such as to warrant a

determination that the individual loan originator will operate honestly, fairly, and efficiently.

The loan originator organization must also provide periodic training to each such employee that

covers federal and state legal requirements that apply to the individual loan originator’s loan

origination activities.

Name and NMLSR ID on Loan Documentation

– Section 1026.36(g)

Section 1026.36(g) applies to closed-end consumer credit transactions secured by a dwelling

except a loan that is secured by a consumer’s interest in a timeshare plan described in 11 U.S.C.

101(53D). For purposes of 1026.36(g), a loan originator includes all creditors that engage in loan

origination activities, not just those who table fund.

For consumer credit transactions secured by a dwelling, loan originator organizations must

include certain identifying information on loan documentation provided to consumers. The

loan documents must include the loan originator organization’s name, NMLSR ID (if

applicable), and the name of the individual loan originator that is primarily responsible for the

origination as it appears in the NMLSR, as well as the individual’s NMLSR ID. This

information is required on credit applications, the Loan Estimate, the Closing Disclosure, the

note or loan contract, and the documents securing an interest in the property.

Policies and Procedures to Ensure and Monitor Compliance

– Section 1026.36(j)

Depository institutions (including credit unions) must establish and maintain written policies and

procedures reasonably designed to ensure and monitor compliance of the depository institution,

its employees, and its subsidiaries and their employees with the requirements of section

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1026.36(d) (prohibited payments to loan originators), section 1026.36(e) (prohibition on

steering), section 1026.36(f) (loan originator qualifications), and section 1026.36(g) (name and

NMLSR ID on loan documents). The written policies and procedures must be appropriate to the

nature, size, complexity, and scope of the mortgage lending activities of the depository and its

subsidiaries. (§1026.36(j))

Prohibition on Mandatory Arbitration or Waivers of Certain

Consumer Rights – Section 1026.36(h)

A contract or other agreement for a consumer credit transaction secured by a dwelling (including

a home equity line of credit secured by the consumer’s principal dwelling) may not include terms

that require mandatory arbitration or any other non-judicial procedure to resolve any controversy

arising out of the transaction. Also, a contract or other agreement relating to such a consumer

credit transaction may not be applied or interpreted to bar a consumer from bringing a claim in

court under any provision of law for damages or other relief in connection with an alleged

violation of any federal law. However, a creditor and a consumer could agree, after a dispute or

claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to

resolve that dispute or claim.

Prohibition on Financing Credit Insurance

– Section 1026.36(i)

Creditors are prohibited from “financing” (i.e., providing a consumer the right to defer payment

beyond the monthly period in which the premium or fee is due), either directly or indirectly,

premiums or fees for credit insurance in connection with a consumer credit transaction secured

by a dwelling (including a home equity line of credit secured by the consumer’s principal

dwelling). This prohibition includes financing fees for credit life, credit disability, credit

unemployment, credit property insurance, or any other accident, loss-of-income, life, or health

insurance or payment for debt cancellation or suspension. This prohibition does not apply to

credit unemployment insurance where the premiums are reasonable, the creditor receives no

direct or indirect compensation in connection with the premiums, and the premiums are paid

under a separate insurance contract and not to an affiliate of the creditor. This prohibition also

does not apply to credit insurance where premiums or fees are “calculated” and paid in full “on a

monthly basis” (i.e., determined mathematically by multiplying a rate by the actual monthly

outstanding balance).

Negative Amortization Counseling – Section 1026.36(k)

A creditor may not extend a negative amortizing mortgage loan to a first-time borrower in

connection with a closed-end transaction secured by a dwelling, other than a reverse mortgage or

a transaction secured by a timeshare, unless the creditor receives documentation that the

consumer has obtained homeownership counseling from a HUD certified or approved counselor.

Additionally, a creditor extending a negative amortizing mortgage loan to a first-time borrower

may not steer, direct, or require the consumer to use a particular counselor.

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Loan Servicing Practices

Servicers of mortgage loans are prohibited from engaging in certain practices, such as

pyramiding late fees. In addition, servicers are required to credit consumers’ loan payments as of

the date of receipt and provide a payoff statement within a reasonable time, not to exceed seven

business days of a written request.

Payment Processing – Section 1026.36(c)(1)

For a consumer credit transaction secured by a consumer’s principal dwelling, a loan servicer:

• Cannot fail to credit a periodic payment to the consumer’s loan account as of the date of

receipt, except in instances where the delay will not result in a charge to the consumer or in

the reporting of negative information to a consumer reporting agency.

NOTE: For the purposes of section 1026.36(c) a periodic payment is “an amount sufficient to

cover principal, interest, and escrow for any given billing cycle.” If the consumer owes late

fees, other fees, or non-escrow payments but makes a full periodic payment, the servicer

must credit the periodic payment as of the date of receipt.

• Cannot retain a partial payment (any amount less than a periodic payment) in a suspense or

unapplied payment account without disclosing to the consumer in the periodic statement (if

required) the total amount(s) held in the suspense account and applying the payment to the

balance upon accumulation of sufficient funds to equal a periodic payment.

If a servicer has provided written requirements for accepting payments in writing but then

accepts payments that do not conform to the written requirements, the servicer must credit the

payment as of five days after receipt.

Pyramiding of Late Fees – Section 1026.36(c)(2)

A servicer may not impose on the consumer any late fee or delinquency charge in connection

with a payment, when the only delinquency is attributable to late fees or delinquency charges

assessed on an earlier payment, and the payment is otherwise a periodic payment for the

applicable period and is received on its due date or within any applicable courtesy period.

Providing Payoff Statements – Section 1026.36(c)(3)

For consumer credit transactions secured by a dwelling, including home equity lines of credit

under section 1026.40(a), a creditor, assignee, or servicer may not fail to provide, within a

reasonable time, but no more than seven business days, after receiving a written request from the

consumer or person acting on behalf of the consumer, an accurate statement of the total

outstanding balance that would be required to pay the consumer’s obligation in full as of a

specific date.

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NOTE: For purposes of section 1026.36(c)(3), when a creditor, assignee, or servicer is not able

to provide the statement within seven business days because a loan is in bankruptcy or

foreclosure, because the loan is a reverse mortgage or shared appreciation mortgage, or because

of natural disasters or similar circumstances, the payoff statement must be provided within a

reasonable time.

TILA-RESPA Integrated Disclosures – Sections 1026.37

and 1026.38

For most closed-end consumer mortgages, creditors must provide two disclosures, the Loan

Estimate and the Closing Disclosure, to consumers for mortgage applications received on or after

August 1, 2015. The Loan Estimate is a three-page form that provides disclosures to help

consumers understand the key features, costs, and risks of the mortgage loan for which they are

applying. This form must be delivered or placed in the mail no later than three business days

after the creditor receives a consumer’s mortgage loan application. The Closing Disclosure is a

five-page form that helps consumers understand all of the costs of the transaction. This form

generally must be received by the consumer at least three business days before consummation.

Both forms use similar language and design to make it easier for consumers to locate key

information, such as the interest rate, monthly payments, and costs to close the loan.

The Loan Estimate form replaces the Good Faith Estimate designed by HUD under RESPA, and

the “early” Truth in Lending disclosure designed by the Federal Reserve Board under TILA. The

regulation and the Official Interpretations contain detailed instructions as to how each line on the

Loan Estimate form should be completed. There are sample forms for different types of loan

products. See CFPB’s TILA-RESPA Integrated Disclosure, Guide to the Loan Estimate and

Closing Disclosure forms (TILA-RESPA Guide to Forms) for a detailed, step-by-step walk-

through for completing the Loan Estimate and the Closing Disclosure. The Loan Estimate form

also incorporates new disclosures required by Congress under the Dodd-Frank Act.

The Closing Disclosure form replaces the HUD-1 for loan closing, which was designed by HUD

under RESPA. It also replaces the revised Truth in Lending disclosure designed by the Board

under TILA. The rule and the Official Interpretations contain detailed instructions as to how each

line on the Closing Disclosure form should be completed. The Closing Disclosure form contains

additional new disclosures required by the Dodd-Frank Act and a detailed accounting of the

settlement transaction. See CFPB’s TILA-RESPA Guide to Forms for a detailed, step-by-step

walk-through for completing the Loan Estimate and the Closing Disclosure.

The rules on who provides the disclosures, timing, limits on when fees can be charged, early

estimates, and limits on increases in charges are in 12 CFR 1026.19(e) and (f), described in

subpart A.

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Loan Estimate – Content of Disclosures for Certain

Mortgage Transactions – Section 1026.37

Loan Estimate form required (§1026.37(o))

The Loan Estimate generally must provide consumers with a good faith estimate of credit costs

and transaction terms, and satisfy timing and delivery requirements set forth in the rule.

For any transactions subject to 12 CFR 1026.19(e) that are federally-related mortgage loans

subject to RESPA (which will include most mortgages), creditors must use form H-24, set forth

in appendix H. (§1026.37(o)(3)(i)) (See also §1024.2(b) for definition of federally related

mortgage loan.)

For other loans subject to 12 CFR 1026.19(e) that are not federally related mortgage loans, the

disclosures must be made with headings, content, and format substantially similar to form H-24.

(§1026.37(o)(3)(ii))

The disclosures may be provided to the consumer in electronic form, subject to compliance with

the consumer consent and other applicable provisions of the Electronic Signatures in Global and

National Commerce Act (15 U.S.C. 7001 et seq.). (§1026.37(o)(3)(iii))

Information required on the Loan Estimate form. Most disclosures on the Loan Estimate

form are required to be labeled using specific nomenclature, headings, and formatting. For

example, the regulation requires that the form disclose the contract sale price, labeled “Sale

Price” (or if there is no seller, the estimated value of the property, labeled “Prop. Value”).

Further, in some instances, the regulation directs lines on the disclosure to be left blank where

there is no charge (see, e.g., §1026.37(g)(2)(v)) or sets forth the maximum number of items that

may be disclosed (see, e.g., §1026.37(g)(3)(v)). See the regulation, Form H-24, and the

Regulation Z procedures for specific obligations regarding each required disclosure.

Rounding. Dollar amounts must be rounded to the nearest whole dollar where noted in the

regulation, including adjustments after consummation for loan amount, interest rate, and periodic

payment; and details about prepayment penalties and balloon payments, minimum and maximum

amounts for principal and interest payments and range of payments, maximum mortgage

insurance premiums, escrows, taxes and insurance and assessments, closing costs (loan costs and

other costs), cash to close, and adjustable payment and comparisons. (§1026.37(o)(4)(i)(A))

The per diem amount for prepaid interest paid per day and the monthly amounts required to be

disclosed for escrows of homeowner’s insurance, mortgage insurance, or property taxes must not

be rounded. (§1026.37(o)(4)(i)(B))

If an amount is required to be rounded but is composed of other amounts that are not required or

permitted to be rounded, the unrounded amounts should be used to calculate the total, and the

final sum should be rounded. Conversely, if an amount is required to be rounded and is

composed of rounded amounts, the rounded amounts should be used to calculate the total.

(Comment 37(o)(4)-2)

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Percentage amounts may not be rounded and should be disclosed up to two or three decimals, as

needed. These include the interest rate, adjustments after consummation (to the loan amount,

interest rate, or periodic payment), points itemized under origination charges, adjustable interest

rate and total interest percentage or “TIP.” The annual percentage rate must be disclosed up to

three decimal places and is not rounded. If a percentage amount is a whole number, only the whole

number should be disclosed, with no decimals. (§1026.37(o)(4)(ii); Comment 37(o)(4)(ii)-1)

Page 1: General information, loan terms, projected payments, and costs at closing.

Page 1 of the Loan Estimate discloses general information about the creditor, the applicant(s),

and the loan. It also includes a Loan Terms table with descriptions of applicable information

about the loan, a Projected Payments table, a summary Costs at Closing table, and a link for

consumers to obtain more information about loans secured by real property at a website

maintained by the CFPB. (§§1026.37(a)-(e))

General information. Page 1 of the Loan Estimate requires the title “Loan Estimate” and the

statement “Save this Loan Estimate to compare with your Closing Disclosure.” (§1026.37(a)(1),

(2)) The top of page 1 also requires the name and address of the creditor. (§1026.37(a)(3)) A

logo can be used for, and a slogan included along with, the creditor’s name and address, so long

as the logo or slogan does not cause this information to exceed the space provided on Form H-24

for that information. (§1026.37(o)(5)(iii)) If there are multiple creditors, only the name of the

creditor completing the Loan Estimate should be used. (Comment 37(a)(3)-1) If a mortgage

broker is completing the Loan Estimate, the mortgage broker should make a good faith effort to

disclose the name and address of the creditor as required by 12 CFR 1026.19(e)(1)(i). However,

if the name of the creditor is not yet known, this space may be left blank. (Comment 37(a)(3)-2)

Below the creditor information, the form requires the date the creditor mails or delivers the

disclosures to the consumer; the name and mailing address of the consumer(s) applying for the

credit; the address, including the zip code, of the property that secures or will secure the

transaction, or if the address is unavailable, the location of such property, including a zip code;

and the contract sale price (or if there is no seller, the estimated value of the property).

(§1026.37(a)(4)-(6))

On the top right side of the first page, the form requires the loan term to maturity (stated in years

or months, or both, as applicable; and loan purpose (purchase, refinance, construction or home

equity loan). (§1026.37(a)(8)-(9)) This section of the form also requires the product type

(adjustable rate, step rate, or fixed rate) and, preceding the type, any features that may change the

periodic payment, including negative amortization, interest only, step payment, balloon payment,

or seasonal payment features, as applicable. If the product has an adjustable or step rate, or a

feature that may change the periodic payment, the product disclosure must also be preceded by a

disclosure of the duration of any introductory rate or payment period, and the first adjustment

period, as applicable. (§1026.37(a)(10) This section of the form also requires the loan type

(conventional, FHA, VA, or other), and loan ID#. (§1026.37(a)(11)-(12)) Further, there must be

a statement of whether the interest rate is locked for a specific time, and if so, the date and time

when that period ends. It must also include a statement that the interest rate, any points, and any

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lender credits may change unless the interest rate has been locked, and the date and time

(including the applicable time zone) at which estimated closing costs expire. (§1026.37(a)(13))

Loan Terms table.

The Loan Terms table follows the general information requirements on page 1 of the Loan

Estimate. For the Loan Terms table, the creditor must disclose the loan amount (the amount of

credit to be extended under the terms of the legal obligation), interest rate applicable to the

transaction at consummation, and specified principal and interest payments. (§1026.37(b)(1)-(3))

For each such element, the disclosure must answer the question, either affirmatively or

negatively, whether the amount can increase after consummation. If the amount can increase, the

loan must disclose additional information. (§1026.37(b)(6)) The Loan Terms table must also

include information about prepayment penalties and balloon payments.

Loan amount. If the loan amount may increase after consummation, the disclosure must

include the maximum principal balance for the transaction and the due date of the last payment

that may cause the principal balance to increase. The disclosure must also indicate whether the

maximum principal balance is potential or is scheduled to occur under the terms of the legal

obligation. (§1026.37(b)(6)(i))

Interest rate. If it is an adjustable rate transaction where the interest rate at consummation

is not known, the disclosed rate is the fully indexed rate (which means the index value and

margin at the time of consummation) (§1026.37(b)(2)). If the interest may increase after

consummation, the creditor must disclose the frequency of interest rate adjustments, the date

when the interest rate may first adjust, the maximum interest rate, and the first date when the

interest rate can reach the maximum interest rate, followed by a reference to the adjustable rate

table required by 12 CFR 1026.37(j) in the Closing Cost Details section of the Loan Estimate. If

the loan term may increase based on an interest rate adjustment, that fact must be included, as

well as the maximum possible loan term determined in accordance with section 1026.37(a)(8).

(§1026.37(b)(6)(ii))

Principal and interest payment. The creditor must disclose the initial periodic payment

that will be due under the terms of the legal obligation, immediately preceded by the applicable

unit period, and a statement referring to the payment amount that includes any mortgage

insurance and escrow payments that is required to be disclosed in the Projected Payments table.

(§1026.37(b)(3)) If the monthly principal and interest payment can increase after closing, the

creditor must also disclose: the scheduled frequency of adjustments to the periodic principal and

interest payment; the due date of the first adjusted principal and interest payment; the maximum

possible periodic principal and interest payment; and the date when the periodic principal and

interest payment may first equal the maximum principal and interest payment. If any adjustments

to the principal and interest payment are not the result of a change to the interest rate, the creditor

must reference the adjustable interest rate table disclosure required by 12 CFR 1026.37(i). If

there is a period during which only interest is required to be paid, the disclosure must also state

that fact and the due date of the last periodic payment of such period. (§1026.37(b)(6)(iii))

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Prepayment penalties and balloon payments. The Loan Terms table must also state

affirmatively or negatively whether the transaction includes a prepayment penalty (for these

purposes, a charge imposed for paying all or part of a transaction's principal before the date on

which the principal is due, other than a waived, bona fide third-party charge that the creditor

imposes if the consumer prepays all of the transaction's principal sooner than 36 months after

consummation) or a balloon payment (for these purposes, a payment that is more than two times

a regular periodic payment). (§1026.37(b)(4) and (5))

Projected Payments table.

The Projected Payments table is located directly below the Loan Terms table on page 1 of the

Loan Estimate. The Projected Payments table shows estimates of the periodic payments that the

consumer will make over the life of the loan. Creditors must disclose estimates of the following

periodic payment amounts in the Projected Payments table: periodic principal and interest (or

range of periodic payments); mortgage insurance; estimated escrow; and estimated total monthly

payment. (§1026.37(c)(2)) Creditors must also disclose estimated taxes, insurance, and

assessments, even if not paid with escrow funds (and whether these items will be paid with funds

from the consumer’s escrow account). (§1026.37(c)(4))

Generally, the creditor will show in one column the initial periodic payment (or range of

payments if required). Depending on the features of the loan, subsequent periodic payments also

may be required to be disclosed. However, no more than four separate periodic payments or

ranges of payments may be disclosed, beginning with the initial periodic payment. Events that

require disclosure of separate periodic payments or ranges include: changes to the periodic

principal and interest payment; a scheduled balloon payment: an automatic termination of

mortgage insurance or its equivalent; and the anniversary of the due date of the initial periodic

payment or range of payments that immediately follows the occurrence of multiple events that

change the periodic principal and interest. The regulation addresses how to disclose these events

when the event occurs after the third separate periodic payment or range of payments disclosed.

(§1026.37(c)(1))

Each separate payment or range of payments must be itemized according to the regulation,

including the amount payable for principal and interest. The regulation provides instructions for

itemizing payments that include an interest only payment, payments on loans with an adjustable

interest rate, and payments on a loan that has both an adjustable interest rate and a negative

amortization feature. Additionally, the regulation requires that each separate periodic payment or

range of payments itemize the maximum corresponding payable for mortgage insurance

premiums and the amount payable into escrow (with a statement that the amount disclosed may

increase over time and a calculation of the total monthly payment). (§1026.37(c)(2))

Below the estimated total monthly payment, the Projected Payments table discloses estimated

taxes, insurance, and assessments. These are stated as a monthly amount and include a statement

that the amount may increase over time. The creditor provides these estimates even if there will

be no escrow account established for these costs. The table also requires a statement of whether

the amount disclosed includes payments for property taxes or other amounts; a description of any

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such other amounts; and an indication of whether such amounts will be paid by the creditor using

escrow account funds. It includes a statement that the consumer must separately pay the taxes,

insurance, and assessments that are not paid by the creditor using escrow account funds; and a

reference to the information disclosed under the subheading on the Loan Estimate titled “Initial

Escrow Payment at Closing.” (§1026.37(c)(4))

The creditor estimates property taxes and homeowner's insurance using the taxable assessed

value of the real property securing the transaction after consummation, including the value of

any improvements on the property or to be constructed on the property, if known, whether or not

such construction will be financed from the proceeds of the transaction, for property taxes; and

the replacement costs of the property during the initial year after the transaction, for premiums or

other charges for insurance against loss of or damage to property identified in 12 CFR

1026.4(b)(8). (§1026.37(c)(5))

Costs at Closing table.

This table, located at the bottom of page 1, provides disclosures on estimated Closing Costs and

estimated Cash to Close. (§1026.37(d)(1)) These disclosures offer the consumer a high-level

summary of estimated closing costs and cash required to close (including closing costs) and

reference the more detailed itemizations found on page 2 of the Loan Estimate.

(§1026.37(d)(1)(i)(E) and §1026.37(d)(1)(ii)(B))

Items that are disclosed include an estimate of Total Closing Costs, as well as the key inputs

making up this total: Loan Costs, Other Costs, and Lender Credits (and the fact that total closing

costs include these amounts). (§1026.37(d)(1)(i)) These disclosures also provide a high-level

summary of the estimated amount of cash required to close, which is also itemized more

specifically on page 2 of the Loan Estimate. (§1026.37(d)(1)(ii)) The regulation provides an

optional alternative Cash to Close table for transactions that do not involve a seller. The creditor

may alternatively disclose, using the label “Cash to Close,” the cash to or from the consumer

(pursuant to 1026.37(h)(2)(iv)), a statement of whether the disclosed estimated amount is due

from or to the consumer, and a statement referring the consumer to the alternative Calculating

Cash to Close table for transactions without a seller (pursuant to 1026.37(h)(2)).

(§1026.37(d)(2))

Page 2: Closing cost details

Page 2 of the Loan Estimate contains a good faith itemization of the “Loan Costs” and “Other

Costs” associated with the loan. (§1026.37(f) and (g)) Generally, Loan Costs are those costs paid

by the consumer to the creditor and third-party providers of services the creditor requires to be

obtained by the consumer during the origination of the loan. (§1026.37(f)) Other Costs include

taxes, governmental recording fees, and certain other payments involved in the real estate closing

process. (§1026.37(g)) Page 2 also includes an itemized “Calculating Cash to Close” table to

show the consumer how the amount of cash needed at closing is calculated. (§1026.37(h)) In

addition, for transactions with adjustable monthly payments not based on changes to the interest

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rate, page 2 must include an Adjustable Payment (AP) table with relevant information about how

the monthly payments will change. (§1026.37(i)) Further, for transactions with adjustable

interest rates, page 2 must include an Adjustable Interest Rate (AIR) table with relevant

information about how the interest rate will change. (§1026.37(j))

If state law requires additional disclosures, those additional disclosures may be made on a

document whose pages are separate from, and not presented as part of, the Loan Estimate.

(Comments 37(f)(6)-1 and 37(g)(8)-1)

Loan Costs table. This table includes all loan costs associated with the transaction,

broken down into an itemization of three types of costs:

• Origination charges the consumer will pay to each creditor and loan originator for originating

and extending credit (including separate itemization for points paid to the creditor to reduce

the interest rate as both a percentage of the amount of credit extended and dollar amount) (up

to 13 line items); the following items should be itemized separately in the Origination

Charges subheading:

o Compensation paid directly by a consumer to a loan originator that is not also the

creditor (Comments 37(f)(1)-2 and -5); or

o Any charge imposed to pay for a loan level pricing adjustment assessed on the creditor

that is passed on to the consumer as a cost at consummation and not as an adjustment to

the interest rate. (Comment 37(f)(1)-5)

• Services the consumer cannot shop for (items provided by persons other than the creditor or

mortgage broker that the consumer cannot shop for and will pay for at settlement, such as

appraisal fees and credit report fees) (up to 13 line items); and

• Services the consumer can shop for (such as a pest inspection fee, survey fee, or closing

agent fee) (up to 14 line items) (§1026.37(f)(2) and (3)).

Regarding origination fees, only charges paid directly by the consumer to compensate a loan

originator are included in the itemization. Compensation of a loan originator paid indirectly by

the creditor through the interest rate is not itemized (but is itemized on the Closing Disclosure;

see below). (Comment 37(f)(1)-2)

NOTE: Items that are a component of title insurance must include the introductory description of

“Title -.” (§1026.37(f)(2)(i) and (g)(4)(i))

The sum of these amounts must be disclosed as Total Loan Costs. The regulation includes a

required order and terminology for each item. (§1026.37(f)(1)-(5)) If the creditor does not have

enough lines for each subheading, it must disclose the remaining items as an aggregate number.

(§1026.37(f)(6)(i)) An addendum is not permitted for origination charges or charges the

consumer cannot shop for that exceed the maximum number of lines but is permitted for services

the consumer can shop for, provided the creditor appropriately references the addendum

(§1026.37(f)(6)(ii)).

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Other Costs table. The Other Costs table captures costs established by government action,

determined by standard calculations applied to ongoing fixed costs, or based on an obligation

incurred by the consumer independently of any requirement imposed by the creditor. (Comment

37(g)-1) The table includes:

• Taxes and other governmental fees (recording fees and other taxes, and transfer taxes paid by

the consumer, separately itemized);

• Prepaids (amounts paid by the consumer before the first scheduled payment, such as

homeowner insurance premiums, mortgage insurance premiums, prepaid interest, and

property taxes, plus up to 3 additional line items);

• Initial escrow payment at closing (items that the consumer will be expected to place into a

reserve or escrow account at consummation to be applied to recurring periodic charges; these

include homeowner’s insurance, mortgage insurance, and property taxes, plus up to 5

additional line items); and

• Other amounts the consumer is likely to pay (such as real estate agent commissions, up to 5

line items). (§1026.37(g)(1)-(4), Comment 37(g)(4)-4)

NOTE: Items that disclose any premiums paid for separate insurance, warranty, guarantee, or

event-coverage products not required by the creditor must include the parenthetical description

(optional) at the end of the label. (§1026.37(g)(4)(ii))

As with Loan Costs, the regulation includes a required order, terminology, and specific

information regarding each Other Costs line item, such as the applicable time period covered by

the amount paid at consummation and the total amount to be paid. Items that disclose any

premiums paid for separate insurance, warranty, guarantee, or event-coverage products not

required by the creditor must include the parenthetical description (optional) at the end of the

label. (§1026.37(g)(4)(ii)) An addendum is not permitted; if the creditor does not have enough

lines for each subheading, it must disclose the remaining items as an aggregate number.

(§1026.37(g)(8)) The sum of these amounts must be disclosed as a line item as Total Other

Costs. (§1026.37(g)(5)) Below this total, the sum of Total Loan Costs and Total Other Costs, less

any lender credits (separately itemized), must be disclosed as a line item as Total Closing Costs.

(§1026.37(g)(6))

Calculating Cash to Close table. The Calculating Cash to Close table shows the consumer how

the amount of cash needed at closing is calculated. (§1026.37(h)(1)) The creditor must itemize

the total amount of cash or other funds that the consumer must provide at consummation. The

itemization includes:

• Total closing costs; (§1026.37(h)(1)(i))

• Closing costs to be financed (i.e., paid out of loan proceeds, disclosed as a negative number);

(§1026.37(h)(1)(ii))

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• Down payment and other funds from the borrower (in a purchase transaction, the difference

between purchase price of property and principal amount of loan, disclosed as a positive

number; in other transactions, estimated funds from the consumer—see “funds for the

borrower” below); (§1026.37(h)(1)(iii))

• Deposit (in a purchase transaction, the amount that is paid to the seller or held in trust or

escrow by an attorney or other party under the terms of the agreement for the sale of the

property, disclosed as a negative number, and labeled “deposit;” in all other transactions, the

amount of $0, labeled “deposit”); (§1026.37(h)(1)(iv))

• Funds for the borrower (determined by subtracting the principal amount of the credit

extended from the total amount of existing credit being satisfied, and if the amount is a

positive number, disclosed as that number, but if the amount is $0 or a negative number, it is

disclosed as $0); (§1026.37(h)(1)(v))

• Seller credits (the amount the seller will pay for total loan costs and total other costs, to the

extent known, disclosed as a negative number) (§1026.37(h)(1)(vi); and

• Adjustments and other credits. (§1026.37(h)(1)(vii))

• Estimated Cash to Close is calculated and disclosed in the same table based on these amounts

listed in 12 CFR 1026.37(h)(1)(i) to (vii). (§1026.37(h)(1)(viii))

For transactions without a seller, the creditor can use the optional alternative table and provide,

under the heading Closing Cost Details, the total amount of cash or other funds that must be

provided by the consumer at consummation with an itemization of the following component

amounts: (1026.37(h)(2))

• Loan amount (disclosed under 1026.37(b)(1)); (1026.37(h)(2)(i))

• Total closing costs (disclosed under 1026.37(g)(6); (1026.37(h)(2)(ii))

• Payoffs and payments – the total amount of payoffs and payments to third parties not

otherwise disclosed under 12 CFR 1026.37(f) and (g); (1026.37(h)(2)(iii))

• Cash to or from consumer – the amount of cash or other funds due from or to the consumer

and a statement of whether the disclosed estimated amount is due from or to the consumer,

calculated by the sum of the loan amount, total closing costs and payoffs and payments under

12 CFR 1026.37(h)(2)(i)-(iii)), only to the extent that the sum is greater than zero and less

than the total closing costs (1026.37(g)(6)) and labeled “Cash to Close;” (1026.37(h)(2)(iv))

• Closing costs financed – the sum of the amounts disclosed under 12 CFR 1026.37(h)(2)(i)

and (iii) (loan amount and payoffs and payments), but only to the extent that the sum is

greater than zero and less than the total closing costs (1026.37(g)(6)), labeled “Closing Costs

Financed (Paid from your Loan Amount).” (1026.37(h)(2)(v))

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Adjustable Payment (AP) table.

This table is for transactions with adjustable monthly payments for reasons other than

adjustments to the interest rate, or if the transaction is a seasonal payment product. The table

provides consumers with relevant information about how the monthly payments will change. If

the transaction does not contain such terms, the table may not be on the Loan Estimate

(§1026.37(i); Comment 37(i)-1).

The AP table requires answers to the following questions:

• Whether there are interest only payments, and, if so, the period during which the interest only

payment would apply (§1026.37(i)(1));

• Whether the amount of any periodic payment can be selected by the consumer as an optional

payment and, if so, the period during which the consumer can select optional payments

(§1026.37(i)(2));

• Whether the loan is a step payment product and, if so, the period during which the regular

periodic payments are scheduled to increase (§1026.37(i)(3));

• Whether the loan is a seasonal payment product, and, if so, the period during which the

periodic payments are not scheduled (§1026.37(i)(4)); and

• A subheading of monthly principal and interest payments, with specified information about

the first payment change and amount; frequency of subsequent changes; and maximum

periodic payment that may occur during the loan term (and first date the maximum is

possible) (§1026.37(i)(5).

Adjustable Interest Rate (AIR) table.

For transactions with adjustable interest rates, an Adjustable Interest Rate (AIR) table provides

consumers with relevant information about how the interest rate will change. (§1026.37(j)) The

adjustable interest rate table must be completed if the interest rate may increase after

consummation. However, if the legal obligation does not permit the interest rate to adjust after

consummation, this table is not permitted to appear on the Loan Estimate. (§1026.37(j)(1);

Comment 37(j)-1))

The AIR table includes the following information (§1026.37(j)):

• For non-step-rate products, the index upon which adjustments to the interest rate will be

based and the margin that is added to the index to determine the interest rate

(§1026.37(j)(1));

• For step rate products, the maximum amount of any adjustments to the interest rate that are

scheduled and pre-determined (§1026.37(j)(2));

• The initial interest rate at consummation (§1026.37(j)(3));

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• The minimum/maximum interest rate for the loan, after any introductory period expires

(§1026.37(j)(4));

• The frequency of adjustments (first and subsequent adjustments) (§1026.37(j)(5)); and

• Any limits on interest rate changes (§1026.37(j)(6)).

Page 3: Additional information about the loan

Page 3 of the Loan Estimate contains contact information, a Comparisons table, an Other

Considerations table, and, if desired, a Signature Statement for the consumer to sign to

acknowledge receipt. (See §1026.37(k), (l), (m), and (n))

Contact information

The top of page 3 includes the name and NMLSR or License ID number for the creditor and

mortgage broker, if any; and name and NMLSR or License ID of individual loan officer who is

the primary contact for the consumer, along with that person’s email address and phone number.

(§1026.37(k))

Comparisons table

The Comparisons table follows the contact information and allows consumers to compare loans.

The creditor must provide the:

• Total dollar amount of principal, interest, mortgage insurance, and loan costs scheduled to be

paid through the end of the 60th month after the due date of the first periodic payment;

• Total dollar amount of principal scheduled to be paid through the end of the 60th month after

the due date of the first periodic payment;

• Annual percentage rate using that term and the abbreviation “APR” and expressed as a

percentage; and

• Total interest percentage that the consumer will pay over the life of the loan, expressed as a

percentage of the amount of credit extended, using the term “Total Interest Percentage” and

the abbreviation “TIP.”

Each of these disclosures must be accompanied by a specified descriptive statement. (§1026.37(l))

Other Considerations

Below the Comparisons table is a section regarding “other considerations” about the loan. This

section includes disclosures on appraisals, assumptions, whether homeowner’s insurance is

required, applicable late payment fees, a warning about refinancing, whether the creditor intends

to service the loan or transfer servicing, liability after foreclosure, and an optional statement that

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a revised Loan Estimate can be provided up to 60 days prior to consummation when the loan is

for new construction. (§1026.37(m))

The consumer is not required to sign the Loan Estimate. If the creditor adds a signature statement

on page 3 of the Loan Estimate to confirm receipt by the consumer, it must use the model form

language. If the creditor chooses not to use the confirm receipt table, it must include a statement

that “You do not have to accept this loan because you have received this form or signed a loan

application.” (§1026.37(n))

Closing Disclosure – Content of Disclosures for Certain

Mortgage Transactions – Section 1026.38

Closing Disclosure form required (§1026.38(t)(3)(i))

The Closing Disclosure generally must contain the actual terms and costs of the transaction and

must satisfy timing and delivery requirements set forth in the rule.

For any loans subject to 12 CFR 1026.19(f) that are federally- related mortgage loans subject to

RESPA (which will include most mortgages), creditors must use form H-25, set forth in Appendix

H. (§1026.38(t)(3)(i) (See also §1024.2(b) for definition of federally related mortgage loan.)

For other loans subject to 12 CFR 1026.19(f) that are not federally related mortgage loans, the

disclosures must contain the exact same information and be made with headings, content, and

format substantially similar to form H-25. (§1026.38(t)(3)(ii))

Information required on the Closing Disclosure. As with the Loan Estimate, most disclosures

on the Closing Disclosure form are required to be labeled using specific nomenclature, headings,

and formatting. Similarly, in some instances, the regulation directs lines on the disclosure to be

left blank where there is no charge or sets forth the maximum number of items that may be

disclosed. See the regulation, Form H-25, and the Regulation Z procedures for specific

obligations regarding each required disclosure.

Rounding. Dollar amounts generally must not be rounded except where noted in the regulation.

(§1026.38(t)(4)(i)) If an amount must be rounded but is composed of other amounts that are not

required or permitted to be rounded, the unrounded amounts should be used to calculate the total,

and the final sum should be rounded. Conversely, if an amount is required to be rounded and is

composed of rounded amounts, the rounded amounts should be used to calculate the total.

(Comment 38(t)(4)-2) Percentage amounts should not be rounded and are disclosed up to two or

three decimals, as needed, except where noted in the regulation. If a percentage amount is a

whole number, only the whole number should be disclosed, with no decimals.

(§1026.38(t)(4)(ii))

Page 1: General information, loan terms, projected payments, and costs at closing

General information, the Loan Terms table, the Projected Payments table, and the Costs at

Closing table are disclosed on the first page of the Closing Disclosure. (§1026.38(a), (b), (c), and

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(d)) These disclosures mirror the disclosures in the Loan Estimate, and there is a required

statement to compare the document with the Loan Estimate. (§1026.38(a)(2)).

Page 1 of the Closing Disclosure is similar, but not identical, to the Loan Estimate. Page 1 of the

Closing Disclosure provides general closing, transaction, and loan information. It also includes a

Loan Terms table with descriptions of applicable information about the loan, a Projected

Payments table, and a summary Costs at Closing table. (§1026.38(a)-(d))

General information

The top of page 1 of the Closing Disclosure requires the title “Closing Disclosure” and a

specified statement to compare the disclosure with the Loan Estimate. (§1026.38(a)(1) and (2))

The top of page 1 also requires general closing, transaction, and loan information.

Closing information includes the date the Closing Disclosure was delivered to the consumer,

closing date, (i.e., the date of consummation), the disbursement date, settlement agent conducting

the closing, file number assigned by the settlement agent, property address or location, and sale

price (or appraised property value if there is no seller). (§1026.38(a)(3)) For transactions without

a seller for which the creditor has not obtained an appraisal, the creditor may disclose the

estimated value of the property, using the estimate provided by the consumer at application or

the estimate the creditor used to determine approval of the credit transaction. Comment

38(a)(3)(vii)-1

Transaction information includes the borrower’s name and mailing address, the seller’s name

and mailing address, and the name of the creditor making the disclosure. (§1026.38(a)(4))

Loan information includes the loan term, purpose, product, loan type, loan ID number (using the

same number as on the Loan Estimate), and mortgage insurance case number (MIC #), if

required by the creditor. (§1026.38(a)(5)) Other than the MIC #, this information is determined

by the same definitions for those items on the Loan Estimate, updated to reflect the terms of the

legal obligation at consummation. (Comment 38(a)(5)-1)

Loan Terms table

The Loan Terms table is located under the above described general information disclosures. The

information for this table is the same as that required in the Loan Estimate under 12 CFR

1026.37(b), updated to reflect the terms of the legal obligation at consummation. (§1026.38(b))

Projected Payments table

The Projected Payments table is located directly below the Loan Terms table on page 1 of the

Closing Disclosure. The information for this table is generally the same as that required in the

Loan Estimate under 12 CFR 1026.37(c)(1) through (4), updated to reflect the terms of the legal

obligation at consummation (other than the reference to closing cost details required by

§1026.37(c)(4)(vi)). The estimated escrow payments disclosed on the Closing Disclosure for

transactions subject to RESPA are determined under the escrow account analysis described in

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Regulation X, 12 CFR 1024.17. For transactions not subject to RESPA, estimated escrow

payments may be determined under the escrow account analysis described in Regulation X, 12

CFR 1024.17 or in the manner set forth in 12 CFR 1026.37(c)(5). There is also a required

reference to the detailed escrow account disclosures on page 4 of the Closing Disclosure.

(§1026.38(c))

Costs at Closing table

This table, located at the bottom of page 1, provides disclosures on Closing Costs and Cash to

Close. (§1026.38(d)) These disclosures offer the consumer a high-level summary of closing costs

and reference the more detailed itemizations found on pages 2 and 3 of the Closing Disclosure.

(§1026.38(d)(1)(i)(E) and §1026.38(d)(1)(ii)(B))

Items that are disclosed on the Cash at Closing table include Total Closing Costs, as well as the

key inputs making up this total: Loan Costs and Other Costs, less Lender Credits (and the fact

that total closing costs include these amounts). (§1026.38(d)(1)(i)) The table also discloses Cash

Required to Close. (§1026.38(d)(1)(ii)) For transactions without a seller, the creditor must use

the alternative Calculating Cash to Close table when the alternative costs at closing table was

used on the Loan Estimate. (§1026.38(d)(2))

Page 2: Closing Cost Details; Loan costs and other costs

Page 2 of the Closing Disclosure contains an itemization of the “Loan Costs” and “Other Costs”

associated with the loan. (§1026.38(f), (g), and (h)). In each case, the amounts paid by the

consumer, seller, and others are separately disclosed. For items paid by the consumer or seller,

amounts that are paid at closing are disclosed in a column separately from amounts paid before

closing. (§1026.38(f)

The number of items in the Loan Costs and Other Costs tables can be expanded and deleted to

accommodate the disclosure of additional line items and to keep the Loan Costs and Other Costs

tables on page 2 of the Closing Disclosure. (§1026.38(t)(5)(iv)(A); Comment 38(t)(5)(iv)-2)

However, items that are required to be disclosed even if they are not charged to the consumer

(such as Points in the Origination Charges subheading) cannot be deleted. (Comment

38(t)(5)(iv)-1)

Further, the Loan Costs and Other Costs tables can be disclosed on two separate pages of the

Closing Disclosure, but only if the page cannot accommodate all of the costs required to be

disclosed on one page. (§1026.38(t)(5)(iv)(B); Comment 38(t)(5)(iv)-2). When used, these pages

are numbered page 2a and 2b. (Comment 38(t)(5)(iv)-3). For an example of this permissible

change to the Closing Disclosure, see form H-25(H) of appendix H to Regulation Z.

Loan Costs table

All loan costs associated with the transaction are listed in a table under the heading “Loan

Costs,” with the items and amounts listed under four subheadings:

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• Origination charges;

• Services borrower did not shop for;

• Services borrower did shop for; and

• Total loan costs. (§1026.38(f)(1)-(5)).

Items should generally be the same as disclosed on the Loan Estimate, updated to reflect the

terms of the legal obligation at consummation, except as discussed below. (§1026.38(f))

Origination Charges. All loan originator compensation is disclosed as an origination

charge, including compensation from the creditor to a third-party loan originator (which was not

disclosed on the Loan Estimate). Compensation from the consumer to a third-party loan

originator is designated as Borrower-Paid at Closing or before closing on the Closing Disclosure.

(§1026.38(f)(1); Comment 38(f)(1)-2) Compensation from the creditor to a third-party loan

originator is designated as Paid by Others on the Closing Disclosure. (Comment 38(f)(1)-2) This

line item must also disclose the name of the loan originator ultimately receiving the payment.

(§1026.38(f)(1)) A designation of “(L)” can be listed with the amount to indicate that the creditor

pays the compensation at consummation. This is the same as the amount of third-party

compensation included in points and fees for purposes of determining the consumer’s ability to

repay the loan. Compensation to individual loan originators is not calculated or disclosed on the

Closing Disclosure. (Comment 38(f)(1)-3)

Services the consumer did or did not shop for. The following are disclosed under

“Services Borrower Did Not Shop For,” regardless of where it was located on the Loan Estimate:

• Items that the consumer could have shopped for, but did not.

• When a consumer chooses a provider that is on the written list of providers for a service on

the Loan Estimate. (§1026.38(f)(2))

Items are re-alphabetized when an item is added to or removed from a particular subheading.

The amounts that are designated as Borrower-Paid at or before closing are subtotaled as Total

Loan Costs (Borrower-Paid). (§1026.38(f)(5)) Amounts designated as Seller-Paid or Paid by

Others are not included in this subtotal (rather, they are included elsewhere in the Closing Cost

Subtotal). (Comment 38(f)(5)-1; §1026.38(h)(2))

Other Costs table

Items should generally be the same as disclosed on the Loan Estimate, updated to reflect the

terms of the legal obligation at consummation, except as discussed below. (§1026.38(g))

Taxes and other government fees. Itemized transfer taxes paid by the consumer and by

the seller are disclosed, instead of just the sum total of transfer taxes to be paid by the consumer

(§1026.38(g)(1)).

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Prepaids. An itemization of homeowner’s insurance premiums, mortgage insurance

premiums, prepaid interest, property taxes and a maximum of three additional items (see

1026.37(g)(2)), the name of the person ultimately receiving the payment or government entity

assessing the property tax, and the total of all such itemized amounts that are designated

Borrower-Paid at or before closing. ((§1026.38(g)(2)).

Initial escrow payment at closing. Property taxes paid during different time periods may

be disclosed as separate items. (§1026.38(g)(3))

This section of the table also includes, as the last item disclosed, an Aggregate Adjustment

calculated pursuant to Regulation X, 12 CFR 1024.17(d)(2). (§1026.38(g)(3))

Other. This section of the table includes charges for services that are required or obtained

in the real estate closing by the consumer, the seller, or other party, and the name of the person

ultimately receiving the payment, even if not initially disclosed on the Loan Estimate.

(§1026.38(g)(4)) This includes all real estate brokerage fees, homeowner’s or condominium

association charges paid at consummation, home warranties, inspection fees, and other fees that

are part of the real estate closing but not required by the creditor or not disclosed elsewhere on

the Closing Disclosure. (Comment 38(g)(4)-1) The amount of real estate commissions paid must

be the total amount paid to any real estate brokerage as a commission, regardless of the identity

of the party holding any earnest money deposit. (Comment 38(g)(4)-4)

If there are costs that are a component of title insurance services, their label must begin with

“Title -” and, if there are costs designated Borrower-Paid at or before closing for any premiums

paid for separate insurance, warranty, guarantee, or event-coverage products, they must be

labeled “(optional).” (§1026.38(g)(4)(i) and (ii))

The sum of any of these amounts that are Borrower-Paid must be disclosed as a line item as

Total Other Costs (Borrower-Paid). (§1026.38(g)(5)) Below this total, the sum of Total Loan

Costs and Total Other Costs (Borrower-Paid), less any lender credits (separately itemized), must

be disclosed as a line item as Total Closing Costs (Borrower-Paid). (§§1026.38(g) and (h))

Page 3: Calculating cash to close, summaries of transactions, and alternatives for

transactions without a seller

Page 3 of the Closing Disclosure contains the Calculating Cash to Close table and Summaries of

Transactions tables. (§1026.38(i), (j), and (k))

Calculating Cash to Close

The Calculating Cash to Close table permits the consumer to see what costs have changed from

the Loan Estimate. This table contains nine items:

• Total Closing Costs;

• Closing Costs Paid before Closing;

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• Closing Costs Financed;

• Down Payment/Funds from Borrower;

• Deposit;

• Funds for Borrower;

• Seller Credits;

• Adjustments and other Credits; and

• Total Cash to Close. (§1026.38(i))

The table has three columns that disclose (1) the amount for each item as it was disclosed on the

Loan Estimate, (2) the final amount for the item, and (3) an answer to the question “Did this

change?” (§1026.38(i)) Generally, the amounts disclosed in the Loan Estimate column will be

the amounts disclosed on the Loan Estimate (or a revised Loan Estimate). (§1026.38(i)(1)(i),

(3)(i), (4)(i), (5)(i), (6)(i), (7)(i), (8)(i), (9)(i))

Funds from the borrower and funds for the borrower are determined by subtracting the principal

amount of the credit extended (excluding the actual amount of the closing costs that are to be

paid out of loan proceeds, if any, stated as a negative number, disclosed pursuant to 12 CFR

1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in the real estate

closing and disclosed as the amounts the consumer owes or is reimbursing to the seller under

section 1026.38(j)(1)(v), (except for the amount of debt satisfied and disclosed as other costs in

the closing costs details under section 1026.38(g)). (§§1026.38(i)(6)(iv) and (j)(1)(v)) If this

amount is positive, it is disclosed as $0 under the heading “Funds for Borrower.” If this amount

is a negative number, it is disclosed under the heading “Funds for Borrower” stated as a negative

number, and $0 must be disclosed under “Funds from Borrower.” If the amount is $0, then $0

must be disclosed under both the headings for “Funds from Borrower” and “Funds for

Borrower.” (§1026.38(i)(6)(iv))

When amounts have changed, the disclosure must indicate where the consumer can find the

amounts that have changed on the Loan Estimate. For example, if the Seller Credit amount

changed, the creditor can indicate that the consumer should “See Seller Credits in Section L.”

(Comment 38(i)-3) Other examples of language for these items are found in example form H-

25(B) in appendix H of Regulation Z.

Increases in total closing costs that exceed legal limits. When the increase in Total

Closing Costs exceeds the legal limits on closing costs set forth in 12 CFR 1026.19(e)(3), the

form must disclose a statement that an increase in closing costs exceeds the legal limits by the

dollar amount of the excess in the “Did this change?” column. (§1026.38(i)(1)(iii)(A)(3)) A

statement directing the consumer to the Lender Credit on page 2 must also be included if a credit

to the consumer at closing for the excess amount is provided by the creditor. (Comment

38(i)(1)(iii)(A)-3) The dollar amount must be the sum of all excess amounts, taking into account

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the different methods of calculating excesses of the limitations on increases in closing costs

under 12 CFR 1026.19(e)(3)(i) and (ii). (§1026.38(i)(1)(iii)(A)(3))

Closing Costs Paid Before Closing. The amount disclosed in the Loan Estimate column

for the “Closing Costs Paid Before Closing” item is $0. (§1026.38(i)(2)(i)) The Final column

should disclose the same amount designated as Borrower-Paid Before Closing in the Closing

Costs Subtotals of the Other Costs table on page 2 of the Closing Disclosure. Under the

subheading “Did this change?” if the amount disclosed here is different from the amount

disclosed in the Loan Estimate, include a statement of that fact; and if it is equal to the amount

disclosed on the Loan Estimate, include a statement of that fact. (§1026.38(i)(2)(iii))

Alternative Calculating Cash to Close table

For transactions without a seller where the alternative Calculating Cash to Close table was used

on the Loan Estimate, the Closing Disclosure must also use the alternative Calculating Cash to

Close table under 12 CFR 1026.38(e). These items include:

• Loan amount;

• Total closing costs;

• Closing costs paid before closing;

• Payoffs and payments;

• Cash to or from consumer; and

• Closing costs financed.

The table has three columns that disclose (1) the amount for each item as it was disclosed on the

Loan Estimate, (2) the final amount for the item, and (3) an answer to the question “Did this

change?” along with a statement of whether the amount increased, decreased or is equal to the

amount disclosed in the Loan Estimate. (§1026.38(e)) Generally, the amounts disclosed in the

Loan Estimate column will be the Loan Amount, Total Closing Costs, Closing Costs Paid before

Closing, and the Total Payoffs and Payments. (§1026.38(e)(1)(i), (2)(i), (3)(i), (4)(i))

Cash to or from the consumer is disclosed in the first two columns of the row labeled Cash to

Close. The first column contains amounts disclosed in the Loan Estimate. The second column

discloses the final amount due from or to the consumer, calculated by the sum of the amounts

disclosed (pursuant to §1026.38(e)(1)(i), (2)(i), (3)(i), (4)(i)) as final Loan Amount, Total

Closing Costs, Closing Costs Paid before Closing, and the Total Payoffs and Payments, disclosed

as a positive number with the statement of whether the funds are due from or to the consumer.

(§1026.38(e)(5))

Closing Costs Financed are disclosed in the third column of the row labeled Cash to Close in the

Calculating Cash to Close table. This amount is calculated by the sum of the final Loan Amount

(§1026.38(e)(1)(ii)) and the final Total Payoffs and Payments (§1026.38(e)(4)(ii)), but only to

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the extent that the sum is greater than zero and less than or equal to the sum of borrower paid

closing costs (disclosed under §1026.38(h)(2)) designated Borrower-Paid Before Closing .

(§1026.38(e)(6))

Summaries of Transactions table.

The Summaries of Transactions table contains required itemizations of the borrower’s and the

seller’s transactions. (§1026.38(j)-(k)) The table discloses amounts due from or payable to the

consumer and seller at closing, as applicable. (§1026.38(k)(1) and (2)) A separate Closing

Disclosure can be provided to the consumer and the seller that does not reflect the other party’s

costs and credits by omitting specified disclosures on each separate Closing Disclosure.

(§1026.38(t)(5)(v),(vi),(ix))

Additional pages may be attached to the Closing Disclosure to add lines to provide a complete

listing of all items required to be shown on the Closing Disclosure and for customary recitals and

information used locally in real estate closings (for example, breakdown of payoff figures, a

breakdown of the consumer's total monthly mortgage payments, an accounting of debits received

and check disbursements, a statement stating receipt of funds, applicable special stipulations

between consumer and seller, and the date funds are transferred). (Comment 38(j)-6)

Generally, the Summaries of Transactions table is similar to the Summary of Borrower’s

Transaction and Summary of Seller’s Transaction tables on the HUD-1 Settlement Statement

provided under Regulation X prior to the TILA-RESPA integrated disclosure rule taking effect.

There are some modifications to the Closing Disclosure related to the handling of the disclosure

of the consumer’s deposit, the disclosure of credits, and specific guidance on other matters that

may not have been clear in the HUD-1 instructions.

In transactions without a seller, the Seller-Paid column for Closing Costs may be deleted on page

2, and a Payoffs and Payments table may be substituted for the Summaries of Transactions table

and placed before the alternative Calculating Cash to Close table on page 3 of the closing

Disclosure. (§1026.38(t)(5)(vii)(B)). For an example, see page 3 of form H-25(J) of appendix H

to Regulation Z.

Borrower’s Transaction

Amounts due from the borrower. The sale price of the property, sale price of any personal

property included in the sale, and total amount of closing costs designated Borrower-Paid at

Closing. (§1026.38(j)(1)(ii)-(iv)). The contract sale price of the property does not include the

price of tangible personal property if the buyer and seller have agreed to a separate price for such

items. Manufactured homes are not considered personal property for this disclosure. (Comment

38(j)(1)(ii)-1)

Adjustments. This includes additional items that the seller has paid prior to the real estate closing,

but reimbursed by the consumer at closing. These are items such as rent the consumer will

collect after closing, a tenant’s security deposit, or outstanding real estate property taxes where

there is not a corresponding credit in the seller’s transaction. (Comments 38(j)(1)(v)-1 and -2)

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Adjustments for items paid by seller in advance. The prorated amount of prepaid taxes due from

the consumer to reimburse the seller, and the time periods. The taxes are labeled city/town taxes,

county taxes, and/or assessments as appropriate. (§1026.38(j)(1)(vi)-(ix)) If there are additional

items paid by the seller and due from the consumer, they are also itemized. Examples include

taxes paid in advance, flood or insurance premiums if the insurance is under the same policy,

mortgage insurance for assumed loans, condominium assessments, fuel or supplies on hand, and

ground rent paid in advance. (Comment 38(j)(1)(x)-1)

Itemization of amounts already paid by or on behalf of borrower. These amounts are itemized in

the second part of the Summary of Transactions table. These include the following:

• Deposits, and if there is no deposit, this line is left blank. If the deposit was reduced to pay

closing charges prior to closing, the reduction should be shown in the Closing Cost Detail

table designated as Borrower-Paid Before Closing. (Comments 38(j)(2)(ii)-1 and -2)

• The loan amount is the construction or purchase loan amount for a structure or purchase of a

new manufactured home that is real property. For construction loans or loans for

manufactured homes that are real property under state law, the loan amount for the current

transaction must be disclosed, and the sales price of the land and the construction cost or the

price of the manufactured home should be disclosed separately (Comment 38(j)(2)(iii)-1).

• Existing loans assumed or taken subject to are itemized with the outstanding amount of any

loans that the consumer is assuming or taking title subject to. (Comment 38(j)(2)(iv)-1)

• If the seller is providing a lump sum at closing that is not otherwise itemized, to pay for loan

costs and any other obligations of the seller to be paid directly to the consumer, this amount

is labeled Seller Credit. (§1026.38(j)(2)(v)) When the consumer receives a generalized credit

from the seller for closing costs or where the seller (typically a builder) is making an

allowance to the consumer for items to purchase separately, the amount of the credit must be

disclosed. However, if the Seller Credit is attributable to a specific loan cost or other cost

listed in the Closing Cost Details tables, that amount should be reflected in the Seller-Paid

column in the Closing Cost Details tables.

• Any other obligations of the seller to be paid directly to the consumer, such as for issues

identified at a walk-through of the property prior to closing, are disclosed here. (Comments

38(j)(2)(v)-1 and-2)

• Other credits are itemized with a description and the amounts paid by or on behalf of the

consumer, and not otherwise disclosed. Examples of other credits include credits from a real

estate agent, subordinate financing proceeds, satisfaction of existing subordinate liens by

consumer, transferred escrow balances, and gift funds. (Comments 38(j)(2)(vi)-1 to -5)

Adjustments for items unpaid by seller include prorated unpaid taxes due from the seller to

reimburse the consumer at closing, along with the time period and labeled city/town taxes,

county taxes, and/or assessments as appropriate. (§§1026.38(j)(2)(vii)–(x)) If there are additional

items that have not been paid and that the consumer is expected to pay after closing but which

are attributable to the time prior to closing, they are itemized here. (§1026.38(j)(2)(xi)).

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Examples include utilities used but not paid for by the seller, rent collected in advance, or

interest on a loan assumption. (Comment 38(j)(2)(xi)-1)

Calculation of the borrower’s transaction is disclosed by including the Total Due from Borrower

at Closing, the amount labeled Total Paid Already by or on Behalf of Borrower at Closing, if

any, disclosed as a negative number, and a statement that the resulting amount is due from or to

the consumer, and labeled Cash to Close. (§1026.38(j)(3))

Items paid outside of closing are costs that are not paid from closing funds but would otherwise

be part of the borrower’s transaction table should be marked as “P.O.C.” for paid outside of

closing. There must also be a statement of the party making the payment, such as the consumer,

seller, loan originator, real estate agent, or any other person. For an example, see form H-25(D)

of appendix H. (Comment 38(j)(4)(i)-1)

Seller’s Transaction

Amounts due to the seller include the sale price of the property, sale price of any personal

property included in the sale, and a description and the amount of other items paid to the seller

by the consumer pursuant to a contract, such as charges that were not disclosed on the Loan

Estimate, or items paid by the seller prior to closing but reimbursed by the consumer at closing.

(§1026.38(k)(1)(ii)-(iv))

Adjustments for items paid by seller in advance include the prorated amount of prepaid taxes due

from the consumer to reimburse the seller, and the time periods. The taxes are labeled city/town

taxes, county taxes, and/or assessments as appropriate. (§1026.38(k)(1)(v)-(viii)) If there are

additional items paid by the seller and due from the consumer, they are also itemized.

(§1026.38(k)(1)(ix))

Itemization of amounts due from seller at closing are itemized in the second part of the Summary

of Transactions table. These include the amount of any deposits disbursed to the seller prior to

closing and seller-paid closing costs. The itemization also includes the amount of any existing

loans that the consumer is assuming and the amounts of any loan secured by a first lien or a

second lien on the property that will be paid off. In addition, the itemization includes seller

credits, an amount that the seller will provide at the closing as a lump sum, not otherwise

itemized, to pay for loan costs and other costs and any other obligations of the seller to be paid

directly to the consumer. The amounts and a description of any and all other obligations required

to be paid by the seller at closing are disclosed, including any lien-related payoffs, fees, or

obligations. (§§1026.38(k)(2)(ii)–(vii))

Adjustments for items unpaid by seller include prorated unpaid taxes due from the seller to

reimburse the consumer at closing, along with the time period and labeled city/town taxes,

county taxes, and/or assessments as appropriate. (§§1026.38(k)(2)(x)–(xii)) If there are

additional items that have not been paid and that the consumer is expected to pay after closing

but which are attributable to the time prior to closing, they are itemized here.

(§1026.38(k)(2)(xiii))

Calculation of the seller’s transaction is disclosed by including the Total Due to Seller at

Closing, the amount labeled Total Due from Seller at Closing, if any, disclosed as a negative

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number, and a statement that the resulting amount is due from or to the seller, and labeled Cash.

(§1026.38(k)(3))

Items paid outside of closing are costs that are not paid from closing funds but that would

otherwise be part of the seller’s transaction table should be marked as “P.O.C.” for paid outside

of closing. There must also be a statement of the party making the payment. (§1026.38(k)(4))

Page 4: Additional information about this loan

Page 4 of the Closing Disclosure groups several required loan disclosures together, generally

using specified language, including:

• Information concerning future assumption of the loan by a subsequent purchaser required by

12 CFR 1026.37(m)(2); (§1026.38(l)(1))

• Whether the legal obligation contains a demand feature that can require early payment of the

loan; (§1026.38(l)(2))

• The terms of the legal obligation that impose a fee for a late payment, including the amount

of time that passes before a fee is imposed and the amount of such fee or how it is calculated

(as required by 12 CFR 1026.37(m)(4)); (§1026.38(l)(3))

• Whether the regular periodic payments can cause the principal balance of the loan to increase

(i.e., whether there could be negative amortization); (§1026.38(l)(4))

• The creditor’s policy regarding partial payments by the consumer; (§1026.38(l)(5))

• A statement that the consumer is granting a security interest in the property (along with an

identification of the property); (§1026.38(l)(6)) and

• Specified information related to any escrow account held by the servicer, including specified

estimated escrow costs over the first year after consummation (or a statement that an escrow

account has not been established, with a description of specified estimated property costs

during the first year after consummation). (§1026.38(l)(7))

If the periodic principal and interest payment may change after consummation, other than due to

a change in interest rate or where the loan is a seasonal payment product, page 4 of the Closing

Disclosure must also include an Adjustable Payment (AP) table. (§1026.38(m)) If the loan’s

interest rate may increase after consummation, page 4 of the Closing Disclosure must also

include the Adjustable Interest Rate (AIR) table. (§1026.38(n)) These are the tables required in

the Loan Estimate at 12 CFR 1026.37(i) and (j), respectively, updated to reflect the terms of the

loan at consummation.

Page 5: Loan calculations, other disclosures, and contact information

Page 5 of the Closing Disclosure discloses a Loan Calculations table, as well as specified other

disclosures, contact information for the CFPB for questions, and contact information for

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participants in the transaction, and if desired by the creditor, a signature table to confirm receipt

of the Closing Disclosure. (§1026.38(o)-(s))

Loan Calculations table

The Loan Calculations table discloses:

• Total of Payments (total paid after all scheduled payments of principal, interest, mortgage

insurance, and loan costs are made);

• Finance Charge;

• Amount Financed;

• Annual Percentage Rate (APR); and;

• Total Interest Percentage (TIP) (the total amount of interest paid over the loan term as a

percentage of the loan amount). (§1026.38(o))

The APR and TIP amounts should be updated from the amounts disclosed on the Loan Estimate

to reflect the terms of the legal obligation at consummation.

Other Disclosures table

The Other Disclosures table requires a notice regarding the lender’s obligation to provide a free

copy of the appraisal (for higher-priced mortgage loans under 12 CFR 1026.35 and loans

covered by the Equal Credit Opportunity Act); a specified warning about consequences of

nonpayment under the contract, whether state law provides for continued consumer liability after

foreclosure, a statement concerning the consumer’s ability to refinance the loan, and a statement

concerning the extent that the interest on the loan can be included as a tax deduction by the

consumer. (§1026.38(p))

Contact information table

For each of the lender, mortgage broker, real estate broker (buyer and seller), and settlement

agent, the contact information table discloses the name, address, NMLS or state license ID (as

applicable), contact name of an individual primary contact for the consumer (and NMLSR ID or

license ID for that person), email, and phone number. (§1026.38(r))

Notification of Sale or Transfer of Mortgage Loans

– Section 1026.39

Notice of new owner – No later than 30 calendar days after the date on which a mortgage

loan is acquired by or otherwise sold, assigned, or otherwise transferred

to a third party, the

The date of transfer to the covered person may, at the covered person’s option, be either the date of acquisition recognized in

the books and records of the acquiring party or the date of transfer recognized in the books and records of the transferring party.

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“covered person”

shall notify the consumer clearly and conspicuously in writing, in a form that

the consumer may keep, of such transfer and include:

• Identification of the loan that was sold, assigned, or otherwise transferred;

• Name, address, and telephone number of the covered person;

• Date of transfer;

• Name, address, and telephone number of an agent or party having authority, on behalf of the

covered person, to receive notice of the right to rescind and resolve issues concerning the

consumer’s payments on the mortgage loan;

• Location where transfer of ownership of the debt to the covered person is or may be recorded

in public records or, alternatively, that the transfer of ownership has not been recorded in

public records at the time the disclosure is provided; and

• At the option of the covered person, any other information regarding the transaction.

This notice of sale or transfer must be provided for any consumer credit transaction that is

secured by the principal dwelling of a consumer, as well as a closed-end consumer credit

transaction secured by a dwelling or real property. Thus, it applies to both closed-end mortgage

loans and open-end home equity lines of credit. This notification is required of the covered

person even if the loan servicer remains the same.

Regulation Z also establishes special rules regarding the delivery of the notice when there is

more than one covered person. In a joint acquisition of a loan, the covered persons must provide

a single disclosure that lists the contact information for all covered persons. However, if one of

the covered persons is authorized to receive a notice of rescission and to resolve issues

concerning the consumer’s payments, the disclosure may state contact information only for that

covered person. In addition, if the multiple covered persons each acquire a partial interest in the

loan pursuant to separate and unrelated agreements, they may provide either a single notice or

separate notices. Finally, if a covered person acquires a loan and subsequently transfers it to

another covered person, a single notice may be provided on behalf of both of them, as long as the

notice satisfies the timing and content requirements with respect to each of them.

In addition, there are three exceptions to the notice requirement to provide the notice of sale or

transfer:

A “covered person” means any person, as defined in 12 CFR 1026.2(a)(22), that becomes the owner of an existing mortgage

loan by acquiring legal title to the debt obligation, whether through a purchase, assignment, or other transfer, and who acquires

more than one mortgage loan in any 12-month period. For purposes of this section, a servicer of a mortgage loan shall not be

treated as the owner of the obligation if the servicer holds title to the loan or it is assigned to the servicer solely for the

administrative convenience of the servicer in servicing the obligation. See 12 CFR 1026.39(a)(1).

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• The covered person sells, assigns, or otherwise transfers legal title to the mortgage loan on or

before the 30

calendar day following the date of transfer on which it acquired the mortgage

loan;

• The mortgage loan is transferred to the covered person in connection with a repurchase

agreement that obligates the transferring party to repurchase the mortgage loan (unless the

transferring party does not repurchase the mortgage loan); or

• The covered person acquires only a partial interest in the mortgage loan and the agent or

party authorized to receive the consumer’s rescission notice and resolve issues concerning

the consumer’s payments on the mortgage loan does not change as a result of that transfer.

Mortgage transfer notices – partial payment policies. If a creditor or servicer is

required by Regulation Z to provide mortgage transfer notices when the ownership of a mortgage

loan is being transferred, the notice must include information related to the partial payment

policy that will apply to the mortgage loan. This post-consummation partial payment disclosure

is required for a closed-end consumer credit transaction secured by a dwelling or real property,

other than a reverse mortgage. (§1026.39(a) and (d))

The partial payment disclosure must include: (§1026.39(d)(5))

• The heading “Partial Payment” over all of the following additional information:

o If periodic payments that are less than the full amount due are accepted, a statement that

the covered person, using the term “lender,” may accept partial payments and apply such

payments to the consumer’s loan;

o If periodic payments that are less than the full amount due are accepted but not applied to

a consumer’s loan until the consumer pays the remainder of the full amount due, a

statement that the covered person, using the term “lender,” may hold partial payments in

a separate account until the consumer pays the remainder of the payment and then apply

the full periodic payment to the consumer’s loan;

o If periodic payments that are less than the full amount due are not accepted, a statement

that the covered person, using the term “lender,” does not accept any partial payments;

and

o A statement that, if the loan is sold, the new covered person, using the term “lender,” may

have a different policy.

The text illustrating the disclosure in form H-25 may be modified to suit the format of the

mortgage transfer notice. (Comment 39(d)(5)-1)

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Periodic Statements for Residential Mortgage Loans

– Section 1026.41

Creditors, assignees, or servicers

of closed-end mortgages are generally required to provide

consumers with periodic statements for each billing cycle unless the loan is a fixed rate loan and

the servicer provides the consumer with a coupon book meeting certain conditions. Periodic

statements must be provided by the servicer within a reasonably prompt time after the payment is

due, or at the end of any courtesy period provided by the servicer for the previous billing cycle.

Delivering, emailing or placing the periodic statements in the mail within four days of the close

of the courtesy period of the previous billing cycle is generally acceptable. However, periodic

statements are not required for:

• Reverse mortgage transactions covered under section 1026.33;

• Mortgage loans secured by a consumer’s interest in a timeshare plan;

• Fixed-rate loans where the servicer currently provides consumers with coupon books that

contain certain specified account information, contact information for the servicer,

delinquency information (if applicable), and information that consumers can use to obtain

more information about their account; and

• Creditors, assignees, or servicers that meet the “small servicer” exemption.

NOTE: Sections 1026.41(e)(4)(ii) and (iii) define a “small servicer” and provide clarification

how a small servicer will be determined. A small servicer is a servicer that: (1) services,

together with any affiliates, 5,000 or fewer mortgage loans, for all of which it or an affiliate

is the creditor or assignee, (2) meets the definition of a Housing Finance Agency under 24

CFR 266.5, or (3) is a nonprofit entity (defined in §1026.41(e)(4)(ii)(C)(1)) that services

5,000 or fewer mortgage loans, including any mortgage loans serviced on behalf of

associated nonprofit entities (defined in §1026.41(e)(4)(ii)(C)(2)), for all of which the

servicer or an associated nonprofit entity is the creditor. To determine whether a servicer is a

small servicer, generally, a servicer should be evaluated based on the mortgage loans

serviced by the servicer and any affiliate as of January 1 for the remainder of the calendar

year. However, to determine small servicer status under the nonprofit small servicer

definition, a nonprofit servicer should be evaluated based on the mortgage loans serviced by

the servicer (and not those serviced by associated nonprofit entities) as of January 1 for the

remainder of the calendar year. A servicer that ceases to qualify as a small servicer has the

later of six months from the time it ceases to qualify or until the next January 1 to come into

compliance with the requirements of section 1026.41. The following mortgage loans are not

Creditors, assignees, and servicers are all subject to the requirements of section 1026.41, as applicable. Creditors, assignees, or

servicers may decide among themselves which of them will provide the required disclosures. However, establishing a business

relationship where one party agrees to provide disclosures on behalf of the other parties does not absolve all other parties from

their legal obligations. However, a creditor or assignee that currently does not own the mortgage loan or mortgage servicing

rights is not subject to the periodic statement requirement.

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considered in determining whether the servicer qualifies as a small servicer: mortgage loans

voluntarily serviced by the servicer for a creditor or assignee that is not an affiliate of the

servicer and for which the servicer does not receive any compensation or fees; reverse

mortgage transactions, and mortgage loans secured by consumers’ interests in timeshare

plans.

•A servicer is exempt from the periodic statement requirements for a mortgage loan while the

consumer is a debtor in bankruptcy under Title 11 of the United States Code.

Servicers must provide consumers with the following information in the specified format on the

periodic statements:

The Amount Due

• The payment due date, the amount of any late payment fee, the date that late payment fees

will be assessed to the consumer’s account if timely payment is not made, and the amount

due, which must be shown more prominently than other disclosures on the page;

NOTE: If the transaction has multiple payment options, the amount due under each of the

payment options must be provided.

• An explanation of the amount due, including the monthly payment amount with a breakdown

of how much will be applied to principal, interest, and escrow, the total sum of any

fees/charges imposed since the last statement, and any payment amount past due. Mortgage

loans with multiple payment options must also have a breakdown of each payment option,

along with information regarding how each payment option will impact the principal;

Past Payment Breakdown

• The total of all payments received since the last statement and the total of all payments

received since the start of the calendar year, including, for each payment, a breakdown of

how the payment(s) was applied to principal, interest, escrow, and/or fees and charges, and

any amount held in a suspense or unapplied funds account (if applicable);

Transaction Activity

• A list of transaction activity (including dates, a brief description, and amount) for the current

billing cycle, including any credits or debits that affect the current amount due, with the date,

amount, and brief description of each transaction;

Partial Payment Information

• If a statement reflects a past partial payment held in a suspense or unapplied funds account,

information explaining what the consumer must do to have the payment applied to the

mortgage. Information must be on the front page or a separate page of the statement or

separate letter;

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Contact Information

• Contact information for the servicer, including a toll-free telephone number and email

address (if applicable) that the consumer may use to obtain information regarding the

account. Contact information must be on the front page of the statement; and

Account Information

• Account information, including the outstanding principal balance, the current interest rate,

the date after which the interest rate may change if the loan is an ARM, and any prepayment

penalty, as well as the web address for CFPB’s or HUD’s list of homeownership counselors

or counseling organizations and the HUD toll-free telephone number to contact the

counselors or counseling organizations.

Servicers must provide consumers that are more than 45 days delinquent on past payments

additional information regarding their accounts on their periodic statements. These items must be

grouped together in close proximity to each other and must include:

• The date on which the consumer became delinquent;

• A notification of the possible risks of being delinquent, such as foreclosure and related

expenses;

• An account history for either the previous six months or the period since the last time the

account was current (whichever is shorter), which details the amount past due from each

billing cycle and the date on which payments were credited to the account as fully paid;

• A notice stating any loss mitigation program that the consumer has agreed to (if applicable);

• A notice stating whether the servicer has initiated a foreclosure process;

• Total payments necessary to bring the account current; and

• A reference to homeownership counseling information (see Account Information above).

The regulation does not prohibit adding to the required disclosures, as long as the additional

information does not overwhelm or obscure the required disclosures. For example, while certain

information about the escrow account (such as the account balance) is not required on the

periodic statement, this information may be included.

The periodic statement may be provided electronically if the consumer agrees. The consumer

must give affirmative consent to receive statements electronically.

For sample periodic statements, see Appendix H-30.

Valuation Independence – Section 1026.42

Regulation Z seeks to ensure that real estate appraisers, and others preparing valuations, are free

to use their independent professional judgment in assigning home values without influence or

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pressure from those with interests in the transactions. Regulation Z also seeks to ensure that

appraisers receive customary and reasonable payments for their services. Regulation Z’s

valuation rules apply to creditors and settlement services providers for consumer credit

transactions secured by the consumer’s principal dwelling (“covered transaction”) and includes

several provisions that protect the integrity of the appraisal process when a consumer’s principal

dwelling is securing the loan. In general, the rule prohibits “covered persons” from engaging in

coercion, bribery, and other similar actions designed to cause anyone who prepares a valuation to

base the value of the property on factors other than the person’s independent judgment.

specifically, Regulation Z:

• Prohibits coercion and other similar actions designed to cause appraisers to base the

appraised value of properties on factors other than their independent judgment;

• Prohibits appraisers and appraisal management companies hired by lenders from having

financial or other interests in the properties or the credit transactions;

• Prohibits creditors from extending credit based on appraisals if they know beforehand of

violations involving appraiser coercion or conflicts of interest, unless the creditors determine

that the values of the properties are not materially misstated;

• Prohibits a person that prepares a valuation from materially misrepresenting the value of the

consumer’s principal dwelling, and prohibits a covered person other than the person that

prepares valuations from materially altering a valuation. A misrepresentation or alteration is

material if it is likely to significantly affect the value assigned to the consumer’s principal

dwelling;

• Prohibits any covered person from falsifying a valuation or inducing a misrepresentation,

falsification, or alteration of value;

• Requires that creditors or settlement service providers that have information about appraiser

misconduct file reports with the appropriate state licensing authorities if the misconduct is

material (i.e., likely to significantly affect the value assigned to the consumer’s principal

dwelling; and

• Requires the payment of reasonable and customary compensation to appraisers who are not

employees of the creditors or of the appraisal management companies hired by the creditors.

This section applies to any consumer credit transaction secured by a dwelling. A “covered person” means a creditor with

respect to a covered transaction. A “covered transaction” means an extension of consumer credit that is or will be secured by a

dwelling, as defined in 12 CFR 1026.2(a)(19).

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Minimum Standards for Transactions Secured by a

Dwelling (Ability to Repay and Qualified Mortgages)

– Section 1026.43

Minimum standards for transactions secured by a dwelling

– Sections 1026.43(a), (g), (h)

Creditors originating certain mortgage loans are required to make a reasonable and good faith

determination at or before consummation that a consumer will have the ability to repay the loan.

The ability-to-repay requirement applies to most closed-end mortgage loans; however, there are

some exclusions, including:

• Home equity lines of credit;

• Mortgages secured by an interest in a timeshare plan;

• Reverse mortgages;

• A temporary bridge loan with a term of 12 months or less, such as a loan to finance the

purchase of a new dwelling where the consumer plans to sell a current dwelling within

12 months or a loan to finance the initial construction of a dwelling;

• A construction phase of 12 months or less of a construction-to-permanent loan; and

• An extension of credit made pursuant to a program authorized by sections 101 and 109 of the

Emergency Economic Stabilization Act of 2008 (12 U.S.C. 5211; 5219).

NOTE: There are additional exclusions under 1026.43(a) that generally include extensions of

credit by various state or federal government agencies or programs or by creditors with specific

designations under such programs or extensions of credit that meet certain criteria and are

extended by certain creditors that the IRS has determined are 501(c)(3) non-profits. For a full list

and criteria, please see 12 CFR 1026.43(a)(3)(iv)–(vii).

Generally, loans covered under this section (which, for purposes of the prepayment penalty

provisions in section 1026.43(g), includes reverse mortgages and temporary loans otherwise

excluded

from the ability-to-repay provisions) may not have prepayment penalties; however,

there are exceptions for certain fixed-rate and step-rate qualified mortgages that are not higher-

priced mortgage loans (as defined in section 1026.35(a)), and only if otherwise permitted by law.

For such mortgages, the prepayment penalties must be limited to the first three years of the loan

For open-end credit transactions that are high-cost mortgages as defined in 12 CFR 1026.32, creditors are required to

determine a borrower’s ability to repay under section 1026.34.

These include a temporary or “bridge” loan with a term of 12 months or less; a construction phase of 12 months or less of a

construction-to-permanent loan; or an extension of credit made pursuant to a program administered by a housing finance agency;

by certain community development or non-profit lenders, as specified in section 1026.43(a)(3)(v); or in connection with certain

federal emergency economic stabilization programs. 12 CFR §1026.43(a)(3)

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and may not exceed two percent for the first two years and one percent for the third year. The

creditor must offer the consumer an alternative loan without such penalties that the creditor has a

good faith belief that the consumer likely qualifies for, with the same term, a fixed rate or step

rate, substantially equal payments, and limited points and fees (see §1026.43(g)).

Ability to Repay – Section 1026.43(c)

Except as provided under section 1026.43(d) (refinancing of non-standard mortgages), (e)

(qualified mortgages), and (f) (balloon payment qualified mortgages by certain creditors),

creditors must consider the following eight underwriting factors when making a determination of

the consumer’s ability to repay:

• The consumer’s current or reasonably expected income or assets (excluding the value of the

dwelling and any attached real property);

• The consumer’s current employment status if the creditor relies on the consumer’s income in

determining repayment ability;

• The consumer’s monthly payment for the mortgage loan;

• The consumer’s monthly payment on any simultaneous loan (i.e., a covered transaction or

HELOC that is being consummated generally at the same or similar time) secured by the

same dwelling that the creditor knows or has reason to know will be made, calculated in

accordance with section 1026.43(c)(6);

• The consumer’s monthly payment for mortgage-related obligations, including property taxes;

• The consumer’s current debt obligations, alimony, and child support;

• The consumer’s monthly debt-to-income ratio or residual income, calculated in accordance

with section 1026.43(c)(7); and

• The consumer’s credit history.

Creditors are required to verify this information using reasonably reliable third-party records,

with specific rules for verification of income or assets and employment status. In the case of the

consumer’s income or assets, the creditor must use third-party records that provide reasonably

reliable evidence of such income or assets. Creditors may verify the information considered

using the consumer’s income tax return transcripts issued by the IRS, copies of tax returns filed

by the consumer, W-2s or similar documentation, payroll statements, financial institution

records, receipts from check-cashing or fund transfer services, and records from the consumer’s

employer or other specified records. (§1026.43(c)(4))

Regulation Z also provides rules for how creditors must apply certain underwriting factors when

determining whether a consumer has the ability to repay the mortgage. For example, creditors

must calculate the monthly payment for the covered transaction using the greater of the fully

indexed rate or any introductory interest rate, and the monthly, fully amortizing payments that

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are substantially equal during the loan term. However, special rules apply to mortgages with a

balloon payment, interest-only loans, and negative amortization loans due to the unique

characteristics of the mortgage. (§1026.43(c)(5))

Finally, creditors may not evade the ability-to-repay requirements by structuring a closed-end

loan secured by a dwelling as open-end credit that does not meet the definition of open-end

credit plan.

Exemption from ATR Requirements for Refinancing of Non-

Standard Mortgages – Section 1026.43(d)

Section 1026.43(d) provides special rules for refinancing a “non-standard mortgage” into a

“standard mortgage.”

A “non-standard mortgage” is a covered transaction

as defined under section 1026.43(a) that is:

• An adjustable rate mortgage with an introductory fixed interest rate for a period of one year

or longer;

• An interest-only loan; or

• A negative amortization loan.

A “standard mortgage” is a covered transaction as defined under section 1026.43(a) with:

• Periodic payments that do not cause the principal balance to increase, do not allow the

consumer to defer repayment of the principal, or do not result in balloon payments;

• Total points and fees that are not more than those allowed in section 1026.43(e)(3);

• A term that does not exceed 40 years;

• An interest rate that is fixed for the first five years of the loan; and

• Proceeds that are used solely to pay off the outstanding principal on the non-standard

mortgage and closing or settlement costs (that are required to be disclosed under RESPA).

Current holders of non-standard mortgages or their servicers (collectively referred to here as

“holders”) can refinance non-standard mortgages into standard mortgages without considering a

consumer’s ability to repay under section 1026.43(c), if certain conditions are met.

A covered transaction is a consumer credit transaction that is secured by a dwelling, including any real property attached to the

dwelling. A covered transaction is not a home equity line of credit under section 1026.40; a mortgage secured by a consumer’s

interest in a timeshare plan; a reverse mortgage under section 1026.33; a temporary or “bridge” loan with a term of 12 months or

less; a construction phase of 12 months or less of a construction-to-permanent loan; or an extension of credit made: pursuant to a

program administered by a housing finance agency; by certain community development or non-profit lenders, as specified in

section 1026.43(a)(3)(v); or in connection with certain federal emergency economic stabilization programs.

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To qualify for the exemption from the ability-to-repay requirements, the standard mortgage must

have:

• A monthly payment that is “materially lower”

than the non-standard mortgage,

• The creditor must receive a written application from the consumer for the standard mortgage

no later than two months after the non-standard mortgage is recast, and

• On the non-standard mortgage, consumers must have made no more than one payment more

than 30 days late during the preceding 12 months and must have made no late payments more

than 30 days late in the preceding six months of the holder receiving the application for a

standard mortgage.

For non-standard loans consummated on or after January 10, 2014, that are refinanced into

standard mortgages, the exemption from the ability-to-repay requirements for the refinancing is

available only if the non-standard mortgage met the repayment ability requirements under section

1026.43(c) or the qualified mortgage requirements under section 1026.43(e) as applicable.

If these conditions are satisfied and if the holder has considered whether the standard mortgage is

likely to prevent the consumer from defaulting on the non-standard mortgage once the loan terms

are recast, the holder is not required to meet the ability-to-repay requirements in section

1026.43(c). Finally, holders refinancing a non-standard mortgage to a standard mortgage may

offer consumers rate discounts and terms that are the same as (or better than) rate discounts and

terms that the holder offers to new consumers, consistent with the holder’s documented

underwriting practices and to the extent not prohibited by applicable laws. For example, a holder

would comply with this requirement if it has documented underwriting practices that provide for

offering rate discounts to consumers with credit scores above a certain threshold, even though

the consumer would not normally qualify for that discounted rate.

Qualified Mortgages: Rebuttable Presumption and Safe Harbor

– Section 1026.43(e)

The rule provides a presumption of compliance with the ability-to-repay requirements for

creditors that originate certain types of loans called “qualified mortgages.” There are several

categories of qualified mortgages, which are discussed below. Qualified mortgages afford

creditors and assignees greater protection against liability under the ability-to-repay provisions.

When comparing the payments, the holder must calculate the payment for the standard mortgage based on substantially equal,

monthly, fully amortizing payments based on the maximum interest rate that may apply in the first five years. The holder must

calculate the non-standard mortgage payment based on substantially equal, monthly, fully amortizing payments of principal and

interest using:

• The fully indexed rate as of a reasonable period of time before or after the date on which the creditor receives the consumer’s

application for the standard mortgage;

• The term of the loan remaining as of the date on which the recast occurs, assuming all scheduled payments have been made up

to the recast date and the payment due on the recast date is made and credited as of that date; and

• The remaining loan amount, which is calculated differently depending on whether the loan is an adjustable rate mortgage,

interest-only loan, or negative amortization loan.

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Qualified mortgages that are not higher-priced covered transactions receive a safe harbor under

the ability-to-repay provisions, which means the presumption of compliance cannot be rebutted.

A qualified mortgage is higher priced if the loan’s APR exceeds the APOR by 1.5 percentage

points or more for first-lien loans that either fall within the general qualified mortgage definition

or the temporary qualified mortgage definition for loans that are eligible to be purchased,

guaranteed or insured by GSEs or federal agencies, and 3.5 percentage points for first-lien loans

that fall within the small creditor balloon payment, temporary small creditor balloon payment, or

small creditor portfolio qualified mortgage definitions, or for second-lien loans.

Generally, the safe harbor provides a conclusive presumption that the creditor made a good faith

and reasonable determination of the consumer’s ability to repay. Qualified mortgages that are

higher priced receive a rebuttable presumption of compliance rather than a safe harbor with the

ability-to-repay provisions. This means that the loan is presumed to comply with the ability-to-

repay provisions, but, for example, the consumer would have the opportunity to rebut that

presumption in future ability-to-repay litigation.

For a qualified mortgage that is a higher-priced covered transaction, the presumption of

compliance is rebuttable by showing that at consummation, the consumer’s income, debt

obligations, alimony, child support, and monthly payments on the loan and mortgage-related

obligations and simultaneous loans of which the creditor was aware at consummation would

leave the consumer with insufficient residual income or assets (other than the value of the

dwelling and real property) to meet living expenses (including recurring and material non-debt

obligations that the creditor was aware of at consummation).

Requirements for Qualified Mortgages - Generally – Section 1026.43(e)(2)

and (3)

Loans that are qualified mortgages under the general definition may not have negative

amortization, interest-only payments, balloon payments, or terms exceeding 30 years. A

qualified mortgage for loans greater than or equal to $100,000 may not have points and fees paid

by the consumer that exceed three percent of the total loan amount (although certain “bona fide

discount points” are excluded for certain loans with pricing within prescribed ranges of APOR—

the average prime offer rate). The rule provides guidance on calculating points and fees and

thresholds for smaller loans.

The rule also provides a period of time for a creditor or assignee to review a transaction’s points

and fees and, if points and fees exceed the applicable threshold, to pay the consumer the excess

points and fees, along with interest on the excess points and fees (calculated using the contract

interest rate). This cure is generally allowed within 210 days after consummation unless the

consumer has instituted an action in connection with the loan, or notified the creditor, assignee,

or servicer in writing that the points and fees exceed the applicable threshold, or the consumer is

60 days past due. To be eligible for a points and fees cure, the loan must meet all other

The definition and calculation rules for points and fees are the same as those used to determine whether a closed-end mortgage

is a HOEPA loan, discussed above at section 1026.32(b)(2)

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applicable requirements to be a qualified mortgage and the creditor or assignee, as applicable,

must maintain and follow policies and procedures for post-consummation review of points and

fees and for making cure payments to consumers. This cure provision applies to the points and

fees limits for all of the qualified mortgage types defined in Regulation Z.

The rule also provides underwriting criteria for qualified mortgages. Generally, the rule requires

that monthly payments be calculated based on the highest payment that will apply in the first five

years of the loan after the date on which the first periodic payment is due and that the consumer

have a total (or “back-end”) debt-to-income ratio that is less than or equal to 43 percent.

Appendix Q, drawing upon Federal Housing Administration guidelines, details the calculation of

debt-to-income for these purposes. The rule also requires that the creditor consider and verify the

consumer’s current or reasonably expected income or assets and current debt obligations,

alimony and child support, also in accordance with Appendix Q.

Temporary Category of Qualified Mortgages – Section 1026.43(e)(4)

Regulation Z provides a temporary category of qualified mortgages that—except with regard to

matters that are wholly unrelated to ability to repay—satisfy the underwriting requirements of,

and are therefore eligible to be purchased, guaranteed or insured by, either (1) the Government

Sponsored Enterprises (Fannie Mae and Freddie Mac) while they operate under federal

conservatorship or receivership; or (2) the U.S. Department of Housing and Urban Development,

the U.S. Department of Veterans Affairs, the U.S. Department of Agriculture, or the Rural

Housing Service. This temporary provision will phase out over time as the various federal

agencies issue their own qualified mortgage rules

or if GSE conservatorship ends, and in any

event after seven years (January 10, 2021). These mortgages must satisfy certain requirements

applicable to qualified mortgages, including prohibitions on negative-amortization, interest-only,

and balloon payment features; maximum loan terms of 30 years; and points-and-fees restrictions.

However, the flat 43 percent debt-to-income threshold for qualified mortgages does not apply.

Qualified Mortgage – Small Creditor Portfolio Loans

– Section 1026.43(e)(5)

Mortgages that are originated and held in portfolio by certain small creditors are also qualified

mortgages if they meet certain requirements.

These mortgages must generally satisfy the requirements applicable to qualified mortgages,

including prohibitions on negative-amortization, balloon-payment, and interest-only features;

maximum loan terms of 30 years; and points-and-fees restrictions. However, while the creditor

must consider and verify the consumer’s current or reasonably expected income or assets and

current debt obligations, alimony, and child support, it may do so without regard to the standards

in Appendix Q. In addition, debt-to-income ratios must be considered and verified, but the 43

percent threshold for qualified mortgages under the general definition does not apply.

This temporary QM rule does not apply to HUD loans or to VA loans because HUD issued its final QM rule, effective January

10, 2014 (78 Fed. Reg. 75215, December 11, 2013), and VA issued its interim final QM rule, effective May 9, 2014 (79 Fed.

Reg. 26620, May 9, 2014).

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A small creditor that satisfies the exemption criteria in section 1026.35(b)(2)(iii)(B) and (C) is

eligible to make small creditor portfolio qualified mortgages. (In contrast to section 1026.43(f),

below, eligibility for this qualified mortgage category is not conditioned on the small creditor

operating predominantly in a rural or underserved area). For a period of three years after

consummation, the creditor may not transfer the loan, or the loan will lose its status as a qualified

mortgage. The qualified mortgage status continues under section 1026.43(e)(5)(ii), however, if

the creditor transfers the loan to another creditor that meets the requirements to be a small lender,

or when the loan is transferred due to a capital restoration plan, bankruptcy, or state or federal

governmental agency order, or if the mortgage is transferred pursuant to a merger or acquisition

of the creditor. A qualified mortgage can be transferred after three years without losing its status.

Small Creditor Rural or Underserved Balloon-Payment Qualified Mortgages

and Temporary Balloon-Payment Qualified Mortgages

– Sections 1026.43(f) and 1026.43(e)(6)

Balloon-payment mortgages are qualified mortgages if they are originated and held in portfolio

by small creditors operating predominantly in rural or underserved areas and meet certain other

requirements. These mortgages must satisfy certain requirements applicable to qualified

mortgages, including prohibitions on negative-amortization and interest-only features; maximum

loan terms of 30 years; and points-and-fees restrictions. These loans must have a term of at least

five years, a fixed interest rate, and meet certain basic underwriting standards; debt-to-income

ratios must be considered and verified, but the 43 percent threshold for qualified mortgages

under the general definition does not apply. The rule also requires that the creditor consider and

verify the consumer’s current or reasonably expected income or assets and current debt

obligations, alimony, and child support, but without regard to the standards in Appendix Q. This

category of qualified mortgage is not available for a loan that, at origination, is subject to a

forward commitment to be acquired by a person that does not itself qualify for the category

(under the requirements outlined in the next paragraph).

A small creditor that satisfies the exemption criteria in section 1026.35(b)(2)(iii)(A), (B), and (C)

(higher-priced mortgage escrow requirements) is eligible to make rural or underserved balloon-

payment qualified mortgages. For a period of three years after consummation, the creditor may

not transfer the loan, or it will lose its status as a qualified mortgage. The qualified mortgage

status continues under section 1026.43(f)(2), however, if the creditor transfers the loan to another

creditor that meets the requirements to be a small rural lender, or when the loan is transferred due

to a capital restoration plan, bankruptcy, or state or federal governmental agency order, or if the

mortgage is transferred pursuant to a merger or acquisition of the creditor. A qualified mortgage

can be transferred after three years without losing its status.

There is also a temporary qualified mortgage definition for balloon-payment mortgages that

would otherwise meet the requirements of section 1026.43(f), but that are originated by small

creditors that do not operate predominantly in rural or underserved areas. This category is

applicable to covered transactions consummated on or before January 10, 2016.

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Subpart F – Special Rules for Private Education Loans

Subpart F relates to private education loans. It contains rules on disclosures (§1026.46), the right to

cancel the loan, (§1026.47), and limitations on changes in terms after approval and on co-branding

in the marketing of private education loans (§1026.48).

Special Disclosure Requirements for Private Education

Loans – Section 1026.46

The disclosures required under Subpart F apply only to private education loans. Except where

specifically provided otherwise, the requirements and limitations of Subpart F are in addition to

the requirements of the other subparts of Regulation Z.

A private education loan means an extension of credit that:

• Is not made, insured, or guaranteed under title IV of the Higher Education Act of 1965;

• Is extended to a consumer expressly, in whole or part, for postsecondary educational

expenses, regardless of whether the loan is provided by the educational institution that the

student attends; and

• Does not include open-end credit or any loan that is secured by real property or a dwelling.

A private education loan does not include an extension of credit in which the covered

educational institution is the creditor if:

• The term of the extension of credit is 90 days or less, or

• An interest rate will not be applied to the credit balance and the term of the extension of

credit is one year or less, even if the credit is payable in more than four installments.

Content of Disclosures – Section 1026.47

Disclosure Requirements

This section establishes the content that a creditor must include in its disclosures to a consumer

at three different stages in the private education loan origination process:

• Application or Solicitation Disclosures – With any application or solicitation;

• Approval Disclosures – With any notice of approval of the private education loan; and

• Final Disclosures – After the consumer accepts the loan. In addition, section 1026.48(d)

requires that the disclosures must be provided at least three business days prior to

disbursement of the loan funds.

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Rights of the Consumer

The creditor must disclose that, if approved for the loan, the consumer has the right to accept the

loan on the terms approved for up to 30 calendar days. The disclosure must inform the consumer

that the rate and terms of the loan will not change during this period, except for changes to the

rate based on adjustments to the index used for the loan and other changes permitted by law. The

creditor must disclose that the consumer also has the right to cancel the loan, without penalty,

until midnight of the third business day following the date on which the consumer receives the

final disclosures.

Limitations on Private Educational Loans

– Section 1026.48

This section contains rules and limitations on private education loans, including:

1. A prohibition on co-branding in the marketing of private education loans;

2. Rules governing the 30-day acceptance period and three business-day cancellation period and

prohibition on disbursement of loan proceeds until the cancellation period has expired;

3. The requirement that the creditor obtain a self-certification form from the consumer before

consummation; and

4. The requirement that creditors in preferred lender arrangements provide certain information

to covered educational institutions.

Co-Branding Prohibited

Regulation Z prohibits creditors from using the name, emblem, mascot, or logo of a covered

institution (or other words, pictures, or symbols readily identified with a covered institution) in

the marketing of private education loans in a way that implies endorsement by the educational

institution. Marketing that refers to an educational institution does not imply endorsement if the

marketing includes a clear and conspicuous disclosure that is equally prominent and closely

proximate to the reference to the institution that the educational institution does not endorse the

creditor’s loans, and that the creditor is not affiliated with the educational institution. There is

also an exception in cases where the educational institution actually does endorse the creditor’s

loans, but the marketing must make a clear and conspicuous disclosure that is equally prominent

and closely proximate to the reference to the institution that the creditor, and not the educational

institution, is making the loan.

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Subpart G – Special Rules Applicable To Credit Card

Accounts and Open-End Credit Offered To College

Students

Subpart G relates to credit card accounts under an open-end (not home-secured) consumer credit

plan (except for 12 CFR 1026.57(c), which applies to all open-end credit plans). This subpart

contains rules regarding credit and charge card application and solicitation disclosures (§1026.60).

It also contains rules on evaluation of a consumer’s ability to make the required payments under

the terms of an account (§1026.51), limits the fees that a consumer can be required to pay

(§1026.52), and contains rules on allocation of payments in excess of the minimum payment

(§1026.53). It also sets forth certain limitations on the imposition of finance charges as the result of

a loss of a grace period (§1026.54) and on increases in annual percentage rates, fees, and charges

for credit card accounts (§1026.55), including the reevaluation of rate increases (§1026.59). This

subpart prohibits the assessment of fees or charges for over-the-limit transactions unless the

consumer affirmatively consents to the creditor’s payment of over-the-limit transactions

(§1026.56). This subpart also sets forth rules for reporting and marketing of college student open-

end credit (§1026.57). Finally, it sets forth requirements for the Internet posting of credit card

accounts under an open-end (not home-secured) consumer credit plan (§1026.58).

Evaluation of the Consumer’s Ability to Pay

– Section 1026.51

Regulation Z requires credit card issuers to consider a consumer’s ability to pay before opening a

new credit card account or increasing the credit limit for an existing credit card account.

Additionally, the rule provides specific requirements that must be met before opening a new

credit card account or increasing the credit limit on an existing account when the consumer is

under the age of 21.

When evaluating a consumer’s ability to pay, credit card issuers must perform a review of a

consumer’s income or assets and current obligations. Issuers are permitted, however, to rely on

information provided by the consumer. The rule does not require issuers to verify a consumer’s

statements; a creditor may base its determination of ability to repay on facts and circumstances

known to the card issuer (Comment 1026.51(a)(1)(i)-2). A card issuer may also consider

information obtained through any empirically derived, demonstrably and statistically sound

model that reasonably estimates a consumer’s income or assets.

Issuers may consider any income and assets to which the consumer has a reasonable expectation

of access or may limit their consideration to the consumer’s independent income and assets. The

rule also requires that issuers consider at least one of the following:

• The ratio of debt obligations to income;

• The ratio of debt obligations to assets; or

• The income the consumer will have after paying debt obligations (i.e., residual income).

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The rule also provides that it would be unreasonable for an issuer not to review any information

about a consumer’s income, assets, or current obligations, or to issue a credit card to a consumer

who does not have any income or assets.

Because credit card accounts typically require consumers to make a minimum monthly payment

that is a percentage of the total balance (plus, in some cases, accrued interest and fees), creditors

are required to consider the consumer’s ability to make the required minimum payments. Card

issuers must also establish and maintain reasonable written policies and procedures to consider a

consumer’s income or assets and current obligations. Because the minimum payment is unknown

at account opening, the rule requires that creditors use a reasonable method to estimate a

consumer’s minimum payment. The regulation provides a safe harbor for issuers to estimate the

required minimum periodic payment if the card issuer:

1. Assumes utilization, from the first day of the billing cycle, of the full credit line that the

issuer is considering offering to the consumer; and

2. Uses a minimum payment formula employed by the issuer for the product the issuer is

considering offering to the consumer or, in the case of an existing account, the minimum

payment formula that currently applies to that account, provided that:

a. If the minimum payment formula includes interest charges, the card issuer estimates

those charges using an interest rate that the issuer is considering offering to the consumer

for purchases or, in the case of an existing account, the interest rate that currently applies

to purchases; and

b. If the applicable minimum payment formula includes mandatory fees, the card issuer

must assume that such fees have been charged to the account.

Specific Requirements for Underage Consumers

– Section 1026.51(b)(1)

Regulation Z prohibits the issuance of a credit card to a consumer who has not attained the age of

21 unless the consumer has submitted a written application and the creditor has:

• Information indicating that the underage consumer has an independent ability to make the

required minimum payments on the account; or

• The signature of a cosigner, guarantor, or joint applicant who has attained the age of 21, who

has the ability to repay debts (based on section 1026.51) incurred by the underage consumer

in connection with the account, and who assumes joint liability for all debts or secondary

liability for any debts incurred before the underage consumer attains 21 years of age.

For credit line increases:

• If an account was opened based on the underage consumer’s independent ability to repay, in

order to increase the consumer’s credit line before he or she turns 21, the issuer either must

determine that the consumer has an independent ability to make the required minimum

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payments at the time of the contemplated increase, or must obtain an agreement from a

cosigner, guarantor, or joint applicant who is 21 or older and who has the ability to repay

debts to assume liability for any debt incurred on the account.

• If the account was opened based on the ability of a cosigner over the age of 21 to pay, the

issuer must obtain written consent from that cosigner before increasing the credit limit.

Limitations of Fees – Section 1026.52

Limitations on Fees During First Year After Account Opening –

Section 1026.52(a)

During the first year after account opening, issuers are prohibited from requiring consumers to

pay fees (other than fees for late payments, returned payments, and exceeding the credit limit)

that in the aggregate exceed 25 percent of the initial credit limit in effect when the account is

opened. An account is considered open no earlier than the date on which the account may first be

used by the consumer to engage in transactions.

NOTE: The 25 percent limitation on fees does not apply to fees assessed prior to opening the

account.

Limitations on Penalty Fees – Section 1026.52(b)

TILA requires that penalty fees imposed by card issuers be reasonable and proportional to the

violation of the account terms. Among other things, the regulation prohibits credit card issuers

from charging a penalty fee of more than $25 for paying late or otherwise violating the account’s

terms for the first violation (or $35 for an additional violation of the same type during the same

billing cycle or one of the next six billing cycles) unless the issuer determines that a higher fee

represents a reasonable proportion of the costs it incurs as a result of that type of violation and

reevaluates that determination at least once every 12 months.

Credit card issuers are banned from charging penalty fees that exceed the dollar amount

associated with the consumer’s violation of the terms or other requirements of the credit card

account. For example, card issuers are no longer permitted to charge a $39 fee when a consumer

is late making a $20 minimum payment. Instead, in this example, the fee cannot exceed $20. The

regulation also bans imposition of penalty fees when there is no dollar amount associated with

the violation, such as “inactivity” fees based on the consumer’s failure to use the account to

make new purchases. It also prohibits issuers from charging multiple penalty fees based on a

single late payment or other violation of the account terms.

Payment Allocation – Section 1026.53

When different rates apply to different balances on a credit card account, issuers are generally

required to allocate payments in excess of the minimum payment first to the balance with the

highest APR and any remaining portion to the other balances in descending order based on the

applicable APR.

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For deferred interest programs, however, issuers must allocate excess payments first to the

deferred interest balance during the last two billing cycles of the deferred interest period. In

addition, during a deferred interest period, issuers are permitted (but not required) to allocate

excess payments in the manner requested by the consumer.

For accounts with secured balances, issuers are permitted (but not required) to allocate excess

payments to the secured balance if requested by the consumer.

Double-Cycle Billing and Partial Grace Period

– Section 1026.54

Issuers are generally prohibited from imposing finance charges on balances for days in previous

billing cycles as a result of the loss of a grace period. In addition, when a consumer pays some,

but not all, of a balance prior to the expiration of a grace period, an issuer is prohibited from

imposing finance charges on the portion of the balance that has been repaid.

Restrictions on Applying Increased Rates to Existing

Balances and Increasing Certain Fees and Charges

– Section 1026.55

Unless an exception applies, a card issuer must not increase an annual percentage rate or a fee or

charge required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) on a

credit card account. There are some general exceptions to the prohibition against applying

increased rates to existing balances and increasing certain fees or charges:

• A temporary or promotional rate or temporary fee or charge that lasts at least six months, and

that is required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii),

provided that the card issuer complied with applicable disclosure requirements. Fees and

charges required to be disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) are

periodic fees for issuance or availability of an open-end plan (such as an annual fee); a fixed

finance charge (and any minimum interest charge) that exceeds $1; or a charge for required

insurance, debt cancellation, or debt suspension;

• The rate is increased due to the operation of an index available to the general public and not

under the card issuer’s control (i.e., the rate is a variable rate);

• The minimum payment has not been received within 60 days after the due date, provided that

the card issuer complied with applicable disclosure requirements and adheres to certain

requirements when a series of on time payments are received;

• The consumer successfully completes or fails to comply with the terms of a workout

arrangement, provided that card issuer complied with applicable disclosure requirements and

adheres to certain requirements upon the completion or failure of the arrangement; and

• The APR on an existing balance or a fee or charge required to be disclosed under sections

1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) has been reduced pursuant to the Servicemembers

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Civil Relief Act (SCRA) or a similar federal or state statute or regulation. The creditor is

permitted to increase the rate, fee, or charge once the SCRA ceases to apply, but only to the

rate, fee, or charge that applied prior to the reduction.

Regulation Z’s limitations on the application of increased rates and certain fees and charges to

existing balances continue to apply when the account is closed, acquired by another institution

through a merger or the sale of a credit card portfolio, or when the balance is transferred to

another credit account issued by the same creditor (or its affiliate or subsidiary).

Issuers are generally prevented from increasing the APR applicable to new transactions or a fee or

charge subject to sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) during the first year after an

account is opened. After the first year, issuers are permitted to increase the APRs that apply to new

transactions or a fee or charge subject to sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) so long

as the creditor complies with the regulation’s 45-day advance notice requirement (§1026.9).

Regulation Z’s limitations on the application of increased rates to existing balances and

limitations on the increase of certain fees or charges apply upon cessation of a waiver or rebate

of interest, fees, or charges if the issuer promotes the waiver or rebate.

Fees for Transactions that Exceed the Credit Limit

– Section 1026.56

Consumer consent requirement – Regulation Z requires an issuer to obtain a

consumer’s express consent (or opt in) before the issuer may impose any fees on a consumer’s

credit card account for making an extension of credit that exceeds the account’s credit limit.

Prior to providing such consent, the consumer must be notified by the issuer of any fees that may

be assessed for an over-the-limit transaction. If the consumer consents, the issuer is also required

to provide written confirmation (or electronic confirmation if the consumer agrees) of the

consumer’s consent and a notice of the consumer’s right to revoke that consent on the front page

of any periodic statement that reflects the imposition of an over-the-limit fee.

Prior to obtaining a consumer’s consent to the payment of over-the-limit transactions, the issuer

must provide the consumer with a notice disclosing, among other things, the dollar amount of

any charges that will be assessed for an over-the-limit transaction, as well as any increased rate

that may apply if the consumer exceeds the credit limit. Issuers are prevented from assessing any

over-the-limit fee or charge on an account unless the consumer consents to the payment of

transactions that exceed the credit limit.

Prohibited practices – Even if the consumer has affirmatively consented to the issuer’s

payment of over-the-limit transactions, Regulation Z prohibits certain issuer practices in

connection with the assessment of over-the-limit fees or charges. An issuer can only charge one

over-the-limit fee or charge per billing cycle. In addition, an issuer cannot impose an over-the-

limit fee on the account for the same transaction in more than three billing cycles. Furthermore,

fees may not be imposed for the same transaction in the second or third billing cycle unless the

consumer has failed to reduce the account balance below the credit limit by the payment due date

in that cycle.

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Regulation Z also prohibits unfair or deceptive acts or practices in connection with the

manipulation of credit limits in order to increase over-the-limit fees or other penalty charges.

Specifically, issuers are prohibited from engaging in three practices:

• Assessing an over-the-limit fee because the creditor failed to promptly replenish the

consumer’s available credit;

• Conditioning the amount of available credit on the consumer’s consent to the payment of

over-the-limit transactions (e.g., opting in to an over-the-limit service to obtain a higher

credit limit); and

• Imposing any over-the-limit fee if the credit limit is exceeded solely because of the issuer’s

assessment of accrued interest charges or fees on the consumer’s account.

Special Rules for Marketing to Students – Section 1026.57

Regulation Z establishes several requirements related to the marketing of credit cards and other

open-end consumer credit plans to students at an institution of higher education. The regulation

limits a creditor’s ability to offer a college student any tangible item to induce the student to

apply for or participate in an open-end consumer credit plan offered by the creditor. Specifically,

Regulation Z prohibits a card issuer from offering tangible items as an inducement:

• On the campus of an institution of higher education;

• Near the campus of an institution of higher education; or

• At an event sponsored by or related to an institution of higher education

A tangible item means physical items, such as gift cards, t-shirts, or magazine subscriptions, but

does not include non-physical items such as discounts, reward points, or promotional credit

terms. With respect to offers “near” the campus, the commentary to the regulation states that a

location that is within 1,000 feet of the border of the campus is considered near the campus.

Regulation Z also requires card issuers to submit an annual report to the CFPB containing the terms

and conditions of business, marketing, or promotional agreements with an institution of higher

education or an alumni organization or foundation affiliated with an institution of higher education.

Online Disclosure of Credit Card Agreements

– Section 1026.58

The regulation requires that issuers post credit card agreements on their websites and to submit

those agreements to the CFPB for posting on a website maintained by the CFPB. There are three

exceptions for when issuers are not required to provide statements to the CFPB:

• The issuer has fewer than 10,000 open credit card accounts; or

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• The agreement currently is not offered to the public and the agreement is used only for one or

more private label credit card plans with credit cards usable only at a single merchant or

group of affiliated merchants and that involves fewer than 10,000 open accounts; or

• The agreement currently is not offered to the public and the agreement is for one or more

plans offered to test a new product offered only to a limited group of consumers for a limited

time that involves fewer than 10,000 open accounts.

Reevaluation of Rate Increases – Section 1026.59

For any rate increase imposed on or after January 1, 2009, that requires 45 days advance notice,

the regulation requires card issuers to review the account no less frequently than once each six

months and, if appropriate based on that review, reduce the annual percentage rate. The

requirement to reevaluate rate increases applies both to increases in annual percentage rates

based on consumer-specific factors, such as changes in the consumer’s creditworthiness, and to

increases in annual percentage rates imposed based on factors that are not specific to the

consumer, such as changes in market conditions or the issuer’s cost of funds. If based on its

review a card issuer is required to reduce the rate applicable to an account, the final regulation

requires that the rate be reduced within 45 days after completion of the evaluation.

This review must consider either the same factors on which the increase was originally based or

the factors the card issuer currently considers in determining the annual percentage rate

applicable to similar new credit card accounts.

Liability and Defenses

Civil Liability – TILA Sections 129B, 129C, 130 and 131

If a creditor fails to comply with any requirements of the TILA, other than with the advertising

provisions of chapter 3, it may be held liable to the consumer for:

• Actual damage, and

• Cost of any successful legal action together with reasonable attorney’s fees.

The creditor also may be held liable for any of the following:

• In an individual action, twice the amount of the finance charge involved.

• In an individual action relating to an open-end credit transaction that is not secured by real

property or a dwelling, twice the amount of the finance charge involved, with a minimum of

$500 and a maximum of $5,000 or such higher amount as may be appropriate in the case of

an established pattern or practice of such failure.

• In an individual action relating to a closed-end credit transaction secured by real property or

a dwelling, not less than $400 and not more than $4,000.

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• In a class action, such amount as the court may allow (with no minimum recovery for each

class member). However, the total amount of recovery in any class actions arising out of the

same failure to comply by the same creditor cannot be more than $1 million or 1 percent of

the creditor’s net worth, whichever is less.

A creditor that fails to comply with section 129 of TILA, 15 U.S.C. section 1639, (requirements

for certain mortgages) may be held liable to the consumer for all finance charges and fees paid

by the consumer unless the creditor demonstrates that the failure was not material. A mortgage

originator that is not a creditor and that fails to comply with section 129B (requirements for

mortgage loan originators) also may be liable to consumers for the greater of actual damages or

an amount equal to three times the total amount of direct and indirect compensation or gain to

the mortgage originator in connection with the loan, plus costs, including reasonable attorney’s

fees. In addition, TILA section 130(a) provides that a creditor may be liable for failure to comply

with the ability-to-repay requirements of TILA section 129C(a) unless the creditor demonstrates

that the failure to comply was not material.

Generally, civil actions that may be brought against a creditor may be maintained against any

assignee of the creditor only if the violation is apparent on the face of the disclosure statement or

other documents assigned, except where the assignment was involuntary. For high-cost mortgage

loans (under section 1026.32(a)), any subsequent purchaser or assignee is subject to all claims

and defenses that the consumer could assert against the creditor, unless the assignee

demonstrates that it could not reasonably have determined that the loan was a high-cost mortgage

loan subject to section 1026.32.

In specified circumstances, the creditor or assignee has no liability if it corrects identified errors

within 60 days of discovering the errors and prior to the institution of a civil action or the receipt

of written notice of the error from the obligor. Additionally, a creditor and assignee will not be

liable for bona fide errors that occurred despite the maintenance of procedures reasonably

adapted to avoid any such error.

Moreover, the TILA also provides consumers with the right to assert a violation of the TILA’s

anti-steering provisions or the ability-to-repay standards for residential mortgage loan

requirements “as a matter of defense by recoupment or setoff” against a foreclosure action. In

general, the amount of recoupment or setoff shall be equal to the amount that the consumer

would be entitled to generally under 15 U.S.C. 1640(a) for a valid claim, plus the cost to the

consumer of the action (including reasonable attorney’s fees).

Refer to Sections 129B, 129C, 130 and 131 of TILA for more information.

Criminal Liability – TILA Section 112

Anyone who willingly and knowingly fails to comply with any requirement of the TILA will be

fined not more than $5,000 or imprisoned not more than one year, or both.

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Administrative Actions – TILA Section 108

The TILA authorizes federal regulatory agencies to require financial institutions to make

monetary and other adjustments to the consumers’ accounts when the true finance charge or APR

exceeds the disclosed finance charge or APR by more than a specified accuracy tolerance. That

authorization extends to unintentional errors, including isolated violations (e.g., an error that

occurred only once or errors, often without a common cause, that occurred infrequently and

randomly).

Under certain circumstances, the TILA requires federal regulatory agencies to order financial

institutions to reimburse consumers when understatement of the APR or finance charge involves:

• Patterns or practices of violations (e.g., errors that occurred, often with a common cause,

consistently or frequently, reflecting a pattern with a specific type or types of consumer credit).

• Gross negligence.

• Willful noncompliance intended to mislead the person to whom the credit was extended.

Any proceeding that may be brought by a regulatory agency against a creditor may be

maintained against any assignee of the creditor if the violation is apparent on the face of the

disclosure statement or other documents assigned, except where the assignment was involuntary

under section 131 (15 U.S.C. 1641).

Specific Defenses – TILA Section 108

Defense Against Civil, Criminal, and Administrative Actions

A financial institution in violation of TILA may avoid liability by:

• Discovering the error before an action is brought against the financial institution, or before

the consumer notifies the financial institution, in writing, of the error.

• Notifying the consumer of the error within 60 days of discovery.

• Making the necessary adjustments to the consumer’s account, also within 60 days of

discovery. (The consumer will pay no more than the lesser of the finance charge actually

disclosed or the dollar equivalent of the APR actually disclosed.)

The above three actions also may allow the financial institution to avoid a regulatory order to

reimburse the customer.

An error is “discovered” if it is:

• Discussed in a final, written report of examination.

• Identified through the financial institution’s own procedures.

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• An inaccurately disclosed APR or finance charge included in a regulatory agency notification

to the financial institution.

When a disclosure error occurs, the financial institution is not required to re-disclose after a loan

has been consummated or an account has been opened. If the financial institution corrects a

disclosure error by merely re-disclosing required information accurately, without adjusting the

consumer’s account, the financial institution may still be subject to civil liability and an order to

reimburse from its regulator.

The circumstances under which a financial institution may avoid liability under the TILA do not

apply to violations of the Fair Credit Billing Act (chapter 4 of the TILA).

Additional Defenses Against Civil Actions

The financial institution may avoid liability in a civil action if it shows by a preponderance of

evidence that the violation was not intentional and resulted from a bona fide error that occurred

despite the maintenance of procedures to avoid the error.

A bona fide error may include a clerical, calculation, computer malfunction, programming, or

printing error. It does not include an error of legal judgment.

Showing that a violation occurred unintentionally could be difficult if the financial institution is

unable to produce evidence that explicitly indicates it has an internal controls program designed

to ensure compliance. The financial institution’s demonstrated commitment to compliance and

its adoption of policies and procedures to detect errors before disclosures are furnished to

consumers could strengthen its defense.

Statute of Limitations – TILA Sections 108, 129, 129B,

129C, 129D, 129E, 129F, 129G, 129H, and 130

In general, civil actions may be brought within one year after the violation occurred. For private

education loans, civil actions may be brought within one year from the date on which the first

regular payment of principal and interest is due. After that time, and if allowed by state law, the

consumer may still assert the violation as a defense if a financial institution were to bring an

action to collect the consumer’s debt.

A civil action for a violation of TILA section 129 (requirements for certain mortgages), 129B

(residential mortgage loan origination), or 129C (minimum standards for residential mortgage

loans) may be brought three years from the date of the occurrence of the violation (as compared

to one year for most other TILA violations). TILA section 130(e).

Moreover, TILA provides that when a creditor, assignee, other holder or anyone acting on such a

person’s on behalf initiates a foreclosure action on, or any other action to collect the debt in

connection with a residential mortgage loan, a consumer may assert a violation of TILA section

129B(c)(1) or (2) or 129C(a) “as a matter of defense by recoupment or set off.” TILA section

130(k). There is no time limit on the use of this defense and the amount of recoupment or setoff

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is limited, with respect to the special statutory damages, to no more than three years of finance

charges and fees.

Criminal actions and actions brought by regulators, are not subject to the general one-year statute

of limitations. Actions brought by a state attorney general to enforce a violation of section 129,

129B, 129C, 129D, 129E, 129F, 129G, or 129H, may be brought not later than 3 years after the

date on which the violation occurs.

However, administrative enforcement actions under the policy guide involving erroneously

disclosed APRs and finance charges may be subject to time limitations by the TILA. Those

limitations range from the date of the last regulatory examination of the financial institution, to

as far back as 1969, depending on when loans were made, when violations were identified,

whether the violations were repeat violations, and other factors.

There is no time limitation on willful violations intended to mislead the consumer. A general

summary of the various time limitations that otherwise apply follows.

• For open-end credit, reimbursement applies to violations not older than two years.

• For closed-end credit, reimbursement is generally directed for loans with violations occurring

since the immediately preceding examination.

Rescission Rights (Open-End and Closed-End Credit)

– Sections 1026.15 & 1026.23

TILA provides that for certain transactions secured by the consumer’s principal dwelling, a

consumer has three business days after becoming obligated on the debt to rescind the transaction.

The right of rescission allows consumer(s) time to reexamine their credit agreements and cost

disclosures and to reconsider whether they want to place their homes at risk by offering it as

security for the credit. A higher-priced mortgage loan (whether or not it is a HOEPA loan)

having a prepayment penalty that does not conform to the prepayment penalty limitations

(§§1026.32(c) and (d) and §1026.43(g), (subject to certain exclusions)) is also subject to a three-

year right of rescission. Transactions exempt from the right of rescission include residential

mortgage transactions (§1026.2(a)(24)) and refinancings or consolidations with the original

creditor where no “new money” is advanced.

If a transaction is rescindable, consumers must be given a notice explaining that the creditor has

a security interest in the consumer’s home, that the consumer may rescind, how the consumer

may rescind, the effects of rescission, and the date the rescission period expires.

To rescind a transaction, a consumer must notify the creditor in writing by midnight of the third

business day after the latest of three events:

• Consummation of the transaction,

• Delivery of material TILA disclosures, or

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• Receipt

of the required notice of the right to rescind.

For purposes of rescission, business day means every calendar day except Sundays and the legal

public holidays (§1026.2(a)(6)). The term “material disclosures” is defined in section

1026.23(a)(3) to mean the required disclosures of the APR, the finance charge, the amount

financed, the total of payments, the payment schedule, and the disclosures and limitations

referred to in section 1026.32(c) and (d) and 1026.43(g).

The creditor may not disburse any monies (except into an escrow account) and may not provide

services or materials until the three-day rescission period has elapsed and the creditor is

reasonably satisfied that the consumer has not rescinded. If the consumer rescinds the

transaction, the creditor must refund all amounts paid by the consumer (even amounts disbursed

to third parties) and terminate its security interest in the consumer’s home.

A consumer may waive the three-day rescission period and receive immediate access to loan

proceeds if the consumer has a “bona fide personal financial emergency.” The consumer must

give the creditor a signed and dated waiver statement that describes the emergency, specifically

waives the right, and bears the signatures of all consumers entitled to rescind the transaction. The

consumer provides the explanation for the bona fide personal financial emergency, but the

creditor decides the sufficiency of the emergency.

If the required rescission notice or material TILA disclosures are not delivered or if they are

inaccurate, the consumer’s right to rescind may be extended from three days after becoming

obligated on a loan to up to three years.

12 CFR 1026.15(b) and 1026.23(b)(1) were amended to include the electronic delivery of the notice of the right to rescind. If a

paper notice of the right to rescind is used, a creditor must deliver two copies of the notice to each consumer entitled to rescind.

However, under the final rule on electronic delivery of disclosures if the notice is in electronic form, in accordance with the

consumer consent and other applicable provisions of the E-Sign Act, only one copy to each customer is required.

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REFERENCES

Laws

15 U.S.C. 1601 et seq. Truth in Lending Act (TILA)

15 U.S.C. 1666 et seq. Fair Credit Billing Act

15 U.S.C. 7001 et seq. Electronic Signatures in Global and National Commerce Act

Regulations

Consumer Financial Protection Bureau Regulation (12 CFR)

Part 1026 Truth in Lending (Regulation Z)

Guides

CFPB compliance guides

TRID Guide to Forms

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Truth in Lending

Examination Objectives

1. To appraise the quality of the financial institution’s compliance management system for the

Truth in Lending Act and Regulation Z (12 CFR part 1026).

2. To determine the reliance that can be placed on the financial institution’s compliance

management system, including internal controls and procedures performed by the person(s)

responsible for monitoring the financial institution’s compliance review function for the

Truth in Lending Act and Regulation Z.

3. To determine the financial institution’s compliance with the Truth in Lending Act and

Regulation Z.

4. To initiate corrective action when policies or internal controls are deficient, or when

violations of law or regulation are identified.

5. To determine whether the institution will be required to make adjustments to consumer

accounts under the restitution provisions of the Truth in Lending Act.

These reflect FFIEC-approved procedures.

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General Procedures

1. Obtain information pertinent to the area of examination from the financial institution‘s

compliance management system program (historical examination findings, complaint

information, and significant findings from compliance review and audit).

2. Through discussions with management and review of the following documents, determine

whether the financial institution‘s internal controls are adequate to ensure compliance in the

area under review. Identify procedures used daily to detect errors/violations promptly. Also,

review the procedures used to ensure compliance when changes occur (e.g., changes in

interest rates, service charges, computation methods, and software programs).

• Organizational charts.

• Process flowcharts.

• Policies and procedures.

• Loan documentation and disclosures.

• Checklists/worksheets and review documents.

• Computer programs.

3. Review compliance review and audit workpapers and determine whether:

a. The procedures used address all regulatory provisions (see Transactional Testing

section).

b. Steps are taken to follow up on previously identified deficiencies.

c. The procedures used include samples that cover all product types and decision centers.

d. The work performed is accurate (through a review of some transactions).

e. Significant deficiencies, and the root cause of the deficiencies, are included in reports to

management/board.

f. Corrective actions are timely and appropriate.

g. The area is reviewed at an appropriate interval.

4. Review the financial institution‘s record retention practices to determine whether the

required documentation or evidence of compliance is retained for at least:

a. Two years after the disclosures were required to be made or other action was required to

be taken, other than for the advertising requirements, requirements for mortgages subject

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to sections 1026.19(e) and (f), and certain requirements for mortgages, which are

described below. (1026.25(a))

b. Three years after the later of the date of consummation, the date disclosures are required

to be made, or the date action is required to be taken, for evidence of compliance with

sections 1026.19(e)-(f) (regarding closed-end loans that are secured by real property and

subject to those sections) other than as set forth in 4.c below. (1026.25(c)(1)(i))

c. Five years after consummation for completed Closing Disclosure forms, and all

documents related to these disclosures, as required by section 1026.19(f)(1)(i) or (f)(4)(i).

If the loan is sold, transferred, or otherwise disposed of during that time, the creditor must

provide a copy of the Closing Disclosure to the owner or servicer as part of the loan file

transfer, who must retain the disclosure for the remainder of the five-year period.

(1026.25(c)(1)(ii))

d. Three years after the date of receipt of payment to show compliance with loan originator

compensation requirements. (1026.25(c)(2))

e. Three years after consummation to show compliance with ability-to-repay minimum

standards (1026.43(c)-(f)) and prepayment penalty restrictions (1026.43(g)) for loans

secured by a dwelling. (1026.25(c)(3))

Disclosure Forms

1. Determine if the financial institution has changed any TILA disclosure forms or if there are

forms that have not been previously reviewed for accuracy. If so:

Verify the accuracy of each disclosure by reviewing the following:

• Credit card application/solicitation disclosures (1026.60(b)-(e)).

• HELOC disclosures (1026.40(d) and (e)).

• Initial disclosures (1026.6) and, if applicable, additional HELOC disclosures (1026.40).

• Periodic statement disclosures (1026.7).

• Statement of billing rights and change in terms notice (1026.9(a),(b),(c) or (g)).

• Note and/or contract forms (including those furnished to dealers).

• Notice of Right to Rescind/Cancel (1026.15(b), 1026.23(b)(1)) and 1026.47(c)(4).

• Loan Estimate (1026.19(e) and 1026.37).

• Closing Disclosure (1026.19(f) and 1026.38).

• Special information booklet (1026.19(g)).

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• Other closed-end credit transaction disclosures not subject to 12 CFR 1026.19(e) or (f)

(1026.17(a) and 1026.18).

• ARM disclosures (1026.19(b)).

• High-cost mortgage disclosures (1026.32(c)).

• Reverse mortgage disclosures (1026.33(b)).

• Private education loan disclosures (1026.47).

Closed-End Credit Disclosure Forms Review Procedures

Closed-end consumer credit transactions secured by real property, other than a reverse mortgage

subject to section 1026.33, are subject to the disclosure, timing, and other requirements under the

TILA-RESPA Integrated Disclosure rule (TILA-RESPA or TRID). Thus, for most closed-end

mortgages, including construction-only loans and loans secured by vacant land or by 25 or more

acres, creditors must provide the Loan Estimate and the Closing Disclosure. There is a partial

exemption in section 1026.3(h) from the requirement to provide the Loan Estimate and Closing

Disclosure if the loan is (i) a subordinate lien; (ii) a loan for home buyer assistance, such as

down payments or closing costs, rehabilitation loans, energy efficiency assistance, or foreclosure

prevention; (iii) a loan that does not require the payment of interest; (iv) a loan for which

repayment that is forgiven, deferred for 20 years, or deferred until the property is sold or is no

longer the consumer’s principal dwelling; and (v) a loan where the total costs of the transaction

are less than one percent of the loan and include fees only for recording, application, and housing

counseling. For those transactions, creditors must provide other applicable TILA disclosures.

NOTE: a creditor may not use the TRID forms instead of the GFE, HUD-1, and Truth in

Lending forms for transactions that continue to be covered by the remaining disclosure

requirements of TILA or RESPA (e.g., reverse mortgages) or before the effective date of the

TRID Rule (August 1, 2015). (1026.19(e), (f)).

Closed-End Credit Disclosure Forms – For transactions

under 1026.19(e) and (f)

1. For a closed-end credit transaction subject to sections 1026.19(e) and (f), determine whether

the creditor provides disclosures required under 1026.37 (Loan Estimate) and 1026.38

(Closing Disclosure). (1026.19(e) and 1026.19(f))

a. For loans subject to section 1026.19(e), determine whether the creditor provides the good

faith disclosures in the form required by 1026.37 and conforming to the Loan Estimate in

appendix H (1026.19(e), 1026.37(o)).

b. For loans subject to section 1026.19(f), determine whether the creditor provides the

Closing Disclosure in the form required by 1026.38 and conforming to the Closing

Disclosure attached at appendix H (1026.19(f), 1027.38(t)).

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NOTE: Use of the Loan Estimate and Closing Disclosure is mandatory for RESPA- covered

transactions. For transactions not covered by RESPA, the Loan Estimate and Closing

Disclosure may be considered a model form.

Loan Estimate – Section 1026.37(a) (Page 1 of the

Loan Estimate)

1. Loan Estimate. Determine whether the disclosures required for the Loan Estimate are

accurately completed and include the following disclosures on the first page (1026.37(a)).

Disclosures are detailed below according to the designations made on the Loan Estimate form:

a. The statement: “Save this Loan Estimate to compare with your Closing Disclosure”

(1026.37(a)(2));

b. Name and address of creditor. (1026.37(a)(3));

c. Date Issued. (1026.37(a)(4));

d. Applicants. (1026.37(a)(5));

e. Property. The property address, including zip code (1026.37(a)(6));

f. Sales Price/ Prop. Value (estimated value where there is no seller). (1026.37(a)(7));

g. Loan Term. Stated in years, months, or both, as applicable (1026.37(a)(8));

h. Purpose. Loan purpose, categorized as “Purchase,” “Refinance,” or “Construction.” All

other loan purposes must be categorized as “Home Equity Loan” (1026.37(a)(9));

i. Product. Product type, including the type of interest rate categorized as “Adjustable

Rate,” “Step Rate,” or “Fixed Rate.” This disclosure must be preceded by the type of

feature that may change the consumer’s periodic payment, such as “Negative

Amortization,” “Interest Only,” “Step Payment,” “Balloon Payment,” or “Seasonal

Payment,” with the duration of any introductory rate or payment period and the first

adjustment period if applicable (1026.37(a)(10)(i)-(iii));

j. Loan Type. Categorized as “Conventional,” “ FHA,” “VA,” or “Other” (1026.37(a)(11));

k. Loan ID #. (1026.37(a)(12)); and

l. Rate Lock. A statement of whether the disclosed rate is locked for a specific period. If so,

the date and time (including time zone) that the lock will expire, along with an

accompanying statement that the interest rate, any points, and any lender credits may

change unless the interest rate has been locked (1026.37(a)(13)).

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Loan Terms – Section 1026.37(b) (Page 1 of the

Loan Estimate)

1. Loan Terms. Determine whether, under the heading “Loan Terms,” all disclosures are

completed and accurate (1026.37(b)):

a. Loan Amount. (1026.37(b)(1));

b. Interest Rate. (1026.37(b)(2));

c. Principal and Interest. The applicable unit period (i.e., bi-weekly, monthly, yearly) must

precede the label “Principal and Interest” (1026.37(b)(3));

d. Prepayment Penalty. A statement of whether the loan contains a prepayment penalty, an

affirmative or negative response to the question, the maximum amount of the prepayment

penalty that may be imposed, and the date on which the penalty may no longer be

applied. (1026.37(b)(4), 1026.37(b)(7)(i)) If the date is disclosed (for an affirmative

response), determine whether it is disclosed as the year in which the event occurs,

counting from the date of consummation (1026.37(b)(8)(iii);

e. Balloon Payment. A statement of whether the loan contains a balloon payment, an

affirmative or negative response to the question, the maximum amount of the balloon

payment, and the due date of such payment. (1026.37(b)(5), 1026.37(b)(7)(ii)) If the date

is disclosed (for an affirmative response), determine whether it is disclosed as the year in

which the event occurs, counting from the due date of the initial periodic payment

(1026.37(b)(8)(ii)); and

f. Whether the loan amount, interest rate, or monthly principal and interest can increase

after closing (1026.37(b)(6)) and, if so, the information required by 1026.37(b)(6)(i)-(iii)

and 1026.37(b)(8)(i)-(ii).

Projected Payments – Section 1026.37(c) (Page 1 of the

Loan Estimate)

1. Projected Payments. Determine whether, under the heading “Projected Payments”

(1026.37(c))):

a. All required fields in the table are completed, follow the formatting and statement

requirements, are accurate, and itemize the periodic payments or range of payments

together with an itemized estimate of taxes, insurance, assessments, and payments to be

made with escrow account funds (1026.37(c)(1) – (5));

b. Each separate periodic payment or range of payments is itemized as follows

(1026.37(c)(2)):

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i. Principal and Interest. The amount payable for principal and interest, including the

term “only interest” if the payment or range of payments includes any interest only

payment (1026.37(c)(2)(i));

A. Adjustable Rate Loans. The maximum principal and interest payment must be

determined by assuming that the interest rate in effect throughout the loan term is

the maximum possible interest rate. The minimum amounts must be determined

by assuming that the interest rate in effect throughout the loan term is the

minimum possible interest rate (1026.37(c)(2)(i)(A));

B. Adjustable Rate and Negative Amortization Loans. The maximum principal and

interest amounts (after the loan term period for which the loan principal balance

may increase) must be determined by assuming the maximum principal amount

permitted under the terms of the legal obligation at the end of the loan term

period. The minimum amounts must be determined by assuming that the interest

rate in effect throughout the loan term is the minimum possible interest rate

(1026.37(c)(2)(i)(B));

ii. Mortgage Insurance. The maximum amount payable for mortgage insurance

premiums corresponding to the principal and interest payment disclosed

(1026.37(c)(2)(ii));

iii. Escrow. The amount payable into an escrow account to pay some or all of the charges

described in 1026.37(c)(2)(iii). If estimates are used for property taxes and

homeowner’s insurance, they must reflect (1026.37(c)(5)):

A. The taxable assessed value of the real property securing the transaction after

consummation, including the value of any improvements on the property or to be

constructed on the property if known. The disclosure must be made whether or

not such construction will be financed from the proceeds of the transaction for

property taxes (1026.37(c)(5)(i)); and

B. The replacement costs of the property during the initial year after the transaction,

defined as premiums or other charges for insurance against loss of or damage to

property, or against liability arising out of ownership or use of property

(1026.37(c)(5)(ii));

iv. Total Monthly Payment. The total periodic payment, calculated as the sums disclosed

as the “Principal and Interest,” “Mortgage Insurance,” and “Escrow.”

(1026.37(c)(2)(iv));

NOTE: The headings noted for the Projected Payments table must be listed under the

master heading “Payment Calculation” (1026.37(c)(3)(i)).

c. If the amount of a periodic monthly payment may change, additional, separate periodic

payments or range of payments have been disclosed. Events requiring additional

disclosure(s) include: (i) the change of the periodic principal and interest payment or

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range of such payments, (ii) a scheduled balloon payment, (iii) the automatic termination

of mortgage insurance, or (iv) the anniversary of the due date of the initial periodic

payment or range of payments immediately following the occurrence of a change in the

principal and interest payment or range of such payments (1026.37(c)(1)(i));

d. The creditor has met the following in disclosing a range of payments (1026.37(c)(1)(iii)):

i. The creditor has disclosed both the minimum and maximum amount for both the

principal and interest payment and the total periodic payment (1026.37(c)(1)(iii));

ii. The creditor has accurately disclosed a range of payments where multiple events are

combined into a single range of payments in order to meet the requirement that only

four disclosures may be made (1026.37(c)(1)(iii)(A));

iii. The creditor has accurately disclosed a range of payments where multiple events

occur during a single year or an event occurs during the same year as the initial

periodic payment or range of payments. If the event occurs during the same year as

the initial periodic payment or range of payments, the creditor has disclosed the range

that would apply during the year in which the events will occur

(1026.37(c)(1)(iii)(B));

iv. The creditor has accurately disclosed a range of payments if the periodic principal

and interest payment may adjust based on index rates at the time an interest rate

adjustment may occur (1026.37(c)(1)(iii)(C));

e. The creditor has not disclosed more than four separate periodic payments or ranges of

payments. (1026.37(c)(1)( ii)):

i. If additional separate periodic payments or range of payments disclosures are

required after the third separate periodic payment or range of payment disclosure, and

the transaction does not involve a balloon payment, determine whether the creditor

has disclosed the additional separate periodic payment or range of payments as a

single fourth range of payments disclosure. (1026.37(c)(1)(ii));

ii. If additional separate periodic payments or range of payments disclosures are

required and the transaction involves a final balloon payment, determine whether the

creditor has disclosed the additional separate periodic payment or range of payments

as a single range of payments after the second separate periodic payment disclosure.

Disclosure of the final balloon payment must appear as the final disclosure, under the

heading “Final Payment.” (1026.37(c)(1)(ii)(A), 1026.37(c)(3)(iii)); and

iii. The automatic termination of mortgage insurance requires disclosure of an additional

separate periodic payment or range of payments only if the total number of separate

periodic payments or ranges of payments does not exceed three

(1026.37(c)(1)(ii)(B));

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iv. Each separate periodic payment or range of payments must be disclosed under a

subheading stating the years of the loan during which that payment or range of

payments will apply. The years must be disclosed in sequence of whole years from

the due date of the initial periodic payment (1026.37(c)(3)(ii));

NOTE: See the Narrative for further discussion of requirements related to the Projected

Payments table.

f. Taxes, Insurance, and Assessments. Determine whether the creditor accurately discloses

(1026.37(c)(4)):

i. The sum of all mortgage-related obligations, expressed as a monthly amount, even if

no escrow account for the payment of some or any of such charges will be established

(1026.37(c)(4)(ii));

NOTE: Mortgage-related obligations, as used here, takes the definition used in

1026.43(b)(8); however, it does not include amounts identified in 1026.4(b)(5). Amounts

that must be disclosed as “Taxes, Insurance & Assessment” include premiums or other

charges for credit life, accident, health, or loss-of-income insurance; premiums or other

charges for insurance against loss of or damage to property, or against liability arising out

of the ownership or use of property; or premiums or charges paid for debt cancellation or

debt suspension coverage. (1026.43(b)(8))

ii. A statement that the mortgage-related obligations disclosed can increase over time

(1026.37(c)(4)(iii)). If estimates are used for property taxes and homeowner’s

insurance, they must reflect (1026.37(c)(5)):

A. The taxable assessed value of the real property securing the transaction after

consummation, including the value of any improvements on the property or to be

constructed on the property if known. The disclosure must be made whether or

not such construction will be financed from the proceeds of the transaction for

property taxes (1026.37(c)(5)(i)); and

B. The replacement costs of the property during the initial year after the transaction

for premiums or other charges for insurance against loss of or damage to property,

or against liability arising out of ownership or use of property (1026.37(c)(5)(ii));

iii. A statement of whether the mortgage-related obligations include payments for

property taxes; premiums or other charges for insurance against loss of or damage to

property, or against liability arising out of the ownership or use of property; or as

otherwise identified by 1026.43(b)(8). The creditor must disclose whether the

amounts will be paid by the creditor using escrow account funds. (1026.37(c)(4)(iv));

iv. A statement that the consumer must pay separately any mortgage-related obligations

that are not paid by the creditor using escrow account funds (1026.37(c)(4)(v));

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v. A reference to the escrow account information contained on page 2 of the Loan

Estimate, captioned “Initial Escrow Payment at Closing” (1026.37(c)(4)(vi)).

Costs at Closing – Section 1026.37(d) (Page 1 of the

Loan Estimate)

1. Costs at Closing. Determine whether, under the heading “Costs at Closing” the creditor

discloses the Estimated Closing Costs (including Loan Costs and Other Costs, less Lender

Credits) and the Estimated Cash to Close (including Closing Costs), based upon the

calculations required by section 1026.37(f), (g), and (h) (and found on page 2 of the Loan

Estimate). (1026.37(d)(1))

2. Optional Alternative Table for Transactions without a Seller. Determine whether, for

transactions that do not involve a seller, the creditor chose to use the alternative “Cash to

Close” table. If so, determine whether the amount is calculated in accordance with section

1026.37(h)(2)(iv) (Calculating Cash to Close), includes a statement of whether the disclosed

estimated amount is due from or to the consumer; and includes a statement referring the

consumer to the alternative “Calculating Cash to Close” table pursuant to section

1026.37(h)(2) and the model form found in appendix H-24(G). (1026.37(d)(2))

NOTE: See the Narrative for further discussion of requirements related to the Costs at

Closing table.

Website Disclosure – Section 1026.37(e) (Page 1 of the

Loan Estimate)

1. Website Reference. Determine whether the creditor discloses that the consumer may obtain

general information and tools on the Bureau’s website and has included a link to the site

specified in section 1026.37(e). (1026.37(e))

Closing Cost Details: Loan Costs – Section 1026.37(f)

(Page 2 of the Loan Estimate)

1. Loan Costs. Determine on page 2 whether, under the heading “Loan Costs,” the creditor

makes the following disclosures (1026.37(f)):

a. Origination charges. Accurately itemized to reflect each amount and a subtotal of all

amounts that the consumer will pay to each creditor and loan originator for originating

and extending the credit. Determine whether the points paid to the creditor to reduce the

interest rate are itemized separately, as both a percentage of the amount of credit

extended and a dollar amount, and using the label “__% of Loan Amount (Points).”

Determine whether points paid is the first item listed. If points to reduce the interest rate

are not paid, this disclosure must be left blank (1026.37(f)(1));

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b. Services You Cannot Shop For. An accurate itemization, limited to 13 items, of each

amount and subtotal of all amounts that the consumer will pay for settlement services that

the consumer cannot shop for and that are provided by persons other than the creditor or

mortgage broker. Determine whether the terms related to title insurance include “Title” as

an introductory description (1026.37)(f)(2);

c. Services You Can Shop For. An accurate itemization, limited to 14 items, of each amount

and subtotal of all amounts that the consumer will pay for settlement services that the

consumer can shop for and that are provided by persons other than the creditor or

mortgage broker. Determine whether the terms related to title insurance include “Title” as

an introductory description (1026.37)(f)(3));

d. Total Loan Costs. An accurate sum of the subtotals required to be disclosed under

1026.37(f) as Origination Charges, Services You Cannot Shop For and Services You Can

Shop For (1026.37(f)(4)); and

e. Other than as noted in item 1.a. above, determine that items are ordered alphabetically by

label under the applicable subheading. If there are more than the maximum allowable

number of line items, determine that the remaining charges are disclosed in the aggregate

in the last line as “Additional Charges.” (1026.37(f)(5) and (f)(6))

Closing Cost Details: Other Costs – Section 1026.37(g)

(Page 2 of the Loan Estimate)

1. Other Costs. Determine whether the creditor makes the following disclosures (1026.37(g)):

a. Taxes and Other Government Fees. Accurately itemized to reflect amounts to be paid to

state and local governments for taxes and other government fees, including subtotals for

recording fees and other taxes. A separate line must be included for transfer taxes paid by

the consumer. If not charged to the consumer, these fields must be left blank

((1026.37(g)(1));

b. Prepaids. Accurately itemized to reflect amounts to be paid by the consumer in advance

of the first scheduled payment and the subtotals of all such amounts. The disclosures

must follow the required order and include the number of months and the total dollar

amount to be paid at consummation for homeowner’s insurance and mortgage insurance

premiums; the prepaid interest to be paid at consummation, based on daily interest,

number of days, interest rate, and the total to be collected; the number of months for

which property taxes are to be paid; and the amount the consumer will pay at

consummation. If any of these items are not charged to the consumer, the field must be

left blank. A maximum of three additional items may be disclosed (including applicable

time period covered by the payment at consummation and total to be paid) as Prepaids

(1026.37(g)(2));

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c. Initial Escrow Payment at Closing. Accurately itemized to reflect the amounts that the

consumer will be expected to place into an escrow account at consummation to be

applied to recurring periodic charges and subtotals of all amounts. The disclosure must

provide the amount escrowed each month, the number of months of escrow, and the total

amount to be paid into the escrow account by the consumer at consummation.

Homeowner’s insurance premiums, mortgage insurance premiums, and property taxes

must be separately subtotaled. If any of these items are not charged to the consumer, that

field must be left blank. A maximum of five additional items may be disclosed as part of

Initial Escrow Payment at Closing (1026.37(g)(3));

d. Other. An accurate itemization of costs that the consumer is likely to pay, or has

contracted with a person other than the creditor or loan originator to pay, at closing and

of which the creditor is aware at the time of issuing the Loan Estimate. Determine

whether the creditor has used a descriptive label for each such amount and provided the

subtotal of all such amounts. Determine whether the terms related to title insurance

include “Title” as an introductory description and whether the parenthetical description

“(optional)” is used at the end of the label for items disclosing any premiums paid for

separate insurance, warranty, guarantee, or event-coverage products. A maximum of five

items may be disclosed as “Other” (1026.37(g)(4));

e. Total Other Costs. An accurate sum of the subtotals for Taxes and Other Government

Fees, Prepaids, Initial Escrow Payment at Closing, and Other disclosed pursuant to

1026.37(g)(1) through (4) (1026.37(g)(5));

f. Total Closing Costs. Accurate component amounts and sum of the following

(1026.37(g)(6)):

i. D+I. A sum of the Total Loan Costs and Total Other Costs (1026.37(g)(6)(i)); and

ii. Lender Credits. The amount of any lender credits, disclosed as a negative number. If

no such amount is disclosed, this line must be left blank (1026.37(g)(6)(ii)); and

g. Determine that items follow the alphabetical ordering and addenda restrictions of

1026.37(g)(7) and (g)(8).

Closing Cost Details: Calculating Cash to Close – Section

1026.37(h) (Page 2 of the Loan Estimate)

1. Calculating Cash to Close. Determine whether, under the heading “Calculating Cash to

Close,” the creditor has accurately disclosed the total amount of cash or other funds that must

be provided by the consumer at consummation, itemized into the following component

amounts: (1026.37(h)(1))

a. Total Closing Costs. The amount must be disclosed as a positive number

(1026.37(h)(1)(i));

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b. Closing Costs Financed (Paid from your Loan Amount). The amount of any closing costs

to be paid out of loan proceeds, disclosed as a negative number (1026.37(h)(1)(ii));

c. Downpayment/Funds from Borrower. Disclosed:

i. for a purchase transaction, as the amount of the difference between the purchase price

of the property and the principal amount of the loan, as a positive number;

ii. for all other transactions, as the estimated funds from the consumer determined in

calculating “Funds for Borrower” under 1026.37(h)(1)(v) (1026.37(h)(1)(iii));

d. Deposit. Disclosed:

i. for a purchase transaction, as the amount that is paid to the seller or held in trust or

escrow by an attorney or other party under the terms of the agreement for the sale of

the property, as a negative number;

ii. for all other transactions, disclosed as $0 (1026.37(h)(1)(iv));

e. Funds for Borrower. Disclosed as the amount of funds for the consumer, determined by

subtracting the principal amount of the credit extended (excluding any amount disclosed

as closing costs to be financed pursuant to 1026.37(h)(1)(ii)) from the total amount of all

existing debt being satisfied in the transaction (except to the extent the satisfaction of

such existing debt is disclosed as Other Costs under 1026.37(g)) (1026.37(h)(1)(v)):

i. If the calculation yields a positive number, that amount is disclosed under the heading

“Down Payment/Funds from Borrower,” (1026.37(h)(1)(iii)(B)) and $0 is disclosed

under the heading “Funds for Borrower,” under section 1026.37(h)(1)(v)

(1026.37(h)(1)(v)(A));

ii. If the calculation yields a negative amount, the creditor discloses that amount as a

negative number under the heading “Funds for Borrower,” (1026.37(h)(1)(v)) and as

$0 under the heading “Down Payment/Funds from Borrower under section

1026.37(h)(1)(iii)(B)) (1026.37(h)(1)(v)(B));

iii. If the calculation yields “0,” then $0 is disclosed under both headings under sections

1026.37(h)(1)(iii)(B) and (h)(1)(v) (1026.37(h)(1)(v)(C));

f. Seller Credits. Determined by totaling the amount the seller will pay for Total Loan Costs

under 1026.37(f)(4) and Total Other Costs under 1026.37(g)(5)), to the extent known.

This must be disclosed as a negative number (1026.37(h)(1)(vi));

g. Adjustments and Other Credits. Determined by combining the Total Loan Costs

(determined under 1026.37(f)) and Total Other Costs (determined under 1026.37(g)) that

are paid by persons other than the loan originator, creditor, consumer, or seller, together

with any other amounts that are required to be paid by the consumer at closing pursuant

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to a purchase and sale contract. Must be disclosed as a negative number

(1026.37(h)(1)(vii)); and

h. Estimated Cash to Close. The sum of the amounts of the components required for

Calculating Cash to Close disclosed as under 1026.37(h)(1)(i) through (vii)

(1026.37(h)(1)(viii)).

Closing Cost Details: Alternative Calculating Cash to Close

Table for Transactions without a Seller – Section

1026.37(h)(2) (Page 2 of the Loan Estimate)

1. Alternative Calculating Cash to Close Table for Transactions Without a Seller. If the

transaction does not involve a seller and the creditor has chosen to provide the optional

Alternative Calculating Cash to Close table modeled in appendix H-24(G), determine

whether the creditor accurately discloses the total amount of cash or other funds that must be

provided by the consumer as consummation, itemized into the following component amounts

(1026.37(h)(2)):

a. Loan Amount. (1026.37(h)(2)(i));

b. Total Closing Costs. Disclosed as a negative number (1026.37(h)(2)(ii));

c. Total Payoffs and Payments. Disclosed as the total amount of payoffs and payments to be

made to third parties that are not otherwise disclosed, as a negative number

(1026.37(h)(2)(iii));

d. Cash to Close. Disclosed as the amount of cash or other funds due from or to the

consumer and a statement of whether the disclosed estimated amount is due from or to

the consumer. The amount must be calculated as the sum of the amounts disclosed under

“Loan Amount,” “Total Closing Costs,” and “Total Payoffs and Payments.”

(1026.37(h)(2)(iv));

e. Closing Costs Financed (Paid from your Loan Amount). Disclosed as the sum of the

amounts under “Loan Amount,” and “Total Payoffs and Payments.” The sum is disclosed

only to the extent it is greater than “0,” and it is less than or equal to the amount disclosed

under “Total Closing Costs.” (1026.37(h)(2)(v))

NOTE: If a creditor chooses to provide the optional Alternative Calculating Cash to Close table

for transactions without a seller, the alternative table must also be used in the Closing Disclosure.

Closing Cost Details: Adjustable Payment (AP) Table –

Section 1026.37(i) (Page 2 of the Loan Estimate)

1. Adjustable Payment (AP) Table. For loans where the periodic principal and interest payment

may change after consummation based on a factor other than an interest rate adjustment, or

for seasonal payment products as described in section 1026.37(a)(10)(ii)(E), determine

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whether the creditor discloses a separate table under the master headings “Closing Cost

Details” and “Adjustable Payment (AP) Table” that contains the following information and

satisfies the following requirements:

NOTE: The AP table is not to appear where it is inapplicable because the payments after

consummation change for reasons other than an adjustment to the interest rate.

a. Interest Only Payments. The disclosure states yes or no to the question of whether the

transaction is an interest only product under section 1026.37(a)(10)(ii)(B) and, if the

answer is yes, the disclosure states the period during which interest only periodic

payments are scheduled (1026.37(i)(1));

b. Optional Payments. The disclosure states yes or no to the question whether the terms of

the legal obligation expressly provide that the consumer may elect to pay a specified

periodic principal and interest payment in an amount other than the scheduled amount of

the payment, and, if the answer is yes, the disclosure states the period during which the

consumer may elect to make such payments (1026.37(i)(2));

c. Step Payments. The disclosure states yes or no to the question whether the transaction is a

step payment product under section 1026.37(a)(10)(ii)(C) and, if the answer is yes, the

disclosure states the period during which the regular periodic payments are scheduled to

increase (1026.37(i)(3));

d. Seasonal Payments. The disclosure states yes or no to the question whether the

transaction is a seasonal payment product under section 1026.37(a)(10)(ii)(E) and, if the

answer is yes, the disclosure states the period during which periodic payments are not

scheduled (1026.37(i)(4));

e. Principal and Interest Payments. This label is immediately preceded by the applicable

unit period, and the disclosures must contain the following information:

i. The number of the payment of the first periodic principal and interest payment that

may change under the terms of the legal obligation (counting from the first periodic

payment due after consummation), and the amount or range of the periodic principal

and interest payment for such payment, labeled “First Change/Amount”

(1026.37(i)(5)(i));

ii. The frequency of subsequent changes to the periodic principal and interest payment,

labeled “Subsequent Changes” (1026.37(i)(5)(ii)); and

iii. The maximum periodic principal and interest payment that may occur during the term

of the transaction, and the first periodic principal and interest payment that can reach

such maximum, counting from the first periodic payment due after consummation,

labeled “Maximum Payment” (1026.37(i)(5)(iii)).

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Closing Cost Details: Adjustable Interest Rate (AIR) Table

– Section 1026.37(j) (Page 2 of the Loan Estimate)

1. Adjustable Interest Rate (AIR) Table. If the interest rate may increase after consummation,

determine whether the creditor discloses, as a separate table under the master headings

“Closing Cost Details” and “Adjustable Interest Rate (AIR) Table,” the following

information and satisfies the following requirements: (1026.37(j))

NOTE: The AIR table is not to appear where it is inapplicable because the interest rate does

not adjust after consummation.

a. Index + Margin. Disclosed if the interest rate may adjust and the product type is not a

“Step Rate” under section 1026.37(a)(10)(i)(B). The disclosure must show the index

upon which the adjustments to the interest rate are based and the margin that is added to

the index to determine the interest rate (1026.37(j)(1);

b. Interest Rate Adjustments. If the product type is a “Step Rate” and not also an

“Adjustable Rate” under section 1026.37(a)(10)(i)(A), the disclosure must show the

maximum amount of any adjustments to the interest rate that are scheduled and

predetermined (1026.37(j)(2));

c. Initial Interest Rate. The disclosure must show the initial interest rate at consummation of

the loan transaction (1026.37(j)(3));

d. Minimum and Maximum Interest Rates. The disclosure must show the minimum and

maximum interest rates for the loan, after any introductory period expires (1026.37(j)(4);

e. Change Frequency. The disclosure must show the month when the interest rate after

consummation may first change, calculated from the date interest for the first scheduled

periodic payment begins to accrue, labeled “First Change;” and the frequency of interest

rate adjustments after the initial adjustment to the interest rate, labeled, “Subsequent

Changes” (1026.37(j);

f. Limits on Interest Rate Changes. The disclosures must show the maximum possible

change for the first adjustment of the interest rate after consummation, labeled “First

Change;” and the maximum possible change for subsequent adjustments of the interest

rate after consummation, labeled “Subsequent Changes.” (1026.37(j)

Additional Information About This Loan – Section

1026.37(k) (Page 3 of the Loan Estimate)

1. Additional Information About This Loan. Determine whether the creditor accurately

discloses contact and NMLSR information as follows:

a. Lender/Mortgage Broker. The name and “NMLS ID/License ID” for the creditor

(“Lender”) and the mortgage broker, if any. If the creditor or mortgage broker has not

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been assigned an NMLSR ID, the license number or other unique identifier issued to the

creditor or mortgage broker by the applicable jurisdiction or regulating body must be

disclosed, with the abbreviation for the state of the applicable jurisdiction or regulatory

body stated before the word “License” in the label, if any (1026.37(k)(1));

b. Loan Officer. The name and NMLSR ID of the individual loan officer of the creditor and

the mortgage broker, if any, who is the primary contact for the consumer. If the

individual loan officer has not been assigned an NMLSR ID, the license number or other

unique identifier issued by the applicable jurisdiction or regulating body with which the

loan officer is licensed and/or registered shall be disclosed, with the abbreviation for the

state of the applicable jurisdiction or regulatory body stated before the word “License” in

the label, if any (1026.37(k)(2)); and

c. Email/Phone (respectively). The email address and telephone number of the loan officer.

(1026.37(k)(3))

Additional Information About This Loan: Comparisons –

Section 1026.37(l) (Page 3 of the Loan Estimate)

1. Comparisons. Determine whether the creditor accurately discloses the following information

for comparison purposes and includes the statement “Use these measures to compare this

loan with other loans” (1026.37(l):

a. In 5 years (1026.37(l)(l));

i. The total principal, interest, mortgage insurance, and loan costs scheduled to be paid

through the end of the 60th month after the due date of the first periodic payment,

expressed as a dollar amount, along with the statement “Total you will have paid in

principal, interest, mortgage insurance, and loan costs;” and

ii. The principal scheduled to be paid through the end of the 60th month after the due

date of the first periodic payment, expressed as a dollar amount, along with the

statement “Principal you will have paid off;”

b. Annual Percentage Rate (APR). Expressed as a percentage, and the statement “Your costs

over the loan term expressed as a rate. This is not your interest rate.” (1026.37(l)(2)); and

c. Total Interest Percentage (TIP). The total amount of interest that the consumer will pay

over the life of the loan, expressed as a percentage of the amount of credit extended and

the statement “The total amount of interest that you will pay over the loan term as a

percentage of your loan amount” (1026.37(l)(3).

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Additional Information About This Loan: Other

Considerations – Section 1026.37(m) (Page 3 of the

Loan Estimate)

1. Other Considerations. Determine whether the creditor accurately discloses the following

(1026.37(m):

a. Appraisal. For transactions subject to 15 U.S.C. 1639h or 1691(e), as implemented in this

part or Regulation B, 12 CFR part 1002, respectively, a statement, labeled “Appraisal”

that explains (1026.37(m)(1)):

i. The creditor may order an appraisal to determine the value of the property identified

in section 1026.37(a)(6) and may charge the consumer for that appraisal;

ii. The creditor will promptly provide the consumer a copy of any appraisal, even if the

transaction is not consummated; and

iii. The consumer may choose to pay for an additional appraisal of the property for the

consumer's use;

b. Assumption. A statement of whether a subsequent purchaser of the property may be

permitted to assume the remaining loan obligation on its original terms (1026.37(m)(2);

c. Homeowner's Insurance. At the option of the creditor, a statement that homeowner's

insurance is required on the property and that the consumer may choose the insurance

provider (1026.37(m)(3);

d. Late Payment. A statement detailing any charge that may be imposed for a late payment,

stated as a dollar amount or percentage charge of the late payment amount, and the

number of days that a payment must be late to trigger the late payment fee

(1026.37(m)(4);

e. Refinance. The following statement: “Refinancing this loan will depend on your future

financial situation, the property value, and market conditions. You may not be able to

refinance this loan.” (1026.37(m)(5));

f. Servicing. A statement of whether the creditor intends to service the loan or transfer the

loan to another servicer (1026.37(m)(6));

g. Liability after Foreclosure. If the purpose of the credit transaction is to refinance an

extension of credit as described in section 1026.37(a)(9)(ii), a brief statement that certain

state law protections against liability for any deficiency after foreclosure may be lost, the

potential consequences of the loss of such protections, and a statement that the consumer

should consult an attorney for additional information (1026.37(m)(7)); and

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h. Construction Loans. In a transaction that involves a new construction, if the creditor

reasonably expects settlement will occur more than 60 days after the Loan Estimate is

issued and wishes to retain the option to provide a revised disclosure, a clear and

conspicuous statement that a revised disclosure may be issued any time prior to 60 days

before consummation. (1026.37(m)(8))

Additional Information About This Loan: Confirm Receipt –

Section 1026.37(n) (Page 3 of the Loan Estimate)

1. Confirm Receipt. If the creditor choses to provide a signature statement, determine whether

the creditor accurately provides the following: “By signing, you are only confirming that you

have received this form. You do not have to accept this loan because you have signed or

received this form.” If the creditor does not include a line for the consumer's signature, the

creditor discloses the following statement (labeled “Loan Acceptance”): “You do not have to

accept this loan because you have received this form or signed a loan application.”

(1026.37(n))

Form of Disclosures – Section 1026.37(o)

1. Form of disclosures.

Determine whether the creditor made the disclosures required by

section 1026.37 clearly and conspicuously in writing, in a form that the consumer may keep,

with disclosures grouped together and segregated from everything else, containing only the

information required by 1026.37 (a) through (n), made in the same order, and positioned

relative to the master headings, headings, subheadings, labels, and similar designations in the

same manner, as shown in form H-24, set forth in appendix H (1026.37(o)(1) and (2):

a. Form H-24 required. Determine whether, for a transaction subject to section 1026.19(e)

that is a federally related mortgage loan, as defined in Regulation X, 12 CFR 1024.2, the

creditor uses form H-24, set forth in appendix H (1026.37(o)(3)(i)); or

b. Substantially similar disclosures. Determine whether the creditor makes the disclosures

with headings, content, and format substantially similar to form H-24, set forth in

appendix H for any other transaction subject to sections 1026.37 and (1026.37(o)(3)(ii))

c. Rounding - nearest dollar. Determine whether the creditor accurately rounds the

following figures to the nearest whole dollar disclosed pursuant to sections

(1026.37(o)(4)(i)(A)):

i. The dollar amounts for Loan Terms required by section 1026.37(b)(6)-(7), (i.e.,

adjustments after consummation and details about prepayment penalty and balloon

payments);

Limited changes to the disclosure forms are permitted, including substitution of “monthly” with the applicable unit period,

making disclosures in languages other than English, and the creditor’s logo in the space allotted for the identification of the

creditor. (1026.37(o)(5)).

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ii. The dollar amounts for Projected Payments or range of payments required by section

1026.37(c)(1)(iii) (i.e., minimum and maximum amounts of principal and interest for

projected periodic payments or range of payments);

iii. The dollar amounts for Mortgage Insurance required to be disclosed by section

1026.37(c)(2)(ii) (i.e., itemization of maximum amount of mortgage insurance

premiums);

iv. The dollar amounts for Escrow required to be disclosed by section 1026.37(c)(2)(iii);

v. The dollar amounts for Taxes, Insurance, and Assessments required to be disclosed

by 1026.37(c)(4)(ii);

vi. The dollar amounts for Loan Costs required to be disclosed by 1026.37(f) (i.e.,

Origination Charges, Services You Cannot Shop For, Services You Can Shop For,

and Total Loan Costs);

vii. The dollar amounts for Other Costs required by 1026.37(g) (i.e., Taxes and Other

Government Fees, Prepaids, Initial Escrow Payment at Closing, Other, Total Other

Costs, and Total Closing Costs) except as noted for percentages;

viii. The dollar amounts for Calculating Cash to Close required to be disclosed by

1026.37(h);

ix. The dollar amounts for the Adjustable Payment (AP) Table required to be disclosed

by 1026.37(i); and

x. The dollar amounts for Comparisons required to be disclosed by 1026.37(l).

d. No rounding - dollars. Determine that the creditor did not round the following:

(1026.37(o)(4)(i)(A))

i. The per diem amount required by section 1026.37(g)(2)(iii) (prepaid interest paid per

day); and

ii. The figures disclosed pursuant to section 1026.37(g)(3)(i)-(iii) (initial escrow

payment at closing for homeowner’s insurance, mortgage insurance, and property

taxes) and 1026.37(g)(3)(v) (additional escrow items).

e. Loan amount. Determine that the creditor did not round the loan amount disclosed

pursuant to section 1026.37(b)(1) and truncated whole numbers at the decimal point.

(1026.37(o)(4)(i)(B))

f. Total periodic payment. Determine that the creditor accurately rounds the total periodic

payment disclosed pursuant to section 1026.37(c)(2)(iv), if any of the component

amounts of the figures disclosed pursuant to 1026.37(o)(4)(i)(A) are rounded to the

nearest whole dollar. (1026.37(o)(4)(i)(C))

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g. Percentages. Determine that the creditor does not round the following percentage

amounts and discloses them using up to the required number of decimal places

(1026.37(o)(4)(ii)):

i. Three decimal places. The Annual Percentage Rate (APR) disclosed pursuant to

1026.37(l)(2) is disclosed up to three decimal places, and if the amount is a whole

number, the amount is truncated at the decimal point.

ii. Two decimal places. The following percentages are disclosed up to two decimal

places, and if the amount is a whole number, the amount is truncated at the decimal

point for:

A. Interest rate and adjustments after consummation, disclosed pursuant to sections

1026.37(b)(2) and (6);

B. Points as a percentage of the loan amount, disclosed pursuant to section

1026.37(f)(1)(i);

C. Percentage of prepaid interest to be paid per day, disclosed pursuant to section

1026.37(g)(2)(iii);

D. Index + Margin, Initial Interest Rate, Minimum/Maximum Interest Rate, and

Limits on Interest Rate Changes (as disclosed on the Adjustable Interest Rate

(AIR) Table), disclosed pursuant to section 1026.37(j); and

E. Total interest percentage, disclosed pursuant to section

1026.37(l)(3).(1026.37(o)(4)(ii)).

Closing Disclosure – Section 1026.38(a)

1. Determine whether the disclosures required for the Closing Disclosure are accurately

completed and include the following disclosures:

a. Form purpose with the statement: “This form is a statement of final loan terms and

closing costs. Compare this document with your Loan Estimate.” (1026.38(a)(2))

Closing Information – Section 1026.38(a)(3) (Page 1 of

the Closing Disclosure)

1. Closing Information. Determine whether all fields required by 1026.38(a)(3) are complete

and accurate:

a. Date Issued. Indicating the date disclosures are delivered (1026.38(a)(3)(i));

b. Closing Date. (1026.38(a)(3)(ii));

c. Disbursement Date. (1026.38(a)(3)(iii));

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d. Settlement Agent. (1026.38(a)(3)(iv));

e. File #. Disclosing the identification number assigned to the transaction by the settlement

agent (1026.38(a)(3)(v));

f. Property. The address or location of the property as disclosed in the Loan Estimate

(1026.38(a)(3)(vi)); and

g. Sale Price/Appraised Prop. Value. For transactions where there is a seller, the sale price,

and where there is no seller, the appraised property value (1026.38(a)(3)(vii)(A)-(B)). If

the creditor disclosed an estimated value, the creditor must use the label “Estimated

Prop. Value.” (Comment 38.(a)(3)(vii)-1)

Transaction Information – Section 1026.38(a)(4) (Page 1

of the Closing Disclosure)

1. Transaction information. Determine whether all fields required by 1026.38(a)(4) are

complete and accurate:

a. Borrower. The consumer’s name and mailing address (1026.38(a)(4)(i));

b. Seller. Where applicable, the seller’s name and mailing address (1026.38(a)(4)(ii));

c. Lender. The name of the creditor making the disclosure (1026.38(a)(4)(iii)).

Loan Information – Section 1026.38(a)(5) (Page 1 of the

Closing Disclosure)

1. Loan Information. Determine whether all fields required by 1026.38(5) are complete and

accurate:

a. Loan Term. (1026.38(a)(5)(i));

b. Purpose. (1026.38(a)(5)(ii));

c. Product. (1026.38(a)(5)(iii));

d. Loan Type. (1026.38(a)(5)(iv));

e. Loan ID #. (1026.38(a)(5)(v)); and

f. MIC #. The case number for any mortgage insurance policy, if required by the creditor

(1026.38(a)(5)(vi)).

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Loan Terms – Section 1026.38(b) (Page 1 of the Closing

Disclosure)

1. Loan Terms. Determine whether the creditor discloses, in a separate table labeled “Loan

Terms,” the information required to be disclosed on the Loan Estimate under section

1026.37(b) reflecting the terms of the legal obligation at consummation (1026.38(b)).

Projected Payments – Section 1026.38(c) (Page 1 of the

Closing Disclosure)

1. Projected Payments. Determine whether the creditor discloses, in a separate table labeled

“Projected Payments,” the projected payments or range of payments (in the same manner as

required on the Loan Estimate under section 1026.37(c)(1) through (4)(v)) reflecting the

terms of the legal obligation at consummation. Determine whether the creditor referred to the

Escrow Account disclosure required by 1026.38(l)(7) and calculated the estimated escrow

payments (1026.38(c)(1)-(2)):

a. For transactions subject to RESPA, under the escrow account analysis described in

Regulation X, 12 CFR 1024.17 (1026.38(c)(1)(i)); and

b. For transactions not subject to RESPA, either calculated under the escrow account

analysis described in Regulation X, 12 CFR 1024.17, or in the manner set forth in section

1026.37(c)(5), (1026.38(c)(1)(ii)).

Costs at Closing – Section 1026.38(d) (Page 1 of the

Closing Disclosure)

1. Costs at Closing. Determine whether the creditor discloses:

a. Closing Costs. Disclosed as the sum of the dollar amounts disclosed on page 2 of the

Closing Disclosure, pursuant to sections1026.38(f)(4) (Loan Costs), 1026.38(g)(5) (Other

Costs), and 1026.38(h)(3) (Lender Credits), together with a statement referring the

consumer to the disclosures on page 2 (1026.38(d)(i)(A)-(E));

b. Cash to Close. Disclosed as the sum of the dollar amounts calculated in accordance with

the Calculating Cash to Close table (1026.38(i)(9)(ii)), together with a statement referring

the consumer to the disclosures on page 2 (1026.38(d)(ii)(A) – (B)); or

c. Cash to Close (Alternative for transactions without a seller). Disclosed as the amount

calculated according to 1026.38(e)(5)(ii), together with a statement of whether the

amount is due from or to the consumer and a reference to the Alternative Calculating

Cash to Close table required pursuant to 1026.38(e), (1026.38(d)(2)(i) – (iii)).

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Closing Cost Details: Loan Costs – Section 1026.38(f)

(Page 2 of the Closing Disclosure)

1. Loan Costs. Determine whether the creditor disclosed all costs associated with the

transaction, with columns stating whether the charge was borrower-paid at or before closing,

seller-paid at or before closing, or paid by others, under the following subheadings:

a. Origination Charges. Itemized amounts paid for charges disclosed on the Loan

Estimate (1026.37(f)(1)) and the total of Borrower-Paid amounts paid at or before

closing; together with:

i. The compensation paid by the creditor to a third-party loan originator, and

ii. The name of the third-party loan originator receiving payment (1026.38(f)(1));

b. Services Borrower Did Not Shop For. Itemized costs for each settlement service the

creditor required but did not allow the consumer to shop for, with name of recipient,

amount, and total costs designated Borrower-Paid at or before closing. Items listed in the

Loan Estimate (1026.37(f)(3)) are disclosed here if the consumer was provided a written

list of settlement service providers under section 1026.19(e)(1)(vi)(C), and the consumer

selected a settlement service provider from that written list (1026.38(f)(2));

c. Services Borrower Did Shop For. Itemized costs for each service required by the creditor,

that the consumer shopped for in accordance with section 1026.19(e)(1)(vi)(A), with the

amount, the name of recipient, and the total costs designated as Borrower-Paid at or

before closing. If these items were disclosed on the Loan Estimate pursuant to

1026.37(f)(3), they are disclosed here if the consumer was provided a written list of

settlement service providers and did not select a settlement service provider from that

written list (1026.38(f)(3));

d. Total Loan Costs (Borrower-Paid). The sum of the amounts disclosed under section

1026.38(f)(5) as Borrower-Paid for the origination charge, services the borrower did not

shop for, and services the borrower did shop for (1026.38(f)(4));

e. Loan Costs Subtotals. Calculation of the total borrower-paid costs at or before closing,

showing each subtotal for the origination charge, services the borrower did not shop for,

and services the borrower did shop for. (1026.38(f)(5))

Closing Cost Details: Other Costs – Section 1026.38(g)

(Page 2 of the Closing Disclosure)

1. Other Costs. Determine whether the creditor disclosed all costs associated with the

transaction (other than those disclosed in the “Loan Costs” table) with columns stating

whether the charge was borrower-paid at or before closing, seller-paid at or before closing or

paid by others, including:

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a. Taxes and Other Government Fees. All taxes and government fees to be paid by the

borrower at or before closing, including recording fees and transfer taxes, accurately

itemized. Determine that the itemized transfer tax is accompanied by the name of the

government entity assessing the transfer tax. (1026.38(g)(1)(i)-(ii))

b. Prepaids. Accurately itemized prepaid charges described in the borrower’s Loan

Estimate as required by 1026.37(g)(2); the name of the person ultimately receiving the

prepaid payment or the government entity assessing the property tax charged; and the

total of all amounts designated as Borrower-Paid at or before closing. (1026.38(g)(2))

c. Initial Escrow Payment at Closing. Accurate itemizations of each escrow amount

required at closing as described on the borrower’s Loan Estimate pursuant to section

1026.37(g)(3) (e.g., homeowner’s insurance, mortgage insurance, property taxes, etc.);

applicable aggregate adjustments pursuant to 12 CFR 1024.17(d)(2); and the total of all

amounts designated as Borrower-Paid at or before closing. (1026.38(g)(3))

d. Other. All charges, accurately itemized, for services required or related to the borrower’s

transaction that are in addition to the charges disclosed in the Loan Costs table

(1026.38(f)) and in the preceding sections of the Other Costs table (1026.38(g)(1)-(3)),

for services required or obtained in the real estate closing by the consumer, the seller, or

other party and the name of the person ultimately receiving the payment; and the total of

all such itemized amounts that are designated Borrower-Paid at or before closing, with

the applicable designations for items that are optional or are components of title

insurance services. (1026.38(g)(4)(i)-(ii))

e. Total Other Costs (Borrower--Paid). Accurately totaled and disclosed sum of all amounts

disclosed as Borrower-Paid. (1026.38(g)(5))

f. Other Costs Subtotals. Accurately added individual subtotals in the “Closing Cost Details

– Other Costs” table disclosed under section 1026.38(g)(1)-(4) to produce the total.

(1026.38(g)(6))

Closing Cost Details: Total Closing Costs – Section

1026.38(h) (Page 2 of the Closing Disclosure)

1. Total Closing Costs (Borrower-Paid). Determine whether the creditor:

a. Follows the description, labeling, and ordering requirements for this table;

(1026.38(h)(4)) and

b. Accurately discloses the following closing costs totals:

i. Total Closing Costs (Borrower-Paid). The sum of subtotals for Closing Costs

(1026.38(h)(2)) and Lender Credits (1026.38(h)(3)) (i.e., the following two items in

this list). (1026.38(h)(1))

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ii. Closing Costs Subtotals. Consisting of the sum of “Loan Cost Subtotals”

(1026.38(f)(5) and the “Other Costs Subtotals” (1026.38(g)(6)), designated as

Borrower-Paid at or before closing; and the sum of costs paid at and before closing by

the seller or other parties (as disclosed pursuant to sections 1026.38(f) and (g)).

(1026.38(h)(2))

iii. Lender Credits. For general credits from the creditor for closing costs (as described in

section 1026.37(g)(6)(ii), shown as a negative number, and designated as Borrower-

Paid at closing. (1026.38(h)(3))

NOTE: Credits that are for specific charges should be reflected in the Paid by Others

column in the Closing Cost Details table (with a notation of “(L)” for lender permitted)

under sections 1026.38(f) and (g). (1026.38(h)(3); Comment 38(h)(3)-1)

A. If a refund is provided pursuant to section 1026.19(f)(2)(v), determine whether

the creditor has provided a statement explaining that the refund (the amount

described in the Loan Estimate under 1026.37(g)(6)(ii)) includes a credit for the

amount that exceeds the limitations on increases in closing costs under

1026.19(e)(3), and the amount of such credit.

Calculating Cash to Close – Section 1026.38(i) (Page 3 of

the Closing Disclosure)

1. Calculating Cash to Close. Determine whether the creditor, for each of the following items,

accurately includes the amount from the Loan Estimate, compared to the amount disclosed in

the “Final” column, and provides the necessary answer to the question “Did This Change?”

(with items in the latter column disclosed more prominently than other disclosures)

(1026.38(i)(1)(i)-(iii)):

a. Total Closing Costs. The Total Closing Costs on the Calculating Cash to Close table of

the Loan Estimate disclosed under 1026.37(h)(1)(i) compared to the final “Total Closing

Costs” disclosed under 1026.38(h)(1), and:

i. If the amounts are different (unless due to rounding), the creditor has provided:

(1026.38(i)(1)(i)-(ii))

A. A statement of that fact, and (1026.38(i)(1)(iii)(A)(1))

B. If the difference in the “Total Closing Costs” is attributable to differences in

itemized charges that are included in either or both subtotals, a statement that the

consumer should see the Total Loan Costs (under 1026.38(f)(4)) and Total Other

Costs (under 1026.38(g)(5)) subtotals (together with references to such

disclosures), as applicable; and (1026.38(i)(1)(A)(2))

C. If the increase exceeds the limitations on increases in closing costs under

1026.19(e)(3), a statement that such increase exceeds the legal limits by the dollar

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amount of the excess, and if any refund is provided pursuant to 1026.19(f)(2)(v), a

statement directing the consumer to the disclosure required under section

1026.38(h)(3). The dollar amount must equal the sum total of all excesses of the

limitations on increases in closing costs under 1026.19(e)(3), taking into account

the different methods of calculating excesses of the limitations on increases in

closing costs under 1026.19(e)(3)(i) and (ii). (1026.38(i)(1)(iii)(A)(3))

ii. If the amount disclosed under section 1026.38(i)(1)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed under section 1026.38(i)(1)(i) (i.e., amount

copied over from the Loan Estimate), a statement of that fact. (1026.38(i)(1)(iii)(B))

b. Closing Costs Paid Before Closing. Under the subheading “Loan Estimate,” the dollar

amount “$0,” compared to the final amount of “Total Closing Costs” disclosed under

section 1026.38(h)(2) and designated as Borrower-Paid before closing, stated as a

negative number, and (1026.38(i)(2)(i)-(iii)):

i. If these amounts are different (unless the difference is due to rounding), the creditor

has provided a statement of that fact, along with a statement that the consumer paid

such amounts prior to consummation of the transaction (1026.38(i)(2)(iii)(A)); or if

the amount disclosed under section 1026.38(i)(2)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed under section 1026.38(i)(2)(i) (i.e., $0), a

statement of that fact; (1026.38(i)(2)(iii)(B))

c. Closing Costs Financed (Paid from your Loan Amount). Under the subheading “Loan

Estimate,” the amount disclosed on Calculating Cash to Close table on the Loan Estimate

under 1026.37(h)(1)(ii), compared to the actual amount of the closing costs that are to be

paid out of loan proceeds, if any, stated as a negative number (1026.38(i)(3)(i)-(iii)); and

i. If the amounts are different (unless the difference is due to rounding), a statement of

that fact, along with a statement that the consumer included the closing costs in the

loan amount, which increased the loan amount (1026.38(i)(3)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(i)(3)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed pursuant to 1026.38(i)(3)(i) (i.e., amount

copied over from the Loan Estimate), a statement of that fact. (1026.38(i)(3)(iii)(B))

d. Down Payment/Funds from Borrower. For purchase transactions, under the subheading

“Loan Estimate,” the Down Payment/Funds from Buyer amount disclosed on the

Calculating Cash to Close table on the Loan Estimate under 1026.37(h)(1)(iii), compared

to the difference between the purchase price of the property and the principal amount of

the credit extended, stated as a positive number in the “Final” column. For transactions

that are not purchases, the amount in the “Final” column is determined according to

1026.38(i)(6)(iv), discussed below. (1026.38(i)(4)(i)-(ii))

i. If the amount disclosed under section 1026.38(i)(4)(ii) (i.e., amount in the Final

column) is different, unless due to rounding, from the amount disclosed under section

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1026.38(i)(4)(i) (i.e., amount copied over from the Loan Estimate), a statement of that

fact, along with a statement that the consumer increased or decreased this payment

and can see further details in the “Summaries of Transactions” table

(1026.38(i)(4)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(i)(4)(ii) is equal to the amount

disclosed under section 1026.38(i)(4)(i), a statement of that fact.

(1026.38(i)(4)(iii)(B))

e. Deposit. Under the subheading “Loan Estimate,” the Deposit amount disclosed on the

Calculating Cash to Close table on the Loan Estimate under 1026.37(h)(1)(iv), compared

to the amount listed as “Deposit” on the Summaries of Transactions table on the Closing

Document pursuant to 1026.38(j)(2)(ii), stated as a negative number, (1026.38(i)(5)(i)-

(ii)) and

i. If the amounts are different, unless due to rounding, a statement of that fact, along

with a statement that the consumer increased or decreased this payment, as

applicable, and that the consumer should see the details disclosed under section

1026.38(j)(2)(ii) (i.e., in Section L in the Summaries of Transactions table)

(1026.38(i)(5)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(i)(5)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed 1026.38(i)(5)(i) (i.e., amount copied over

from the Loan Estimate), a statement of that fact. (1026.38(i)(5)(iii)(B))

f. Funds for Borrower. Under the subheading “Loan Estimate,” the amount disclosed on the

Calculating Cash to Close table on the Loan Estimate under 1026.37(h)(1)(v), compared

to the amount listed in the Final column calculated pursuant to 1026.38(i)(6)(iv)

(NOTE: see next item for calculation); (1026.38(i)(6)(i)-(iii)), and

i. If the amounts are different, unless due to rounding, a statement of that fact, along

with a statement that the consumer's available funds from the loan amount have

increased or decreased, as applicable (1026.38(i)(6)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(i)(6)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed 1026.38(i)(6)(i) (i.e., amount copied over

from the Loan Estimate), a statement of that fact. (1026.38(i)(6)(iii)(B))

g. Funds for Borrower. Determine whether the creditor accurately calculates the “Funds for

Borrower” for non-purchase transactions and the final “Funds for Borrower” by

subtracting the principal amount of the credit extended (excluding any amount disclosed

pursuant to 1026.38(i)(3)(ii)) from the total amount of all existing debt being satisfied in

the real estate closing disclosed on the Summaries of Transactions table pursuant to

1026.38(j)(1)(v) (except to the extent the satisfaction of such existing debt is disclosed

under section 1026.38(g)), and (1026.38(i)(6)(iv)).

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i. If the calculation yields a positive number, it is disclosed as described above in the

Final Down Payment/Funds from Borrower column under section

1026.38(i)(4)(ii)(B), and $0 is disclosed as described above in the Final Funds for

Borrower column under 1026.38(i)(6)(ii). (1026.38(i)(6)(iv)(A))

ii. If the calculation under section 1026.38(i)(6)(iv) yields a negative number, it is

disclosed under section 1026.38(i)(6)(ii), as a negative number in the Final Funds for

Borrower column described above, and $0 is disclosed as described above in the Final

Down Payment/Funds from Borrower column under section 1026.38(i)(4)(ii)(B).

(1026.38(i)(6)(iv)(B))

iii. If the calculation under section 1026.38(i)(6)(iv) yields $0, then $0 is disclosed in

both the Final Down Payment/Funds from Borrower column under section

1026.38(i)(4)(ii)(B) and in the Final Funds for Borrower column described above

under section 1026.38(i)(6)(ii). (1026.38(i)(6)(iv)(C))

h. Seller Credits. Under the subheading “Loan Estimate,” the amount disclosed on the

Calculating Cash to Close table on the Loan Estimate under 1026.37(h)(1)(vi), compared

to the amount listed pursuant to 1026.38(j)(2)(v), stated as a negative number

(1026.38(i)(7)(i)-(ii)), and

i. If the amounts are different, unless due to rounding, a statement of that fact, along

with a statement that the consumer should see the details disclosed under section

1026.38(j)(2)(v) (i.e., in Section L in the Summaries of Transactions table)

(1026.38(i)(7)(iii)(A)), or

ii. If the amount disclosed under section 1026.38(i)(7)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed 1026.38(i)(7)(i) (i.e., amount copied over

from the Loan Estimate), a statement of that fact. (1026.38(i)(7)(iii)(B))

i. Adjustments and Other Credits. Under the subheading “Loan Estimate,” the amount

disclosed on the Calculating Cash to Close table on the Loan Estimate under

1026.37(h)(1)(vii), compared to the amount listed pursuant to 1026.38(j)(1)(v) through

(x) (see exam procedures below on Itemization of Amounts Due From Borrower) reduced

by the total of the amounts disclosed under section 1026.38(j)(2)(vi) through (xi) (see

exam procedures below on Itemization of Amounts Already Paid By or On Behalf of

Borrower). (1026.38(i)(8)(i)-(ii))

i. If the amounts are different, unless due to rounding, statement of that fact, along with

a statement that the consumer should see the details disclosed under section

1026.38(j)(1)(v) through (x) and (j)(2)(vi) through (xi) (i.e., in Sections K and L in

the Summaries of Transactions table) (1026.38(i)(8)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(i)(8)(ii) (i.e., amount in the Final

column) is equal to the amount disclosed 1026.38(i)(8)(i) (i.e., amount copied over

from the Loan Estimate), a statement of that fact. (1026.38(i)(8)(iii)(B))

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j. Cash to Close. Under the subheading “Loan Estimate,” the amount disclosed on the

Calculating Cash to Close table on the Loan Estimate under 1026.37(h)(1)(viii), compared

to the amount listed pursuant to 1026.38(i)(1) through (i)(8), and each disclosed more

prominently than the other disclosures in this section. (1026.38(i)(9)(i)-(ii))

Alternative Cash to Close Table for Transactions Without a

Seller – Section 1026.38(e) (Page 3 of the Closing Disclosure)

1. Determine whether, for transactions without a seller, the creditor uses the alternative table in

the Loan Estimate (1026.37(h)(2)), and if so, determine whether the creditor provides,

instead of the table described in section 1026.38(i), a separate table, “Calculating Cash to

Close,” with the statement “Use this table to see what has changed from your Loan

Estimate.” Determine whether the table includes:

a. Loan Amount. Disclosed on the Loan Estimate under 1026.37(b)(1) and the final loan

amount disclosed under section 1026.38(b), disclosed more prominently than other

disclosures in this section, with the question “Did this change?” If the amounts are

different (unless due to rounding), a statement of that fact along with a statement of

whether this amount increased or decreased. If there is no change, a statement of that fact.

(1026.38(e)(1)(i) – (iii))

b. Total Closing Costs. Disclosed on the Loan Estimate under 1026.37(h)(2)(ii) and the final

Total Closing Costs disclosed under section 1026.38(h)(1), disclosed as a negative

number and disclosed more prominently than other disclosures, with the question “Did

this change?” If there is no change, a statement of that fact. (1026.38(e)(2)) If the

amounts are different (unless due to rounding):

i. A statement of that fact.

ii. If there is a change because of differences in itemized charges that are included in

either or both subtotals, a statement that the consumer should look at the Total Loan

Costs and Total Other Costs subtotals disclosed below, together with references to

those disclosures (1026.38(e)(2)(iii)(A)(2)); and

iii. If the increase exceeds the legal limits for increases in closing costs under

1026.19(e)(3); a statement of that fact, the dollar amount of the excess; and, if any

refund is provided, a reference to the disclosure required for including the refund in a

lender credit under section 1026.38(h)(3). (1026.38(e)(2)(A)(3))

c. Closing Costs Paid before Closing. Disclosed under the subheading “Loan Estimate,” the

amount of $0; and under the subheading “Final,” any amount designated as Borrower-

Paid before closing under section 1026.38(h)(2), disclosed as a positive number.

Determine whether these disclosures are disclosed more prominently than other

disclosures, with the question “Did This Change?” If so (unless the difference is due to

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rounding), a statement of that fact. If there is no change, a statement of that fact.

(1026.38(e)(3))

i. If the amount disclosed under section 1026.38(e)(3)(ii) is different than the amount

disclosed under section 1026.38(e)(3)(i), unless due to rounding, a statement of that

fact along with a statement that the consumer paid such amounts prior to

consummation (1026.38(e)(3)(iii)(A)); or

ii. If the amount disclosed under section 1026.38(e)(3)(ii) is equal to the amount

disclosed under section 1026.38(e)(3)(i), a statement of that fact.

(1026.38(e)(3)(iii)(B))

d. Total Payoffs and Payments. Includes the total payoffs and payments disclosed on the

Loan Estimate under section 1026.37(h)(2)(iii) and the final total amount of payoffs and

payments made to third parties not otherwise disclosed under section

1026.38(t)(5)(vii)(B), to the extent known, disclosed as a negative number. Determine

whether these disclosures are disclosed more prominently than other disclosures with the

question “Did This Change?” If so (unless the difference is due to rounding), a statement

of that fact. If there is no change, a statement of that fact. (1026.38(e)(4))

i. If the amount disclosed under section 1026.38(e)(4)(ii) is different than the amount

disclosed under section 1026.38(e)(4)(i)(unless the difference is due to rounding), a

statement that the consumer included the closing costs in the loan amount, which

increased the loan amount, along with a reference to the “Payoffs and Payments”

table that may be added pursuant to 1026.38(t)(5)(viii)(B)) (1026.38(e)(4)); or

ii. If the amount disclosed under section 1026.38(e)(4)(ii) is equal to the amount

disclosed under section 1026.38(e)(4)(i), a statement of that fact.

(1026.38(e)(4)(iii)(B))

e. Cash to Close. The estimated Cash to Close disclosed on the Loan Estimate, along with

the statement of whether the estimated amount is due from or to the consumer, and a

disclosure of the final amount due from or to the consumer.(1026.38(e)(5)(i) – (ii)

f. Closing Costs Financed (Paid from your Loan Amount). Disclosed as the sum of the

amounts disclosed under section 1026.38(e)(1)(ii) and (e)(4)(ii) (i.e., the amounts in the

Final Column of the Loan Amount and Total Payoffs and Payments). However, the

amount is disclosed only to the extent that the sum is greater than zero and less than or

equal to the sum disclosed under section 1026.38(h)(1) (Total Closing Costs) minus the

sum disclosed under section 1026.38(h)(2) designated as Borrower-Paid before closing.

(1026.38(e)(6))

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Summaries of Transactions: Borrower’s Transaction –

Section 1026.38(j) (Page 3 of the Closing Disclosure)

Borrower’s Transaction – Itemization of Amounts Due from

Borrower at Closing (Page 3 of the Closing Disclosure)

1. Due from Borrower at Closing. Determine whether the creditor accurately discloses the total

amount due from the consumer at closing, calculated as the sum of items required to be

disclosed by 1026.38(j)(1)(ii) through (x) (i.e., the items described in this procedure),

excluding items paid from funds other than closing funds as described in section

1026.38(j)(4)(i). Determine whether the creditor completes the summary of the borrower’s

transaction as follows: (1026.38(j)(1))

a. Sale Price of Property. The amount of the contract sales price of the property being sold

in a purchase real estate transaction, excluding the price of any tangible personal property

if the consumer and seller have agreed to a separate price for such items

(1026.38(j)(1)(ii));

b. Sale Price of Any Personal Property Included in Sale. The amount of the sales price of

any tangible personal property excluded from the contract sales price pursuant to section

1026.38(j)(1)(ii) (1026.38(j)(1)(iii));

c. Closing Costs Paid at Closing. The total amount of closing costs disclosed that are

designated Borrower-Paid at closing, calculated pursuant to section 1026.38(h)(2) (see

procedure above regarding Closing Costs Subtotals)(1026.38(j)(1)(iv));

d. A description and the amount of any additional items that the seller has paid prior to the

real estate closing, but reimbursed by the consumer at the real estate closing, and a

description and the amount of any other items owed by the consumer at the real estate

closing not otherwise disclosed pursuant to section 1026.38(f), (g), or (j)

(1026.38(j)(1)(v));

e. The description “Adjustments for Items Paid by Seller in Advance” (1026.38(j)(1)(vi));

f. City/Town Taxes. The prorated amount of any prepaid taxes due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding to that

amount (1026.38(j)(1)(vii));

g. County Taxes. The prorated amount of any prepaid taxes due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding to that

amount (1026.38(j)(1)(viii));

h. Assessments. The prorated amount of any prepaid assessments due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding to that

amount (1026.38(j)(1)(ix)); and

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i. A description and the amount of any additional items paid by the seller prior to the real

estate closing that are due from the consumer at the real estate closing (1026.38(j)(1)(x)).

Borrower’s Transaction – Itemization of Amounts Paid

Already By or On Behalf of Borrower at Closing (Page 3 of

the Closing Disclosure)

1. Paid Already by or on Behalf of Borrower at Closing. Determine whether the creditor

accurately discloses the sum of the amounts disclosed in section 1026.38(j)(2)(ii) through

(xi) (i.e., the items described in this procedure), excluding items paid from funds other than

closing funds as described in section 1026.38(j)(4)(i). Determine whether the creditor

accurately completes the summary of borrower’s transaction as follows (1026.38(j)(2)(i)):

a. Deposit. Any amount that is paid to the seller or held in trust or escrow by an attorney or

other party under the terms of the agreement for the sale of the property

(1026.38(j)(2)(ii));

b. Loan Amount. The amount of the consumer's new loan amount or first user loan as

disclosed pursuant to section 1026.38(b) (1026.38(j)(2)(iii));

c. Existing Loan(s) Assumed or Taken Subject To. The amount of any existing loans that the

consumer is assuming, or any loans subject to which the consumer is talking title to the

property (1026.38(j)(2)(iv));

d. Seller Credit. The total amount of money that the seller will provide at the real estate

closing as a lump sum not otherwise itemized to pay for loan costs as determined by

section 1026.38(f) and other costs as determined by section 1026.38(g) and any other

obligations of the seller to be paid directly to the consumer (1026.38(j)(2)(v));

e. Other Credits. A description and amount of other items paid by or on behalf of the

consumer and not otherwise disclosed pursuant to section 1026.38(f), (g), (h), and (j)(2)

(1026.38(j)(2)(vi));

f. The description “Adjustments for Items Unpaid by Seller” (1026.38(j)(2)(vii));

g. City/Town Taxes. The prorated amount of any unpaid taxes due from the seller to

reimburse the consumer at the real estate closing, and the time period corresponding to

that amount (1026.38(j)(2)(viii)ix));

h. County Taxes. The prorated amount of any unpaid taxes due from the seller to reimburse

the consumer at the real estate closing, and the time period corresponding to that amount

(1026.38(j)(2)(ix);

i. Assessments. The prorated amount of any unpaid assessments due from the seller to

reimburse the consumer at the real estate closing, and the time period corresponding that

amount (1026.38(j)(2)(x)); and

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j. A description and the amount of any additional items which have not yet been paid and

which the consumer is expected to pay after the real estate closing, but which are

attributable in part to a period of time prior to the real estate closing (1026.38(j)(2)(xi)).

Borrower’s Transaction – Calculation of Borrower’s

Transaction (Page 3 of the Closing Disclosure)

1. Calculation. Determine whether the creditor accurately discloses the total amount due from,

and already paid by, the consumer at closing by the following calculation: (1026.38(j)(3))

a. Total Due from Borrower at Closing. The amount disclosed in the Closing Disclosure, on

the line captioned “Due from Borrower at Closing” (1026.38(j)(3)(i));

b. Total Paid Already by or on Behalf of Borrower at Closing. The amount disclosed in the

Closing Disclosure, on the line captioned “Paid Already by or on Behalf of Borrower at

Closing,” if any, disclosed as a negative number (1026.38(j)(3)(ii)); and

c. Cash to Close. A statement that the disclosed amount is due from or to the consumer, and

the amount due from or to the consumer at the real estate closing, calculated by the sum

of the amounts disclosed as the “Total Due from Borrower at Closing” and “Total Paid

Already by or on Behalf of Borrower at Closing” (1026.38(j)(3)(iii)).

2. Paid Outside of Closing. Determine whether the creditor discloses other costs that are not

paid out of closing costs but would otherwise be disclosed; describes the funds as “Paid

Outside of Closing” or the abbreviation “P.O.C.,” and includes the name of the party making

the payment. (1026.38(j)(4)(i))

NOTE: For purposes of section 1026.38(j), “closing funds” means funds collected and

disbursed at real estate closing. (1026.38(j)(4)(ii))

Summaries of Transactions: Seller’s Transaction – Section

1026.38(k) (Page 3 of the Closing Disclosure)

Seller’s Transaction – Itemization of Amounts Due to Seller

at Closing (Page 3 of the Closing Disclosure)

1. Due to Seller at Closing. Determine whether the creditor accurately discloses the total

amount due to the seller at the real estate closing, calculated as the sum of items required to

be disclosed pursuant to section 1026.38(k)(1)(ii) through (ix) (i.e., the items in this

procedure), excluding items paid from funds other than closing funds as described in section

1026.38(k)(4)(i). Determine whether the creditor accurately completes the summary of

seller’s transaction as follows (1026.38)(k)(1)(i)):

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a. Sale Price of Property. The amount of the contract sales price of the property being sold,

excluding the price of any tangible personal property if the consumer and seller have

agreed to a separate price for such items (1026.38(k)(1)(ii));

b. Sale Price of Any Personal Property Included in Sale. The amount of the sales price of

any tangible personal property excluded from the contract sales price pursuant to section

1026.38(k)(1)(ii) (1026.38(k)(1)(iii));

c. A description and the amount of other items paid to the seller by the consumer pursuant

to the contract of sale or other agreement, such as charges that were not disclosed

pursuant to section 1026.37 on the Loan Estimate or items paid by the seller prior to the

real estate closing but reimbursed by the consumer at the real estate closing

(1026.38(k)(1)(iv));

d. The description “Adjustments for Items Paid by Seller in Advance” (1026.38(k)(1)(v));

e. City/Town Taxes. The prorated amount of any prepaid taxes due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding to that

amount (1026.38(k)(1)(vi);

f. County Taxes. The prorated amount of any prepaid taxes due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding to that

amount (1026.38(k)(1)(vii));

g. Assessments. The prorated amount of any unpaid assessments due from the consumer to

reimburse the seller at the real estate closing, and the time period corresponding that

amount (1026.38(k)(1)(viii)); and

h. A description and the amount of additional items paid by the seller prior to the real estate

closing that are reimbursed by the consumer at the real estate closing (1026.38(k)(1)(ix)).

Seller’s Transaction – Itemization of Amounts Due from

Seller at Closing (Page 3 of the Closing Disclosure)

1. Due from Seller at Closing. Determine whether the creditor accurately discloses the sum of

the amounts disclosed in sections 1026.38(k)(2)(ii) through 1026.38(k)(2)(xiii) (i.e., the

items in this procedure), excluding items paid from funds other than closing funds described

in section 1026.38(k)(4)(i). Determine whether the creditor accurately completes the

summary of the seller’s transaction as follows (1026.38(k)(2)(i)):

a. Excess Deposit. The amount of any excess deposit disbursed prior to closing,

(1026.38(k)(2)(ii));

b. Closing Costs Paid at Closing. The amount of closing costs designated Seller-Paid at

closing and disclosed pursuant to section 1026.38(h)(2) (1026.38(k)(2)(iii));

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c. Existing Loan(s) Assumed or Taken Subject To. The amount of any existing loans

assumed or taken subject to by the consumer (1026.38(k)(2)(iv));

d. Payoff of First Mortgage Loan. The amount of a first lien loan secured by the property

being sold that will be paid off at closing (1026.38(k)(2)(v));

e. Payoff of Second Mortgage Loan. The amount of any loan secured by a second lien on

the property that will be paid off as part of the real estate closing (1026.38(k)(2)(vi));

f. Seller Credit. The total amount of seller funds to be provided at closing as a lump sum

that has not otherwise been itemized to pay for loan costs as determined by section

1026.38(f) and other costs as determined by section 1026.38(g) and any other obligations

of the seller to be paid directly to the consumer (1026.38(k)(2)(vii);

g. A description and amount of all other items paid to be paid by the seller at closing,

including any lien-related payoffs, fees, or obligations (1026.38(k)(2)(viii));

h. The description “Adjustments for Items Unpaid by Seller” (1026.38(k)(2)(ix));

i. City/Town Taxes. The prorated amount of unpaid taxes due from the seller to reimburse

the consumer at the real estate closing, and the time period corresponding to that amount

(1026.38(k)(2)(x);

j. County Taxes. The prorated amount of any unpaid taxes due from the seller to the

consumer at the real estate closing, and the time period corresponding to that amount

(1026.38(k)(2)(xi));

k. Assessments. The prorated amount of any unpaid assessments due from the seller to

reimburse the consumer at the real estate closing, and the time period corresponding to

that amount (1026.38(k)(2)(xii)); and

l. A description and the amount of any additional items which have not yet been paid and

which the consumer is expected to pay after the real estate closing, but which are

attributable in part to a period of time prior to the real estate closing (1026.38(k)(2)(xiii)).

Seller’s Transaction – Calculation of Seller’s Transaction

(Page 3 of the Closing Disclosure)

1. Calculation. Determine whether the creditor accurately discloses the total amount due to and

from the seller at closing by the following calculation (1026.38(k)(3)):

a. Total Due to Seller Closing. The amount disclosed in the Closing Disclosure, on the line

captioned “Due from Seller at Closing” (1026.38(k)(3)(i));

b. Total Due from Seller at Closing. The amount disclosed in the Closing Disclosure on the

line captioned “Due from Seller at Closing,” disclosed as a negative number

(1026.38(k)(3)(ii));

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c. Cash. A statement that the disclosed amount is due from or to the seller and the amount

due, calculated by the sum of the amounts disclosed as the “Total Due to Seller at

Closing” and “Total Due from Seller at Closing” (1026.38(k)(3)(iii)).

Seller’s Transaction – Items Paid Outside of Closing Funds

(Page 3 of Closing Disclosure)

1. Determine whether the creditor discloses other costs that are not paid out of closing funds but

would otherwise be disclosed in the Summaries of Transactions: Seller’s Transaction table;

describing the funds as “Paid Outside of Closing” or the abbreviation “P.O.C.,” and

including the name of the party making the payment. (1026.38(k)(4)(i))

NOTE: For purposes of section 1026.38(k), “closing funds” means funds collected and

disbursed at real estate closing. (1026.38(k)(4)(ii))

Payoffs and Payments Table for Transactions Without a

Seller – Section 1026.38(t)(5)(vii)(B) (Page 3 of the

Closing Disclosure)

1. Payoff and Payments. For transactions without a seller, determine whether a creditor, using

an optional modified Closing Disclosure (as illustrated by form H-25(J) in appendix H), has

provided alternative tables for Cash to Close, pursuant to section 1026.38(d)(2), and for

Calculating Cash to Close pursuant to 1026.38(e), and that the creditor itemizes the amounts

of payments made at consummation to other parties from the credit extended to the consumer

or funds provided by the consumer in connection with the transaction, including designees of

the consumer, the payees, and a description of the purpose of such disbursements under the

subheading “To;” and the total amount of such payments (1026.38(t)(5)(vii)(B)).

Additional Information About This Loan: Loan Disclosures

– Section 1026.38(l) (Page 4 of the Closing Disclosure)

1. Loan Disclosures. Determine whether the creditor accurately provides the required

disclosures (1026.38(l)):

a. Assumption. Whether the loan obligations may be assumed by a subsequent purchaser

(1026.38(l)(1));

b. Demand Feature. Whether the legal obligation includes a demand feature, and, if it does,

a reference to the note or other loan contract for details (1026.38(l)(2));

c. Late Payment. The dollar amount or percentage charge of any fee designated as a late

payment (information required on the Loan Estimate by 1026.37(m)(4)) and the number

of days after which such a charge will be triggered (1026.38(l)(3));

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d. Negative Amortization (Increase in Loan Amount). Whether the regular period payments

may cause the principal balance to increase, and:

i. If the regular periodic payments do not cover all of the interest due, the creditor

provides a statement that the borrower’s principal balance will increase, such balance

will likely become larger than the original loan amount, and increases in such balance

lower the consumer’s equity in the property; and

ii. If the consumer may make regular periodic payments that do not cover all of the

interest due, the creditor provides a statement that, if the consumer chooses a monthly

payment option that does not cover all of the interest due, the principal balance may

become larger than the original loan amount and the increases in the principal balance

lower the consumer’s equity in the property. (1026.38(l)(4)(i)-(ii))

e. Partial Payments. Whether the creditor that accepts less than the full amount due has

provided a statement that the “lender,” (using that label) may accept partial payments and

apply such payments to the consumer's loan, and:

i. If periodic payments that are less than the full amount due are accepted but not

applied to a consumer's loan until the consumer pays the remainder of the full amount

due, a statement that the lender may hold partial payments in a separate account until

the consumer pays the remainder of the payment and then apply the full periodic

payment to the consumer's loan;

ii. If periodic payments that are less than the full amount due are not accepted, the lender

does not accept any partial payments; and

iii. A statement that, if the loan is sold, the new lender may have a different policy.

(1026.38(l)(5)(i)-(iv))

f. Security Interest. Whether the creditor states that the consumer is granting a security

interest in the property securing the transaction, and that the borrower may lose the

property if required payments are not made or otherwise fails to satisfy the requirements

of the legal obligation. Determine that the creditor has included the property address and

zip code (1026.38(l)(6));

g. Escrow Account. Whether the creditor states whether it has established, will establish, or

will not establish an escrow account for the consumer in connection with the loan

transaction at or before consummation;

i. Under the reference “For now,”

A. Whether the creditor provides a statement that an escrow account may also be

called an impound or trust account; whether the creditor has established or will

establish, at or before consummation, an escrow account in connection with the

transaction for the costs that will be paid using escrow account funds; that the

creditor may be liable for penalties and interest if it fails to make a payment for

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any cost for which the escrow account is established; and that the consumer

would have to pay such costs directly in the absence of the escrow account;

(1026.38(l)(7)(i) and (l)(7)(i)(A)).Whether, if an escrow account is or will be

established, the creditor accurately discloses the following items based upon the

escrow analysis required under 12 CFR 1024.17, in tabular form:

1) The total amount that the consumer will be required to pay into the account

over the first year after consummation for the payment of the charges

described in section 1026.37(c)(4)(ii) together with a descriptive name of each

such charge calculated as the Monthly Escrow Payment multiplied by the

number of periodic payments scheduled to be made to the escrow account

during the first year after consummation. (1026.38(l)(7)(i)(A)(1))

2) The estimated amount for taxes, insurance, and assessments that the consumer

is likely to pay during the first year after consummation, as described in

1027.37(c)(4)(ii), that are known to the creditor and that will not be paid using

escrow account funds, labeled “Non-Escrowed Property Costs over Year 1,”

together with a descriptive name of each such charge and a statement that the

consumer may have to pay other costs that are not listed.

(1026.38(l)(7)(i)(A)(2))

3) The total amount disclosed and a reference to the disclosure made on the

Closing Disclosure under the heading “Other Costs, Initial Escrow Payment at

Closing,” pursuant to 1026.38(g)(3), and a statement that the payment is a

cushion for the escrow account, labeled “Initial Escrow Payment.”

(1026.38(l)(7)(i)(A)(3))

4) The amount the consumer will be required to pay into the escrow account with

each periodic payment during the first year after consummation for payment

of the charges described in the Loan Estimate pursuant to 1026.37(c)(4)(ii),

labeled “Monthly Escrow Payment.” (1026.38(l)(7)(i)(A)(4))

ii. No Escrow. If an escrow account will not be established for the consumer, determine

whether there is a statement that the consumer will not have an escrow account; the

reason why an escrow account will not be established; a statement that the consumer

must pay all property costs, such as taxes and homeowner's insurance, directly; a

statement that the consumer may contact the creditor to inquire about the availability

of an escrow account; and a table, titled “No Escrow” that itemizes the estimated total

amount the consumer will pay directly for charges described in the Loan Estimate

under 1026.37(c)(4)(ii) during the first year after consummation that are known to the

creditor; and a statement that, without an escrow account, the consumer must pay the

identified costs, possibly in one or two large payments, labeled “Property Costs over

Year 1;” along with the amount of any fee the creditor imposes on the consumer for

not establishing an escrow account in connection with the transaction, labeled

“Escrow Waiver Fee.” (1026.38(l)(7)(i)(B))

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A. Under the reference “In the future,” determine whether the creditor has disclosed

under the reference “In the future:” (1026.38(l)(7)(ii))

1) A statement that the consumer's property costs may change and that, as a

result, the consumer's escrow payment may change; (1026.38(l)(7)(ii)(A))

2) A statement that the consumer may be able to cancel any escrow account that

has been established but that the consumer is responsible for directly paying all

property costs in the absence of an escrow account; (1026.38(l)(7)(ii)(B)) and

3) A description of the consequences if the consumer fails to pay property costs,

including the actions that a state or local government may take if property

taxes are not paid and the actions the creditor may take if the consumer does

not pay some or all property costs, such as adding amounts to the loan

balance, adding an escrow account to the loan, or purchasing a property

insurance policy on the consumer's behalf that may be more expensive and

provide fewer benefits than what the consumer could obtain directly.

(1026.38(l)(7)(ii)(C))

Additional Information About This Loan: Adjustable

Payment (AP) Table – Section 1026.38(m) (Page 4 of the

Closing Disclosure)

1. Adjustable Payment (AP) Table. Determine whether the creditor provides the AP disclosure

required for the Loan Estimate under 1026.37(i). (1026.38(m))

Additional Information About This Loan: Adjustable

Interest Rate (AIR) Table – Section 1026.38(n) (Page 4 of

the Closing Disclosure)

1. Adjustable Interest Rate (AIR) Table. Determine whether the creditor provides the AIR

disclosures required for the Loan Estimate by 1026.37(j). (1026.38(n))

Loan Calculations – Section 1026.38(o) (Page 5 of the

Closing Disclosure)

1. Loan Calculations. Determine whether the creditor provides a separate table and accurately

discloses the following information (1026.38(o)):

a. Total of Payments. Expressed as a dollar amount, and a statement that the disclosure is

the total the consumer will have paid after making all payments of principal, interest,

mortgage insurance, and loan costs, as scheduled (1026.38(o)(1));

b. Finance Charge. Expressed as a dollar amount, and the statement “The dollar amount the

loan will cost you.” The finance charge and other disclosures affected by the disclosed

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finance charge (including the amount financed and the annual percentage rate) is

accurately calculated if the amount disclosed as the finance charge:

i. Is understated by no more than $100; or

ii. Is greater than the amount required to be disclosed. (1026.38(o)(2))

c. Amount Financed. Expressed as a dollar amount, and the following statement: “The loan

amount available after paying your up-front finance charge” (1026.38(o)(3));

d. Annual Percentage Rate (APR). Expressed as a percentage, with the following statement:

“Your costs over the loan term expressed as a rate. This is not your interest rate.”

(1026.38(o)(4));

e. Total Interest Percentage (TIP). Expressed as a percentage; with the following statement:

“The total amount of interest that you will pay over the loan term as a percentage of your

loan amount.” (1026.38(o)(5))

Other Disclosures – Section 1026.38(p) (Page 5 of the

Closing Disclosure)

1. Other Disclosures. Determine whether the creditor accurately provides the following

disclosures:

a. Appraisal. For transactions subject to 15 U.S.C. 1639h or 1691(e), as implemented in this

part or Regulation B, 12 CFR part 1002, respectively, under the subheading “Appraisal:”

(1026.38(p)(1))

i. If there was an appraisal of the property in connection with the loan, the creditor is

required to provide the consumer with a copy at no additional cost to the consumer at

least three days prior to consummation; (1026.38(p)(1)(i)) and

ii. If the consumer has not yet received a copy of the appraisal, the consumer should

contact the creditor using the information disclosed in the Closing Disclosure.

(1026.38(p)(1)(ii))

b. Contract Details. A statement that the consumer should refer to the appropriate loan

document and security instrument for information about nonpayment, what constitutes a

default under the legal obligation, circumstances under which the creditor may accelerate

the maturity of the obligation, and prepayment rebates and penalties. (1026.38(p)(2))

c. Liability after Foreclosure. A brief statement of whether, and the conditions under which,

the consumer may remain responsible for any deficiency after foreclosure under

applicable state law, a brief statement that certain protections may be lost if the consumer

refinances or incurs additional debt on the property, and a statement that the consumer

should consult an attorney for additional information. (1026.38(p)(3))

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d. Refinance. The statement required on the Loan Estimate by section 1026.37(m)(5) that

“Refinancing this loan will depend on your future financial situation, the property value,

and market conditions. You may not be able to refinance this loan.” (1026.38(p)(4))

e. Tax Deductions. A statement that, if the extension of credit exceeds the fair market value

of the property, the interest on the portion of the credit extension that is greater than the

fair market value of the property is not tax deductible for Federal income tax purposes

and a statement that the consumer should consult a tax adviser for further information.

(1026.38(p)(5))

f. Loan Acceptance. If the creditor does not provide a line for the consumer's signature, the

creditor must include with the other disclosures the same statement required in the Loan

Estimate that “You do not have to accept this loan because you have received this form or

signed a loan application.” This is the same requirement as in the Loan Estimate under

1026.37(n)(2). (1026.38(s)(2))

Questions Notice – Section 1026.38(q) (Page 5 of the

Closing Disclosure)

1. Questions. Determine whether the creditor provides a separate questions notice. The creditor

must include a prominent question mark, a statement directing the consumer to use the

contact information for questions, and a reference to CFPB’s website for more information

and to submit a complaint, and a link to www.consumerfinance.gov/mortgage-closing

(1026.38(q)(1)-(3)).

Contact Information – Section 1026.38(r) (Page 5 of the

Closing Disclosure)

1. Contact Information. Determine whether the creditor provides the required contact

information for each lender, mortgage broker, consumer's real estate broker, seller's real

estate broker, and settlement agent participating in the transaction; the name of the person,

address, NMLSR ID number, or if none, state and License ID; the name of the natural person

who is the primary contact for the consumer at each entity, identified as “Contact,” along

with that person’s Contact NMLS ID or Contact License ID, email address, and phone

number. (1026.38(r)(1)-(7))

Confirm Receipt – Section 1026.38(s) (Page 5 of the

Closing Disclosure)

1. Confirm Receipt. Determine whether, if the creditor chooses to provide a signature statement,

the creditor discloses, above the signature line, the statement “By signing, you are only

confirming that you have received this form. You do not have to accept this loan because you

have signed or received this form.” (1026.38(s)(1))

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NOTE: If the creditor does not provide a line for the consumer's signature, the creditor must

include the following statement, labeled “Loan Acceptance:” “You do not have to accept this

loan because you have received this form or signed a loan application.” (1026.38(s)(2)

Form of Disclosures – Section 1026.38(t)

1. Determine whether the creditor follows the format and content of form H-25, set forth in

appendix H, changes formatting only if there is an exception, including acceptable

modifications in appendix H for transactions without a seller, and complies with the

following rounding rules for dollar amounts and percentages:

a. Rounding - nearest dollar. The following dollar amounts are rounded to the nearest

whole dollar:

i. The dollar amounts for Loan Terms (required to be disclosed by section 1026.38(b))

that are required to be rounded by 1026.37(o)(4)(i)(A) when disclosed under

1026.37(b)(6) and (7) (i.e., adjustments after consummation and details about

prepayment penalty and balloon payments);

ii. The dollar amounts for projected payments or range of payments required by section

1026.38(c) that are required to be rounded by section 1026.37(o)(4)(i)(A) when

disclosed under section 1026.37(c)(1)(iii) (i.e., minimum and maximum amounts of

principal and interest for projected periodic payments or range of payments);

iii. The dollar amounts required to be disclosed by section 1026.38(e) (Alternative

Calculating Cash to Close table for transactions without a seller) and section

1026.38(i) (Calculating Cash to Close table) under the subheading “Loan Estimate;”

iv. The dollar amounts required to be disclosed by 1026.38(m) (adjustable payment

table); and

v. The dollar amounts required to be disclosed by 1026.38(c) (projected payments) that

are required to be rounded by 1026.37(o)(4)(i)(C) when disclosed under

1026.37(c)(2)(iv) (i.e., total monthly payment).

b. Percentages. The percentage amounts disclosed under 1026.38(b) (i.e., loan terms),

(f)(1)(i) (i.e., origination charges), (g)(2)(iii) (i.e., prepaids), (l)(3) (i.e., late payment), (n)

(i.e., adjustable interest rate table), and (o)(5)(i.e., total interest percentage or TIP) are not

rounded and are disclosed up to two or three decimal places. The percentage amount

required to be disclosed under 1026.38(o)(4) (APR) is not rounded and is disclosed up to

three decimal places. Amounts that are whole numbers are disclosed truncated at the

decimal point.

c. Loan amount. The dollar amount of the loan amount (required to be disclosed by

1026.38(b) as required by 1026.37(b)(1)) is disclosed as an unrounded number, except

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that if the amount is a whole number, then the amount disclosed is truncated at the

decimal point. (1026.38(t)(1)-(5))

Closed-End Transactions Not Subject to 1026.19(e) and (f)

– Forms Review and Timing Requirements

Closed-End Credit Disclosure Forms – for Transactions

Other Than Under 1026.19(e) and (f) - General

1. Determine that the disclosures are clear, conspicuous, and grouped together or segregated as

required, in a form the consumer may keep.

a. For loans subject to section 1026.18(s), the terms “Finance Charge” and “Annual

Percentage Rate” and corresponding rates or amounts should be more conspicuous than

other terms, except for the creditor’s identity. (1026.17(a)(2))

b. For reverse mortgages subject to 1024.33 in Regulation X, the disclosures required under

1026.33(b).

c. For private student loans, the term “Annual Percentage Rate” and corresponding rate

must be less conspicuous than the term “finance charge” and the corresponding amount,

as well as less conspicuous than the interest rate, the notice of the right to cancel, and

creditor’s identity. (1026.17(a)(2))

2. For a closed-end transaction not subject to section 1026.19(e) and (f), determine whether the

disclosures are accurately completed and include the following disclosures as applicable.

a. Identity of the creditor (1026.18(a))

b. Amount financed (1026.18(b))

c. Itemization of amount financed (1026.18(c))

d. Brief description of the APR (1026.18(e))

e. Variable rate information (1026.18(f)(1) or (2))

f. Payment schedule (1026.18(g))

g. Brief description of the total of payments (1026.18)(h))

h. Demand feature (1026.18(i))

i. Description of total sales price in a credit sale (1026.18(j))

j. Prepayment penalties or rebates (1026.18(k))

k. Late payment amount or percentage (1026.18(l))

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l. Description for security interest (1026.18(m))

m. Insurance conditions for finance charge exclusions (1026.4(d) and 1026.18(n))

n. Statement concerning certain security interest charges (1026.4(e) and 1026.18(o))

o. Statement referring to the contract (1026.18(p))

p. Statement regarding assumption of the note (1026.18(q))

q. Statement regarding required deposits (1026.18(r))

r. Interest rate and payment summary for mortgage transactions (1026.18(s))

3. Determine that for transactions other than transactions subject to 1026.19(e) and (f), the

creditor discloses the number, amounts, and timing of payments scheduled to repay the

obligation (other than for a transaction that is subject to section 1026.18(s)

. (1026.18(g))

4. For a closed-end transaction secured by real property or a dwelling (other than a transaction

subject to 1026.19(e) and (f)), determine that the creditor discloses the following information

about the interest rate and payments, as applicable (1026.18(s)):

a. Interest Rates

i. For a fixed-rate mortgage, the interest rate at consummation. (1026.18(s)(2)(i)(A))

ii. For an adjustable-rate or step-rate mortgage (1026.18(s)(2)(i)(B)):

A. The interest rate at consummation and the period of time until the first interest

rate adjustment may occur, labeled as the “introductory rate and monthly

payment;”

NOTE: As set forth in comment 18(s)-1, if periodic payments are not due monthly,

the creditor should use the appropriate term, such as “quarterly” or “annually.”

B. The maximum interest rate that may apply during the first five years after the date

on which the first regular periodic payment will be due and the earliest date on

which that rate may apply, labeled as “maximum during first five years;” and

C. The maximum interest rate that may apply during the life of the loan and the

earliest date on which that rate may apply, labeled as “maximum ever.”

iii. For a loan that provides for payment increases occurring without regard to an

interest rate adjustment

(as described in section 1026.18(s)(3)(i)(B)), the interest rate

For example, home construction loans that are secured by real property or a dwelling are subject to §1026.18(s) and not

§1026.18 (g). See comment App. D-6 of Regulation Z.

Note: this category includes interest-only loans, as set forth in comment §1026.18(s)(2)(i)(C)-1.

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in effect at the time the first such payment increase is scheduled to occur and the date

on which the increase will occur, labeled as “first adjustment” if the loan is an

adjustable-rate mortgage or, otherwise, labeled as “first increase.”

(1026.18(s)(2)(i)(C))

iv. For a negative amortization loan

(1026.18(s)(2)(ii)):

A. The interest rate at consummation and, if it will adjust after consummation, the

length of time until it will adjust, and the label “introductory” or “intro;”

B. The maximum interest rate that could apply when the consumer must begin

making fully amortizing payments under the terms of the legal obligation;

C. If the minimum required payment will increase before the consumer must begin

making fully amortizing payments, the maximum interest rate that could apply at

the time of the first payment increase and the date the increase is scheduled to

occur; and

D. If a second increase in the minimum required payment may occur before the

consumer must begin making fully amortizing payments, the maximum interest

rate that could apply at the time of the second payment increase and the date the

increase is scheduled to occur.

v. Introductory rate for an amortizing adjustable-rate mortgage, if the interest rate at

consummation is less than the fully indexed rate, the following (placed in a box

directly beneath the table required by section 1026.18 (s)(1) of the regulation, in a

format substantially similar to Model Clause H–4(I) in the regulation’s appendix H):

A. The interest rate that applies at consummation and the period of time for which it

applies;

B. A statement that, even if market rates do not change, the interest rate will increase

at the first adjustment and a designation of the place in sequence of the month or

year, as applicable, of such rate adjustment (e.g., “in the third year”); and

C. The fully-indexed rate.

b. Payments for Amortizing Loans

Because model forms and clauses published by the CFPB are safe harbors, this rate may also be labeled “Maximum Ever,”

pursuant to §1026.18(s)(2)(i)((B)(3).

The term “negative amortization loan” means a loan, other than a reverse mortgage subject to section 1026.33 that provides for

a minimum periodic payment that covers only a portion of the accrued interest, resulting in negative amortization.

(1026.18(s)(7)(v))

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i. Principal and interest payments. If all periodic payments will be applied to accrued

interest and principal, for each interest rate disclosed under section 1026.18(s)(2)(i)

(1026.18(s)(3)(i)):

A. The corresponding periodic principal and interest payment, labeled as “principal

and interest;”

B. If the periodic payment may increase without regard to an interest rate

adjustment, the payment that corresponds to the first such increase and the earliest

date on which the increase could occur;

C. If an escrow account is established, an estimate of the amount of taxes and insurance,

including any mortgage insurance payable with each periodic payment; and

D. The sum of the amounts disclosed under sections 1026.18(s)(3)(i)(A) and (C) or

(s)(3)(i)(B) and (C), as applicable, labeled as “total estimated monthly payment.”

ii. Interest-only payments. If the loan is an interest-only loan, for each interest rate

disclosed under section 1026.18(s)(2)(i), the corresponding periodic payment and

(1026.18(s)(3)(ii)):

A. If the payment will be applied to only accrued interest, the amount applied to

interest, labeled as “interest payment,” and a statement that none of the payment

is being applied to principal;

B. If the payment will be applied to accrued interest and principal, an itemization of

the amount of the first such payment applied to accrued interest and to principal,

labeled as “interest payment” and “principal payment,” respectively;

C. The escrow information described in section 1026.18(s)(3)(i)(C); and

D. The sum of all amounts required to be disclosed under sections

1026.18(s)(3)(ii)(A) and (C) or (s)(3)(ii)(B) and (C), as applicable, labeled as

“total estimated monthly payment.”

iii. Payments for negative amortization loans. If the loan is a negative amortization loan

(1026.18(s)(4)):

A. The minimum periodic payment required until the first payment increase or

interest rate increase, corresponding to the interest rate disclosed under section

1026.18(s)(2)(ii)(A);

B. The minimum periodic payment that would be due at the first payment increase

and the second, if any, corresponding to the interest rates described in section

1026.18(s)(2)(ii)(C) and (D);

C. A statement that the minimum payment pays only some interest, does not repay

any principal, and will cause the loan amount to increase;

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D. The fully amortizing periodic payment amount at the earliest time when such a

payment must be made, corresponding to the interest rate disclosed under section

1026.18 (s)(2)(ii)(B); and

E. If applicable, in addition to the payments in sections 1026.18(s)(4)(i) and (ii), for

each interest rate disclosed under section 1026.18(s)(2)(ii), the amount of the fully

amortizing periodic payment, labeled as the “full payment option,” and a

statement that these payments pay all principal and all accrued interest.

NOTE: The information in sections 1026.18(s)(2)–(4) must be disclosed in the form

of a table with no more than five columns, and with headings and format substantially

similar to Model Clause H–4(E), H–4(F), H–4(G), or H–4(H) in appendix H of the

regulation. The table should contain only the information required in sections 1026.18

(s)(2)–(4), be placed in a prominent location, and be in a minimum 10-point font.

(1026.18(s)(1))

iv. Balloon payments. For loans with balloon payments (defined as a payment that is

more than two times a regular periodic payment) (1026.18(s)(5)):

A. Except as provided below, the balloon payment is disclosed separately from other

periodic payments disclosed in the table (i.e., is outside the table and in a manner

substantially similar to Model Clause H–4(J) in appendix H to the regulation);

B. If the balloon payment is scheduled to occur at the same time as another

payment required to be disclosed in the table, the balloon payment must be

disclosed in the table.

5. For a closed-end transaction secured by real property or a dwelling (other than a transaction

that is subject to 1026.19(e) and (f)) that is a negative amortization loan, determine that the

following information is disclosed (in close proximity to the table required in section

1026.18(s)(1), with headings, content, and format substantially similar to Model Clause H–

4(G) in appendix H to this part) (1026.18(s)(6)):

a. The maximum interest rate, the shortest period of time in which such interest rate could be

reached, the amount of estimated taxes and insurance included in each payment disclosed,

and a statement that the loan offers payment options, two of which are shown; and

b. The dollar amount of the increase in the loan’s principal balance if the consumer makes

only the minimum required payments for the maximum possible time and the earliest

date on which the consumer must begin making fully amortizing payments, assuming that

the maximum interest rate is reached at the earliest possible time.

6. For a closed-end transaction secured by real property or a dwelling (other than a transaction

that is subject to 1026.19(e) and (f)), determine that the creditor disclosed a statement that

there is no guarantee the consumer can refinance the transaction to lower the interest rate or

periodic payments. (1026.18(t)(1))

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NOTE: The statement required by section 1026.18(t)(1) should be in a form substantially

similar to Model Clause H–4(K) in appendix H to the regulation. (1026.18(t)(2))

7. Determine all variable rate loans (other than a transaction that is subject to 1026.19(e) and

(f)) with a maturity greater than one year, secured by a principal dwelling are given the

following disclosures at the time of application. (1026.19)

a. Consumer Handbook on Adjustable Rate Mortgages or substitute

b. Statement that interest rate payments and or terms can change

c. The index/formula and a source of information

d. Explanation of the interest rate/payment determination and margin

e. Statement that the consumer should ask for the current interest rate and margin

f. Statement that the interest rate is discounted, if applicable

g. Frequency of interest rate and payment changes

h. Rules relating to all changes

i. Either a historical example based on 15 years, or the initial rate and payment with a

statement that the periodic payment may substantially increase or decrease together with

a maximum interest rate and payment

j. Explanation of how to compute the loan payment, giving an example

k. Demand feature, if applicable

l. Statement of content and timing of adjustment notices

m. Statement that other variable rate loan program disclosures are available, if applicable

8. Determine that for any closed-end adjustable-rate mortgage (other than a transaction that is

subject to 1026.19(e) and (f)) with a maturity date greater than one year and secured by a

principal dwelling, the creditor, assignee, or servicer provides the following initial rate

adjustment disclosures (for disclosure timing requirements, see Timing Requirements

below): (1026.20(d)(2))

a. The date of the disclosure;

b. An explanation that under the terms of the consumer’s adjustable rate mortgage, the time

frame that the current rate has been in effect, when the current rate is scheduled to expire,

the effective date of the new rate, when additional future interest rate adjustments are

scheduled to occur and any other changes to loan terms, features, and options taking effect

on the same date, and how the rate change may affect the payment and other loan terms;

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c. A table explaining the current interest rate and payment, the new interest rate and

payment, and the date the first new payment is due;

NOTE: For interest-only and negative amortization adjustable-rate mortgages, the table

must include how the current and new rates and payment will be allocated to interest,

principal, and escrow (if applicable). See section 1026.20(d)(2)(iii)(C) for more on

payment allocation disclosure requirements.

d. An explanation of how the interest rate is determined, including the specific index or

formula used and a source of information about that index or formula, and the type and

amount of any adjustment, including a margin and an explanation that a margin is the

addition of a certain number of percentage points to the index;

e. Any limits on the interest rate or payment increases at each interest rate adjustment and

over the life of the loan (as applicable), including the extent to which such limits result in

the creditor, assignee, or servicer foregoing any increase in the interest rate and the

earliest date that such foregone interest rate increases may apply to future interest rate

adjustments, subject to those limits;

f. An explanation of how the new payment was determined, including the index or formula

used to determine the new interest rate;

g. Any adjustments to the index or formula used to determine the new payment, such as the

addition of a margin;

h. The expected loan balance on the date of the interest rate adjustment;

i. The remaining loan term expected on the date of the interest rate adjustment and any

changes to the term that may have occurred due to the interest rate change;

j. If an estimated rate payment is provided, a statement that another disclosure with the actual

interest rate will be provided to the consumer between two and four months prior to the

first payment at the adjusted level is due, and that the creditor is using an estimated rate;

k. If applicable, a statement that the new payment will not be allocated to pay loan principal

and will not reduce the loan balance. If the new payment will result in negative

amortization, a statement that the new payment will not be allocated to pay loan principal

and that only part of the interest will be paid, which will add to the loan balance. If the

new payment will result in negative amortization as a result of the interest rate

adjustment, the statement must set forth the payment required to fully amortize the

remaining balance at the new interest rate over the remainder of the loan term;

l. A statement indicating the circumstances under which any prepayment penalty may be

imposed, the time period during which it may be imposed, and a statement that the

consumer may contact the servicer for additional information, including the maximum

amount of the penalty that may be charged to the consumer;

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m. A telephone number of the creditor, assignee, or servicer to call if the consumer

anticipates not being able to make the new payment;

n. A statement listing alternatives that consumers may pursue if they anticipate not being

able to make the new payment;

o. A web address to access either the CFPB or the Department of Housing and Urban

Development’s (HUD) approved list of homeownership counselors and counseling

organizations, the HUD toll-free number to access the HUD list of homeownership

counselors and counseling organizations, and the Bureau website to access state housing

finance authorities’ contact information.

9. Determine that for any closed-end adjustable-rate mortgage (other than a transaction that is

subject to 1026.19(e) and (f)) with a maturity date greater than one year, secured by a

principal dwelling, the creditor, assignee, or servicer provides the following rate adjustment

disclosures for rate adjustments with a corresponding payment change (for disclosure timing

requirements see Timing Requirements below): (1026.20(c))

NOTE: A creditor, assignee or servicer subject to the Fair Debt Collection Practices Act

(FDCPA) that has received the consumer’s notification to cease communication pursuant to

FDCPA section 805(c) is exempt from this requirement.

a. An explanation that under the terms of the consumer’s adjustable rate mortgage, the time

frame that the current rate has been in effect is ending and the interest rate and payment

will change, the effective date of the new rate, when additional future interest rate

adjustments are scheduled to occur and any other changes to loan terms, features, and

options taking effect on the same date, such as the expiration of interest-only or payment-

option features; a table explaining the current interest rate and payment, the new interest

rate and payment, and the date the first new payment is due;

NOTE: For interest-only and negatively amortizing payments, the table must include how the

current and new rates and payment will be allocated to interest, principal, and escrow (if

applicable). See section 1026.20(d)(2)(iii)(C) for more on payment allocation disclosure

requirements.

b. An explanation of how the interest rate is determined, including the specific index or

formula used and a source of information about that index or formula, and the type and

amount of any adjustment, including a margin and an explanation that a margin is the

addition of a certain number of percentage points to the index, and any application of

previously foregone interest rate increases from past rate adjustments;

c. Any limits on the interest rate or payment increases at each interest rate adjustment and

over the life of the loan (as applicable), including the extent to which such limits result in

the creditor, assignee, or servicer foregoing any increase in the interest rate and the

earliest date that such foregone interest rate increases may apply to future interest rate

adjustments, subject to those limits;

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d. An explanation of how the new payment is determined, including the index or formula

used to determine the new interest rate;

e. Any adjustments to the index or formula used to determine the new payment, such as the

addition of a margin or the application of any previously foregone interest rate increases

from past interest rate adjustments;

f. The expected loan balance on the date of the interest rate adjustment;

g. The remaining loan term expected on the date of the interest rate adjustment and any

changes to the term that may have occurred due to the interest rate change;

h. If applicable, a statement that the new payment will not be allocated to pay loan principal

and will not reduce the loan balance. If the new payment will result in negative

amortization, a statement that the new payment will not be allocated to pay loan principal

and that only part of the interest will be paid, which will add to the loan balance. If the

new payment will result in negative amortization as a result of the interest rate

adjustment, the statement must set forth the payment required to fully amortize the

remaining balance at the new interest rate over the remainder of the loan term;

i. A statement indicating the circumstances under which any prepayment penalty may be

imposed, the time period during which it may be imposed, and a statement that the

consumer may contact the servicer for additional information, including the maximum

amount of the penalty that may be charged to the consumer;

NOTE: Model and sample disclosures H-4(D)(1) through (4) containing all necessary

information can be found in appendix H. The disclosures required under section 1026.20(c)

and (d) generally should be in the form of a table and in the same order as, and with headings

and format substantially similar to, the model disclosures (1026.20(c)(3) and (d)(3)).

NOTE: When examining a creditor, an assignee, or a servicer that continues to own the loan,

if the entity states that another entity has the obligation to provide the disclosures, examiners

should determine whether the entity takes steps to ensure that the other party (the creditor,

assignee, or servicer, as applicable) is complying with the obligation to provide the

disclosures.

High-Cost Mortgages – Section 1026.32

1. Determine that the disclosures required for high-cost mortgage transactions (1026.32) clearly

and conspicuously include the items below. (1026.32(c), see Form H-16 in appendix H)

a. The required statement “you are not required to complete this agreement merely because

you have received these disclosures or have signed a loan application. If you obtain this

loan, the lender will have a mortgage on your home. You could lose your home, and any

money you have put into it, if you do not meet your obligations under the loan.”

b. The APR.

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c. Amount of the regular monthly (or other periodic) payment and the amount of any

balloon payment. The regular payment should include amounts for voluntary items, such

as credit life insurance or debt-cancellation coverage, only if the consumer has previously

agreed to the amount (See the commentary to section 1026.32(c)(3)).

d. Statement that the interest rate may increase and monthly payment may increase, and the

amount of the single maximum monthly payment, based on the maximum interest rate

allowed under the contract, if applicable.

e. The amount borrowed. For a closed-end mortgage, the amount borrowed is the total

amount borrowed, as reflected by the face amount of the note; and where the amount

borrowed includes premiums or other charges for optional credit insurance or debt-

cancellation coverage (grouped together with the amount borrowed), that fact shall be

stated. For an open-end credit plan, the amount borrowed is the credit limit for the plan

when the account is opened.

Escrow Cancellation Notice – Section 1026.20(e)(1)

1. Escrow cancellation notice. For a closed-end loan secured by a first lien on real property or a

dwelling (other than a reverse mortgage) where an escrow account (as defined under

1024.17(b)) is cancelled, determine whether: (1026.20(e))

a. The creditor or servicer provided an Escrow Closing Notice with the following clearly

and conspicuously disclosed: (1026.20(e)(1)

i. A statement informing the consumer of the date on which the consumer will no

longer have an escrow account;

ii. A statement that an escrow account may also be called an impound or trust account;

iii. A statement of the reason why the escrow account will be closed;

iv. A statement that without an escrow account, the consumer must pay all property

costs, such as taxes and homeowner's insurance, directly, possibly in one or two large

payments a year; and

v. A table, titled “Cost to you,” that contains an itemization of the amount of any fee the

creditor or servicer imposes on the consumer in connection with the closure of the

consumer's escrow account, labeled “Escrow Closing Fee,” and a statement that the

fee is for closing the escrow account; (1026.20(e)(2)(i))

vi. Information under the reference “In the future” that includes: (1026.20(e)(2)(ii))

A. A statement of the consequences if the consumer fails to pay property costs,

including the actions that a state or local government may take if property taxes

are not paid and the actions the creditor or servicer may take if the consumer does

not pay some or all property costs, such as adding amounts to the loan balance,

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adding an escrow account to the loan, or purchasing a property insurance policy

on the consumer's behalf that may be more expensive and provide fewer benefits

than a policy that the consumer could obtain directly; (1026.20(e)(2)(ii)(A))

B. A statement with a telephone number that the consumer can use to request

additional information about the cancellation of the escrow account;

(1026.20(e)(2)(ii)(B))

C. A statement of whether the creditor or servicer offers the option of keeping the

escrow account open and, as applicable, a telephone number the consumer can use

to request that the account be kept open; and (1026.20(e)(2)(ii)(C))

D. A statement of whether there is a cut-off date by which the consumer can request

that the account be kept open. (1026.20(e)(2)(ii)(D))

2. Form. The disclosure meets the formatting requirements of section 1026.20(e)(4) and is

substantially similar to model form H-29 in appendix H. (1026.20(e)(4))

3. Timing. The creditor or servicer ensures that the consumer receives the Escrow Closing

Notice in the following time periods:

i. If the cancellation is upon the consumer’s request, no later than three business days

before the closure of the consumer’s escrow account; (1026.20(e)(5)(i))

ii. If cancellation is other than upon the consumer’s request, no later than 30 business

days before the closure of the consumer’s escrow account. (1026.20(e)(5)(ii))

NOTE: If the disclosures are not provided in person, the consumer is considered to have

received the disclosures three business days after they are delivered or placed in the mail.

(1026.20(e)(5)(iii))

Notice of Transfer – Section 1026.39

1. For any open-end loan secured by a principal dwelling or for any closed-end mortgage loan

secured by a dwelling or real property that was sold, assigned, or otherwise transferred to the

covered person, determine that the covered person notifies the borrower clearly and

conspicuously in writing, in a form that the consumer may keep of such transfer, including

(1026.39):

a. An identification of the loan that was sold, assigned, or otherwise transferred;

b. The name, address, and telephone number of the covered person who owns the mortgage

loan;

c. The date of transfer (either the date of acquisition recognized in the books and records of

the covered person or that of the transferring party) identified by the covered person;

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d. The name, address, and telephone number of an agent or party having authority, on

behalf of the covered person, to receive notice of the right to rescind and resolve issues

concerning the consumer’s payments on the mortgage loan;

e. Where transfer of ownership of the debt to the covered person is or may be recorded in

public records or, alternatively, that the transfer of ownership has not been recorded in

public records at the time the disclosure is provided; and,

f. At the option of the covered person, any other relevant information regarding the

transaction.

g. If there are multiple covered persons, contact information for each of them, unless one of

them has been authorized to receive the consumer’s notice of the right to rescind and

resolve issues concerning the consumer’s payments on the loan.

NOTE: This notice of sale or transfer must be provided for any consumer credit transaction

that is secured by the principal dwelling of a consumer. This notification is required of the

covered person even if the loan servicer remains the same. In addition, if more than one

consumer is liable on the obligation, the covered person may mail or deliver the disclosure

notice to any consumer who is primarily liable. And, if an acquisition involves multiple

covered persons who each acquire a partial interest in the loan pursuant to separate and

unrelated agreements, each covered person has a duty to ensure that disclosures related to its

acquisition are accurate and provided in a timely manner unless an exception in section

1026.39(c) applies. The parties may, but are not required to, provide a single notice that

satisfies the timing and content requirements applicable to each covered person.

(Commentary 1026.39(b)(5)–2)

Private Education Loans – Section 1026.46 – 1026.48

1. For private education loans subject to Subpart F, ensure that the required disclosures are

accurate (1026.47) and contain the following information:

a. Application or solicitation disclosures disclose the following:

i. Interest rate, including:

A. Rate or range, and if the rate depends in part on a determination of the borrower’s

creditworthiness or other factors, a statement to that effect;

B. Whether rate is fixed or variable;

C. If rate may increase after consummation, any limitations, or lack thereof, and if

the limitation is imposed by law, that fact. Also, the creditor must state that the

consumer’s actual rate may be higher or lower than that disclosed, if applicable;

and

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D. Whether the rate will typically be higher if the loan is not co-signed or

guaranteed.

ii. Fees and default or late payment costs.

iii. Repayment terms, including:

A. Term of the loan, which is the period during which regularly scheduled payments

of principal and interest will be due.

B. Deferral options, or if consumer does not have the option to defer, that fact.

C. For each available deferral option applicable, information as to:

1) Whether interest will accrue during deferral period; and

2) If interest accrues, whether payment of interest may be deferred and added to

the principal balance; and

D. A statement that, if the consumer files bankruptcy, the consumer may still be

required to repay the loan.

iv. Cost estimates, based on an example of the total cost of the loan, calculated using:

A. The highest interest rate and including all applicable finance charges,

B. An amount financed of $10,000, or $5,000, if the creditor offers loans less than

$10,000; and

C. Calculated for each payment option.

v. Eligibility (e.g., any age or school enrollment eligibility requirements).

vi. Alternatives to private education loans, including:

A. A statement that the consumer may qualify for federal student loans,

B. The interest rates available for each program available under title IV of the Higher

Education Act of 1965, and whether the rate is variable or fixed;

C. A statement that the consumer may obtain additional information regarding

student federal financial assistance from his school or U.S. Department of

Education, including an appropriate website; and

D. A statement that a covered educational institution may have school specific

educational loan benefits and terms not detailed in the loan disclosure forms.

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vii. A statement that if the loan is approved, that the loan will be available for 30 days and

the terms will not change, except for changes to the interest rate in the case of a

variable rate and other changes permitted by law.

viii. A statement that before consummation, the borrower must complete a self-

certification form obtained from the student’s institution of higher education.

b. For approval disclosures, the following information is required under section 1026.47(b):

i. Interest rate, information, including:

A. Interest rate applicable to the loan

B. Whether the interest rate is variable or fixed; and

C. If the interest rate may increase after consummation, any limitations on the rate

adjustments, or lack thereof.

ii. Fees and default or late payment costs, including:

A. An itemization of the fees or range of fees required to obtain the loan; and

B. Any fees, changes to the interest rate, and adjustments to principal based on the

consumer’s defaults or late payments.

iii. Repayment terms, including:

A. Principal amount;

B. Term of the loan;

C. A description of the payment deferral option chosen by the consumer, if

applicable, and any other payment deferral options that the consumer may elect at

a later time;

D. Any payments required while the student is enrolled at the educational institution,

based on the deferral option chosen by the consumer;

E. Amount of any unpaid interest that will accrue while the student is enrolled in

school, based upon the deferral option chosen by the consumer;

F. A statement that if the consumer files for bankruptcy, that the consumer may still

be required to pay back the loan;

G. An estimate of the total amount of payments calculated based upon:

1) The interest rate applicable to the loan (compliance with section 1026.18(h)

constitutes compliance with this requirement);

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2) The maximum possible rate of interest for the loan, or, if a maximum rate

cannot be determined, a rate of 25 percent.

3) If a maximum rate cannot be determined, the estimate of the total amount for

repayment must include a statement that there is no maximum rate and that

the total amount for repayment disclosed is an estimate.

H. The maximum monthly payment based on the maximum rate of interest for the

loan, or, if a maximum rate of interest cannot be determined, a rated of 25

percent. If a maximum cannot be determined, a statement that there is no

maximum rate and that the monthly payment amount disclosed is an estimate and

will be higher if the applicable interest rate increases.

iv. Alternatives to private education loans, including:

A. A statement that the consumer may qualify for federal student loans,

B. The interest rates available for each program available under title IV of the Higher

Education Act of 1965, and whether the rate is variable or fixed; and

C. A statement that the consumer may obtain additional information regarding

student federal financial assistance from his school or U.S. Department of

Education, including an appropriate website.

v. A statement that the consumer may accept the terms of the loan until the acceptance

period under section 1026.48(c)(1) has expired. The statement must include:

A. The specific date on which the acceptance period expires, based on the date upon

which the consumer receives the disclosures required under this subsection for the

loan;

B. The method or methods by which the consumer may communicate the acceptance

(written, oral, or by electronic means; and

C. A statement that except for changes to the interest rate and other changes

permitted by law, the rates and the terms of the loan may not be changed by the

creditor during the 30-day acceptance period.

c. After the consumer has accepted the loan in accordance with section 1026.48(c)(1),

final disclosures must disclose the information required under section 1026.47(c) and

the following:

i. Interest rate, including:

A. Interest rate applicable to the loan

B. Whether the interest rate is variable or fixed; and

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C. If the interest rate may increase after consummation, any limitations on the rate

adjustments, or lack thereof.

ii. Fees and default or late payment costs, including:

A. An itemization of the fees or range of fees required to obtain the loan; and

B. Any fees, changes to the interest rate, and adjustments to principal based on the

consumer’s defaults or late payments.

iii. Repayment terms, including:

A. Principal amount;

B. Term of the loan;

C. A description of the payment deferral option chosen by the consumer, if

applicable, and any other payment deferral options that the consumer may elect at

a later time;

D. Any payments required while the student is enrolled at the educational institution,

based on the deferral option chosen by the consumer;

E. Amount of any unpaid interest that will accrue while the student is enrolled in

school, based upon the deferral option chosen by the consumer;

F. A statement that if the consumer files for bankruptcy, that the consumer may still

be required to pay back the loan;

G. An estimate of the total amount of payments calculated based upon:

1) The interest rate applicable to the loan (compliance with section 1026.18(h)

constitutes compliance with this requirement);

2) The maximum possible rate of interest for the loan, or, if a maximum rate

cannot be determined, a rate of 25 percent;

3) If a maximum rate cannot be determined, the estimate of the total amount for

repayment must include a statement that there is no maximum rate and that

the total amount for repayment disclosed is an estimate.

H. The maximum monthly payment based on the maximum rate of interest for the

loan, or, if a maximum rate of interest cannot be determined, a rated of 25

percent. If a maximum cannot be determined, a statement that there is no

maximum rate and that the monthly payment amount disclosed is an estimate and

will be higher if the applicable interest rate increases.

iv. In a text more conspicuous than any other required disclosure, except for the finance

charge, the interest rate, and the creditor’s identify the following disclosures:

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A. A statement that the consumer has the right to cancel the loan, without penalty, at

any time before the midnight of the third business day following the date on

which the consumer receives the final loan disclosures. The statement must

include the specific date on which the cancellation period expires and that the

consumer may cancel by that date. (1026.47(c)(4)(i))

B. A statement that the loan proceeds will not be disbursed until the cancellation

period expires. (1026.47(c)(4)(ii))

C. The method or methods by which the consumer may cancel; (1026.47(c)(4)(ii))

and

D. If the creditor permits cancellation by mail, the statement specifying that the

consumer’s mailed request will be deemed timely if placed in the mail not later

than the cancellation date specified on the disclosures. (1026.47(c)(4)(ii))

Open-End Credit Forms Review Procedures

1. Determine that the creditor made the disclosures clearly and conspicuously. (1026.5(a))

2. Determine that the creditor made the applicable disclosures in writing, in a form that the

consumer may keep, except (1026.5(a)(1)(ii)):

a. The following disclosures need not be written: Disclosures under section 1026.6(b)(3) of

charges that are imposed as part of an open-end (not home-secured) plan that are not

required to be disclosed under section 1026.6(b)(2) and related disclosures of charges

under section 1026.9(c)(2)(iii)(B); disclosures under section 1026.9(c)(2)(vi); disclosures

under section 1026.9(d) when a finance charge is imposed at the time of the transaction;

and disclosures under section 1026.56(b)(1)(i).

b. The following disclosures need not be in a retainable form: Disclosures that need not be

written under paragraph 1026.5(a)(1)(ii)(A) of this section; the alternative summary

billing-rights statement under section 1026.9(a)(2); the credit and charge card renewal

disclosures required under section 1026.9(e); the payment requirements under section

1026.10(b), except as provided in section 1026.7(b)(13); ; home-equity disclosures under

section 1026.40(d); and disclosures for credit and charge card applications and

solicitations under section 1026.60.

c. The disclosures required by this subpart may be provided to the consumer in electronic

form, subject to compliance with the consumer consent and other applicable provisions of

the Electronic Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.

7001 et seq.). The disclosures required by sections 1026.60, 1026.40, and 1026.16 may

be provided to the consumer in electronic form without regard to the consumer consent or

other provisions of the E-Sign Act in the circumstances set forth in those sections.

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3. Determine that the terminology used in providing the disclosures required by section 1026.5

is consistent. (1026.5(a)(2)(i))

4. Determine that, for home-equity plans subject to section 1026.40, the terms finance charge

and annual percentage rate (APR), when required to be disclosed with a corresponding

amount or percentage rate, shall be more conspicuous than any other required disclosure. The

terms need not be more conspicuous when used for periodic statement disclosures under

section 1026.7(a)(4) and for advertisements under section 1026.16. (1026.5(a)(2)(ii))

5. Determine that, if disclosures are required to be presented in a tabular format pursuant to

section 1026.5(a)(3), that the term penalty APR shall be used, as applicable.

(1026.5(a)(2)(iii))

NOTE: The term penalty APR need not be used in reference to the annual percentage rate

that applies with the loss of a promotional rate, assuming the annual percentage rate that

applies is not greater than the annual percentage rate that would have applied at the end of

the promotional period; or if the annual percentage rate that applies with the loss of a

promotional rate is a variable rate, the annual percentage rate is calculated using the same

index and margin as would have been used to calculate the annual percentage rate that would

have applied at the end of the promotional period. If credit insurance or debt cancellation or

debt suspension coverage is required as part of the plan, the term required shall be used and

the program shall be identified by its name. If an annual percentage rate is required to be

presented in a tabular format pursuant to paragraph (a)(3)(i) or (a)(3)(iii) of this section, the

term fixed, or a similar term, may not be used to describe such rate unless the creditor also

specifies a time period that the rate will be fixed and the rate will not increase during that

period, or if no such time period is provided, the rate will not increase while the plan is open.

Credit and Charge Card Application and Solicitation

Disclosures – Section 1026.60

1. Determine that the credit card solicitation or application disclosures were made clearly and

conspicuously on or with a solicitation or an application. (1026.60)

2. For the disclosures in sections 1026.60(b)(1) through (5) (except for (b)(1)(iv)(B) and (b)(7)

through (15), determine that the creditor made the disclosures required for sections

1026.60(c), (d)(2), (e)(1) and (f) in the form of a table with headings, content, and format

substantially similar to the applicable tables found in G-10 in appendix G. (1026.60(a)(2)(i))

3. Determine that the table required by section 1026.60(a)(2)(i) contains only the information

required or permitted by that section. If the creditor provides other information, determine

that such information appears outside the table. (1026.60(a)(2)(ii))

4. Determine that the disclosures required by section 1026.60(b)(1)(iv)(B), (b)(1)(iv)(C), and

(b)(6) are placed directly beneath the table required by section 1026.60(a)(2)(i).

(1026.60(a)(2)(iii))

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5. When a tabular format is required, determine that the following disclosures are disclosed in

bold text (1026.60(a)(2)(iv)):

a. Annual percentage rate required to be disclosed pursuant to paragraph (b)(1) of this

section,

b. Introductory rate required to be disclosed pursuant to paragraph (b)(1)(ii) of this section,

c. Rate that will apply after a premium initial rate expires required to be disclosed under

paragraph (b)(1)(iii) of this section, and

d. Fee or percentage amounts or maximum limits on fee amounts required to be disclosed

pursuant to paragraphs (b)(2), (b)(4), (b)(8) through (b)(13).

NOTE: Bold text shall not be used for the amount of any periodic fee disclosed pursuant to

paragraph (b)(2) of this section that is not an annualized amount, and other APRs or fee

amounts disclosed in the table. (1026.60(a)(2)(iv))

6. Determine that the card issuer discloses, on or with an solicitation or application:

(1026.60(b))

a. Annual percentage rate. Each periodic rate that may be used to compute the finance

charge on an outstanding balance for purchases, a cash advance, or a balance transfer,

expressed as an annual percentage rate. When more than one rate applies for a category

of transactions, determine that the range of balances to which each rate is applicable is

also disclosed. (1026.60(b)(1))

NOTE: The APR for purchases disclosed pursuant to section 1026.60(b)(1) shall be in at least

16-point type, except for the following: Oral disclosures of the annual percentage rate for

purchases; or a penalty rate that may apply upon the occurrence of one or more specific events.

i. Variable rate information. If a rate is a variable rate, determine that the card issuer

discloses the fact that the rate may vary and how the rate is determined. Determine

that the card issuer identifies the type of index or formula that is used in setting the

rate. Determine that the value of the index and the amount of the margin that are used

to calculate the variable rate are not disclosed in the table. Determine further that any

applicable limitations on rate increases are not included in the table.

(1026.60(b)(1)(i))

ii. Discounted initial rate. If the initial rate is an introductory rate, determine that the

card issuer discloses in the table the introductory rate, the time period during which

the introductory rate will remain in effect, and the term “introductory” or “intro” in

immediate proximity to the introductory rate. Determine further that the card issuer

discloses, as applicable, either the variable or fixed rate that would otherwise apply to

the account. (1026.60(b)(1)(ii))

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iii. Premium initial rate. If the initial rate is temporary and is higher than the rate that

will apply after the temporary rate expires, determine that the card issuer discloses the

premium initial rate and the time period during which the premium initial rate will

remain in effect. Determine that the premium initial rate for purchases is in at least

16-point type. Determine that the issuer discloses in the table the rate that will apply

after the premium initial rate expires, in at least 16-point type. (1026.60(b)(1)(iii))

iv. Penalty rates. Except as for provided introductory rate or employee preferential rate

requirements (discussed below), if a rate may increase as a penalty for one or more

events specified in the account agreement, such as a late payment or an extension of

credit that exceeds the credit limit, determine that the card issuer discloses the

increased rate that may apply, a brief description of the event or events that may

result in the increased rate, and a brief description of how long the increased rate will

remain in effect. (1026.60(b)(1)(iv)(A))

v. Introductory rate. If the issuer discloses an introductory rate in the table or in any

written or electronic promotional materials accompanying applications or solicitations

(and subject to paragraph (c) or (e) of section 1026.60), determine that the issuer

briefly discloses, directly beneath the table, the circumstances, if any, under which the

introductory rate may be revoked, and the type of rate that will apply after the

introductory rate is revoked. (1026.60(b)(1)(iv)(B))

vi. Employee preferential rates. If the issuer discloses in the table a preferential APR for

which only employees of the card issuer, employees of a third party, or other

individuals with similar affiliations with the card issuer or third party are eligible,

determine that the issuer briefly discloses directly beneath the table the circumstances

under which such preferential rate may be revoked and the rate that will apply after

such preferential rate is revoked. (1026.60(b)(1)(iv)(C))

vii. Rates that depend on consumer’s creditworthiness. If a rate cannot be determined at

the time disclosures are given because the rate depends, at least in part, on a later

determination of the consumer’s creditworthiness, determine that the card issuer

discloses the specific rates or the range of rates that could apply and a statement that

the rate for which the consumer may qualify at account opening will depend on the

consumer’s creditworthiness, and other factors if applicable. (1026.60(b)(1)(v))

NOTE: If the rate that depends, at least in part, on a later determination of the consumer’s

creditworthiness is a penalty rate, as described in (b)(1)(iv), the card issuer at its option

may disclose the highest rate that could apply, instead of disclosing the specific rates or

the range of rates that could apply. (1026.60(b)(1)(v))

viii. APRs that vary by state. Determine that the card issuer does not list annual

percentage rates for multiple states in the table. Note, however, that issuers imposing

annual percentage rates that vary by state may, at the issuer’s option, disclose in the

table: the specific annual percentage rate applicable to the consumer’s account; or

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the range of the annual percentage rates, if the disclosure includes a statement that

the annual percentage rate varies by state and refers the consumer to a disclosure

provided with the table where the annual percentage rate applicable to the

consumer’s account is disclosed. (1026.60(b)(1)(vi))

b. Fees for issuance or availability. Determine that the card issuer discloses any annual or

other periodic fee, expressed as an annualized amount, or any other fee that may be

imposed for the issuance or availability of a credit or charge card, including any fee based

on account activity or inactivity. (1026.60(b)(2))

c. Fixed finance charge; minimum interest charge. Determine that the creditor discloses any

fixed finance charge that could be imposed during a billing cycle, as well as a brief

description of that charge. Determine that the creditor discloses any minimum interest

charge if it exceeds $1.00 that could be imposed during a billing cycle, and a brief

description of the charge. (1026.60(b)(3))

d. Transaction charge. Determine that the creditor discloses any transaction charge imposed

for the use of the card for purchases. (1026.60(b)(4))

e. Grace period. Determine that the issuer discloses the date by which or the period within

which any credit extended for purchases may be repaid without incurring a finance

charge due to a periodic interest rate and any conditions on the availability of the grace

period. If no grace period is provided, determine that this fact is disclosed. In disclosing

in the tabular format a grace period that applies to all types of purchases, determine that

the issuer uses the phrase “How to Avoid Paying Interest on Purchases” as the heading

for the row describing the grace period. If a grace period is not offered on all types of

purchases, in disclosing this fact in the tabular format, determine that the issuer uses the

phrase “Paying Interest” as the heading for the row describing this fact.

NOTE: If the length of the grace period varies, the card issuer may disclose the range of

days, the minimum number of days, or the average number of days in the grace period, if the

disclosure is identified as a range, minimum, or average. (1026.60(b)(5))

f. Balance computation method. Determine that the creditor disclosed the name of the

balance computation method that is used to determine the balance on which the finance

charge is computed, or an explanation of the method used if it is not listed. In

determining which balance computation method to disclose, the creditor should have

assumed that the credit extended will not be repaid within any grace period.

(1026.60(b)(6))

NOTE: Disclosures required by section 1026.60(b)(6) must be placed directly beneath the

table.

g. Statement on charge card payments. Determine that the creditor discloses a statement

that charges incurred by use of the charge card are due when the periodic statement is

received. (1026.60(b)(7))

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h. Cash advance fee. Determine that the creditor disclosed any fee imposed for an extension

of credit in the form of cash or its equivalent. (1026.60(b)(8))

i. Late payment fee. Determine that the creditor disclosed any fee imposed for a late

payment. (1026.60(b)(9))

j. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for exceeding

the credit limit. (1026.60(b)(10))

k. Balance transfer fee. Determine that the creditor disclosed any fee imposed to transfer a

balance. (1026.60(b)(11))

l. Returned payment fee. Determine that the creditor disclosed any fee imposed for a

returned payment. (1026.60(b)(12))

m. Required insurance, debt cancellation, or debt suspension coverage. Determine that the

fee imposed required insurance, debt cancellation or suspension coverage is disclosed if

the insurance, debt cancellation or coverage is required as part of the plan.

(1026.60(b)(13))

n. Available credit. Determine whether total of required fees for the issuance or availability

of credit and/or security deposit debited to the account at account opening equal or

exceed 15 percent of minimum credit limit for the account. If so, determine that the

creditor disclosed, as applicable, the available credit remaining after the fees and/or

security deposit are debited to the account. (1026.60(b)(14))

o. Website reference. For issuers of credit cards that are not charge cards, determine that the

creditor disclosed a reference to the website established by the Consumer Financial

Protection Bureau (CFPB) and a statement that the consumers may obtain on the website

information about shopping for and using credit cards. (1026.60(b)(15))

Requirements for Home Equity Plans – Section 1026.40

1. Determine that the following home equity disclosures were made clearly and conspicuously,

at the time of application. (1026.40)

a. Home equity brochure

b. Statement that the consumer should retain a copy of the disclosure

c. Statement of the time the specific terms are available

d. Statement that terms are subject to change before the plan opens

e. Statement that the consumer may receive a full refund of all fees

f. Statement that the consumer’s dwelling secures the credit

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g. Statement that the consumer could lose the dwelling

h. Creditors right to change, freeze, or terminate the account

i. Statement that information about conditions for adverse action are available upon request

j. Payment terms including the length of the draw and repayment periods, how the

minimum payment is determined, the timing of payments, and an example based on

$10,000 and a recent APR

k. A recent APR imposed under the plan and a statement that the rate does not include costs

other than interest (fixed rate plans only)

l. Itemization of all fees paid to creditor

m. Estimate of any fees payable to third parties to open the account and a statement that the

consumer may receive a good faith itemization of third-party fees

n. Statement regarding negative amortization, as applicable

o. Transaction requirements

p. Statement that the consumer should consult a tax advisor regarding the deductibility of

interest and charges under the plan

q. For variable rate home equity plans, disclose the following:

i. That the APR, payment, or term may change

ii. The APR excludes costs other than interest

iii. Identify the index and its source

iv. How the APR will be determined

v. Statement that the consumer should request information on the current index value,

margin, discount, premium, or APR

vi. Statement that the initial rate is discounted and the duration of the discount, if

applicable

vii. Frequency of APR changes

viii. Rules relating to changes in the index, APR, and payment amount

ix. Lifetime rate cap and any annual caps, or a statement that there is no annual limitation

x. The minimum payment requirement, using the maximum APR, and when the

maximum APR may be imposed

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xi. A historical example, based on a $10,000 balance, reflecting all significant plan terms

xii. Statement that rate information will be provided on or with each periodic statement.

2. For home-equity plans subject to section 1026.40, determine that the terms finance charge

and annual percentage rate, when required to be disclosed with a corresponding amount or

percentage rate, are more conspicuous than any other required disclosure.

NOTE: The terms need not be more conspicuous when used for periodic statement

disclosures under section 1026.7(a)(4) and for advertisements under section 1026.16.

(1026.5(a)(2)(ii))

Account Opening Initial Disclosures – Section 1026.6

1. The following requirements apply only to home-equity plans subject to the requirements of

section 1026.40. Determine that the creditor discloses, as applicable (1026.6(a)):

a. Finance charge. The circumstances under which a finance charge will be imposed and an

explanation of how it will be determined, including: a statement of when finance charges

begin to accrue, and an explanation of whether or not any time period exists within which

any credit extended may be repaid without incurring a finance charge; a disclosure of

each periodic rate that may be used to compute the finance charge, the range of balances

to which it is applicable, and the corresponding annual percentage rate; an explanation of

the method used to determine the balance on which the finance charge may be computed;

and, an explanation of how the amount of any finance charge will be determined,

including a description of how any finance charge other than the periodic rate will be

determined. (1026.6(a)(1))

If a creditor offers a variable-rate plan, determine that the creditor discloses: the

circumstances under which the rate(s) may increase; any limitations on the increase; and

the effect(s) of an increase. When different periodic rates apply to different types of

transactions, determine that the types of transactions to which the periodic rates shall

apply shall also be disclosed. (1026.6(a)(1))

b. Other charges. The amount of any charge other than a finance charge that may be

imposed as part of the plan, or an explanation of how the charge will be determined.

(1026.6(a)(2))

c. Home-equity plan information. The following disclosures, as applicable (1026.6(a)(3)):

i. A statement of the conditions under which the creditor may take certain action, as

described in section 1026.40(d)(4)(i), such as terminating the plan or changing the

terms.

ii. The payment information described in section 1026.40(d)(5)(i) and (ii) for both the

draw period and any repayment period.

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iii. A statement that negative amortization may occur as described in section

1026.40(d)(9).

iv. A statement of any transaction requirements as described in section 1026.40(d)(10).

v. A statement regarding the tax implications as described in section 1026.40(d)(11).

vi. A statement that the annual percentage rate imposed under the plan does not include

costs other than interest as described in section 1026.40(d)(6) and (d)(12)(ii).

vii. The variable-rate disclosures described in section 1026.40(d)(12)(viii), (d)(12)(x),

(d)(12)(xi), and (d)(12)(xii), as well as the disclosure described in section

1026.40(d)(5)(iii), unless the disclosures provided with the application were in a form

the consumer could keep and included a representative payment example for the

category of payment option chosen by the consumer.

d. Security interests. The fact that the creditor has or will acquire a security interest in the

property purchased under the plan, or in other property identified by item or type.

(1026.6(a)(4))

e. Statement of billing rights. A statement that outlines the consumer’s rights and the

creditor’s responsibilities under sections 1026.12(c) and 1026.13 and that is substantially

similar to the statement found in Model Form G–3 or, at the creditor’s option, G–3(A), in

appendix G to this part. (1026.6(a)(5))

2. For open-end (not home-secured) plans determine that the creditor provided the account-

opening disclosures specified in section 1026.6(b)(2)(i) through (b)(2)(v) (except for section

1026.6 (b)(2)(i)(D)(2) and section 1026.6 (b)(2)(vii) through (b)(2)(xiv) in the form of a table

with the headings, content, and format substantially similar to any of the applicable tables in

G–17 in appendix G. (1026.6(b)(1))

3. For open-end (not home-secured) plans, determine that the following disclosures are

disclosed in bold text (1026.6(b)(1)(i)):

a. Any APR required to be disclosed pursuant to section 1026.6(b)(2)(i);

b. Any introductory rate permitted to be disclosed pursuant to paragraph (b)(2)(i)(B) or

required to be disclosed under paragraph (b)(2)(i)(F) of this section;

c. Any rate that will apply after a premium initial rate expires permitted to be disclosed

pursuant to paragraph (b)(2)(i)(C) or required to be disclosed pursuant to paragraph

(b)(2)(i)(F); and

d. Any fee or percentage amounts or maximum limits on fee amounts disclosed pursuant to

paragraphs (b)(2)(ii), (b)(2)(iv), (b)(2)(vii) through (b)(2)(xii).

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4. Determine that bold text is not used for: The amount of any periodic fee disclosed pursuant to

paragraph (b)(2) of this section that is not an annualized amount; and other annual percentage

rates or fee amounts disclosed in the table. (1026.6(b)(1)(i))

5. Determine that only the information required or permitted by section 1026.6 (b)(2)(i) through

(b)(2)(v) (except for (b)(2)(i)(D)(2)) and (b)(2)(vii) through (b)(2)(xiv) are provided in the

table. Disclosures required by paragraphs (b)(2)(i)(D)(2), (b)(2)(i)(D)(3), (b)(2)(vi) and

(b)(2)(xv) of this section shall be placed directly below the table required by section

1026.6(b)(1). (1026.6(b)(1)(ii))

NOTE: Disclosures required by section 1026.6(b)(3) through (b)(5) that are not otherwise

required to be in the table and other information may be presented with the account

agreement or account-opening disclosure statement, provided such information appears

outside the required table.

6. For creditors that impose fees referred to in section 1026.6(b)(2)(vii) through (b)(2)(xi) that

vary by state and that provide the disclosures required by section 1026.6(b) in person at the

time the open-end (not home-secured) plan is established in connection with financing the

purchase of goods or services determine that the creditor discloses in the account-opening

table either:

a. The specific fee applicable to the consumer’s account, or

b. The range of fees, a statement that the amount of the fee varies by state, and a reference

to the account agreement or other disclosure provided with the account-opening table

where the amount of the fee applicable to the consumer’s account is disclosed.

(1026.6(b)(1)(iii))

NOTE: A creditor is not permitted to list fees for multiple states in the account-opening

summary table (1026.6(b)(1)(iii)).

c. If the amount of any fee required to be disclosed under this section is determined on the

basis of a percentage of another amount, the percentage used and the identification of the

amount against which the percentage is applied may be disclosed instead of the amount

of the fee. (1026.6(b)(1)(iv))

7. The following requirements apply to open-end (not home-secured). Determine that the

creditor discloses in the appropriate format, as applicable:

a. Annual percentage rate. Each periodic rate that may be used to compute the finance

charge on an outstanding balance for purchases, a cash advance, or a balance transfer,

expressed as an APR. When more than one rate applies for a category of transactions,

determine that the creditor discloses the range of balances to which each rate is

applicable. Ensure that the APR for purchases disclosed pursuant to this paragraph is in at

least 16-point type, except for a penalty rate that may apply upon the occurrence of one

or more specific events. (1026.6(b)(2)(i))

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b. Variable rate information. If the rate is a variable rate, determine that the creditor also

disclosed the fact that the rate may vary and how the rate is determined (i.e., identify the

type of index or formula used in setting the rate). (1026.6(b)(2)(i)(A))

c. Discounted initial rate. If the initial rate is an introductory rate, determine that the

creditor disclosed that the rate would otherwise apply to the account. Where the rate is

not tied to an index or formula, determine that the creditor disclosed the rate that will

apply after the introductory rate expires. For a variable rate account, determine that the

creditor disclosed a rate based on the applicable index or formula in accordance with the

accuracy requirements. (1026.6(b)(2)(i)(B))

d. Premium initial rate. If the initial rate is temporary and is higher than the rate that will

apply after the temporary rate expires, determine that the creditor disclosed the premium

initial rate. Determine that the premium rate for purchases is in at least 16-point type.

(1026.6(b)(2)(i)(C))

e. Penalty rates. Except for introductory rates and employee preferential rates (discussed

below), if the rate is a penalty rate, determine that the creditor disclosed as part of the

APR disclosure the increased rate that may apply, a brief description of the event or

events that may result in the increased rate, and a brief description of how long the

increased rate will remain in effect. (1026.6(b)(2)(i)(D)(1))

f. Introductory rates. If the creditor discloses in the table an introductory rate, as that term

is defined in section 1026.16(g)(2)(ii), determine that the creditor briefly disclosed

directly beneath the table the circumstances under which the introductory rate may be

revoked, and the rate that will apply after the introductory rate is revoked.

(1026.6(b)(2)(i)(D)(2))

g. Employee preferential rates. If the creditor discloses in the table a preferential APR for

which only employees of the creditor, employees of a third party, or other individuals

with similar affiliations with the creditor or third party are eligible, determine that the

creditor briefly disclosed directly beneath the table the circumstances under which the

preferential rate may be revoked, and the rate that will apply after the preferential rate is

revoked. (1026.6(b)(2)(i)(D)(3))

h. Point of sale where APRs vary by state or based on creditworthiness. If the creditor

imposes an APR that varies by state or based on the consumer’s creditworthiness and

provides required disclosures in person at the time the open-end (not home-secured) plan

is established in connection with financing the purchase of goods or services, determine

that the creditor discloses either (1026.6(b)(2)(i)(E)):

i. The specific APR applicable to the consumer’s account, or

ii. The range of the APRs, if the disclosure includes a statement that the APR varies by

state or will be determined based on the consumer’s creditworthiness and refers the

consumer to the account agreement or other disclosure provided with the account-

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opening table where the AP applicable to the consumer’s account is disclosed.

Determine that the creditor does not list APRs for multiple states in the account

opening table.

i. Credit card accounts under an open-end (not home-secured) consumer credit plan.

Determine that the issuer discloses in the table (1026.6(b)(2)(i)(F)):

i. Any introductory rate, and

ii. Any rate that would apply upon expiration of a premium initial rate.

j. Fees for issuance or availability. Determine that the credit disclosed any annual or

periodic fee that may be imposed for the issuance or availability of an open-end plan

(including any fee based on account activity or inactivity); how frequently the fee will be

imposed; and the annualized amount of the fee. (1026.6(b)(2)(ii))

k. Fixed finance charge and minimum interest charge. Determine that the creditor disclosed

any fixed finance charge and any minimum interest charge if it exceeds $1.00 that could

be imposed during a billing cycle, and a brief description of the charge.

(1026.6(b)(2)(iii))

l. Determine that the creditor disclosed any non-periodic fee that relates to opening the

plan. A creditor must disclose that the fee is a one-time fee. (1026.6(b)(2)(ii)(B))

m. Transaction charges. Determine that the creditor discloses any transaction charge

imposed by the creditor for use of the open-end plan for purchases. (1026.6(b)(2)(iv))

n. Grace period. The date by which or the period within which any credit extended may be

repaid without incurring a finance charge due to a periodic interest rate and any

conditions on the availability of the grace period. If no grace period is provided, that fact

must be disclosed. If the length of the grace period varies, the creditor may disclose the

range of days, the minimum number of days, or the average number of the days in the

grace period, if the disclosure is identified as a range, minimum, or average. In disclosing

in the tabular format a grace period that applies to all features on the account, the phrase

“How to Avoid Paying Interest” shall be used as the heading for the row describing the

grace period. If a grace period is not offered on all features of the account, in disclosing

this fact in the tabular format, the phrase “Paying Interest” shall be used as the heading

for the row describing this fact. (1026.6(b)(2)(v))

o. Balance computation method. Determine that the creditor disclosed in the account

opening disclosures the name of the balance computation method that is used to

determine the balance on which the finance charge is computed for each feature, or an

explanation of the method used if it is not listed, along with a statement that an

explanation of the methods required by section 1026.6(b)(4)(i)(D). In determining which

balance computation method to disclose, the creditor should have assumed that the credit

extended will not be repaid within any grace period. (1026.6(b)(2)(vi))

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p. Cash advance fee. Determine that the creditor disclosed any fee imposed for an extension

of credit in the form of cash or its equivalent. (1026.6(b)(2)(vii))

q. Late payment fee. Determine that the creditor disclosed any fee imposed for a late

payment. (1026.6(b)(2)(viii))

r. Over-the-limit fee. Determine that the creditor disclosed any fee imposed for exceeding

the credit limit. (1026.6(b)(2)(ix))

s. Balance transfer fee. Determine that the creditor disclosed any fee imposed to transfer a

balance. (1026.6(b)(2)(x))

t. Returned payment fee. Determine that the creditor disclosed any fee imposed for a

returned payment. (1026.6(b)(2)(xi))

u. Required insurance, debt cancellation, or debt suspension coverage. Determine that the

fee imposed for required insurance, debt cancellation or suspension coverage is disclosed

if the insurance, debt cancellation or coverage is required as part of the plan. Creditors

must also cross reference additional information about the insurance or coverage as

applicable. (1026.6(b)(2)(xii))

v. Available credit. Determine whether total of required fees for the issuance or availability

of credit and/or security deposit debited to the account at account opening equal or

exceed 15 percent of the credit limit for the account. If so, determine that the creditor

disclosed, as applicable, the available credit remaining after the fees and/or security

deposit are debited to the account. (1026.6(b)(2)(xiii))

w. Website reference. For issuers of credit cards that are not charge cards, determine that the

creditor disclosed a reference to the website established by the CFPB and a statement that

the consumers may obtain on the website information about shopping for and using credit

cards. (1026.6(b)(2)(xiv))

x. Billing error rights reference. Determine that the creditor disclosed a statement that

information about consumers’ right to dispute transactions is included in the account-

opening disclosures. (1026.6(b)(2)(xv))

y. Charges and finance charges. For charges imposed as part of open-end (not home-

secured) plan, the circumstances under which the charge may be imposed, including the

amount of the charge or explanation of how the charge is determined. For finance

charges, a statement of when finance charges begin to accrue, including an explanation of

whether or not any time period exists within which any credit extended may be repaid

without incurring a finance charge. If such a time period is provided, a creditor may, at its

option and without disclosure, impose no finance charge when payment is received after

the time period’s expiration. (1026.6(b)(3)(i))

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z. Disclosure of rates for open-end (not home-secured) plans. Determine that the creditor

disclosed, as applicable, for each periodic rate that may be used to calculate interest

(1026.6(b)(4)(i)):

i. The rate (expressed as a periodic rate and a corresponding APR),

ii. The range of balances to which the rate is applicable,

iii. The type of transaction to which the periodic rate applies,

iv. An explanation of the method used to determine the balance to which the rate is

applied.

aa. Variable-rate Accounts. For interest rate changes that are tied to increases in an index or

formula (variable-rate accounts) determine that the following are specifically set forth in

the account agreement (1026.6(b)(4)(ii)):

i. The fact that the annual percentage rate may increase.

ii. How the rate is determined, including the margin.

iii. The circumstances under which the rate may increase.

iv. The frequency with which the rate may increase.

v. Any limitation on the amount the rate may change.

vi. The effect(s) of an increase.

vii. Except as specified in paragraph (b)(4)(ii)(H) of this section, a rate is accurate if it is

a rate as of a specified date and this rate was in effect within the last 30 days before

the disclosures are provided.

bb. Rate changes not due to index or formula. For interest rate changes that are specifically

set forth in the account agreement and not tied to increases in an index or formula,

determine that the creditor discloses (1026.6(b)(4)(iii)):

i. The initial rate (expressed as a periodic rate and a corresponding APR)

ii. How long the initial rate will remain in effect and the specific events that cause the

initial rate to change.

iii. The rate (expressed as a periodic rate and a corresponding APR) that will apply when

the initial rate is no longer in effect and any limitation on the time period the new rate

will remain in effect.

iv. The balances to which the new rate will apply.

v. The balances to which the current rate at the time of the change will apply.

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cc. Voluntary credit insurance, debt cancellation, or debt suspension. Determine that the

creditor disclosed the applicable disclosures if the creditor offers optional credit

insurance, or debt cancellation or debt suspension coverage. (1026.6(b)(5)(i))

dd. Security interests. Determine that the creditor disclosed the fact that the creditor has or

will acquire a security interest in the property purchased under the plan, or in other

property identified by item or type. (1026.6(b)(5)(ii))

ee. Statement of billing rights. Determine that the creditor disclosed a statement that outlines

the consumer’s rights and the creditor’s responsibilities. (1026.6(b)(5)(iii))

Periodic Statement Disclosures – Section 1026.7

1. Rules affecting home-equity plans. For home-equity plans subject to the requirements of

section 1026.40, determine that the creditor disclosed on the periodic statement items 1

through 10 below (1026.7(a)):

NOTE: The requirements of section 1026.7(a) apply only to home-equity plans subject to the

requirements of section 1026.40. Alternatively, a creditor subject to the rules affecting home-

equity plans may, at its option, comply with any of the requirements of section 1026.7(b);

however, any creditor that chooses not to provide a disclosure under section 1026.7(a)(7) must

comply with section 1026.7(b)(6).

a. Previous balance. The account balance outstanding at the beginning of the billing cycle.

(1026.7(a)(1))

b. Identification of transactions. An identification of each credit transaction in accordance

with section 1026.8. (1026.7(a)(2))

c. Credits. Any credit to the account during the billing cycle, including the amount and the

date of crediting. The date need not be provided if a delay in accounting does not result in

any finance or other charge. (1026.7(a)(3))

d. Periodic rates. Each periodic rate that may be used to compute the finance charge, the

range of balances to which it is applicable, and the corresponding annual percentage rate.

If different periodic rates apply to different types of transactions, the types of transactions

to which the periodic rates apply shall also be disclosed. For variable-rate plans, the fact

that the periodic rate(s) may vary. (1026.7(a)(4))

NOTE: If no finance charge is imposed when the outstanding balance is less than a certain

amount, the creditor is not required to disclose that fact, or the balance below which no

finance charge will be imposed

NOTE: Further, an annual percentage rate that differs from the rate that would otherwise

apply and is offered only for a promotional period need not be disclosed except in periods in

which the offered rate is actually applied.

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e. Balance on which finance charge computed. The amount of the balance to which a

periodic rate was applied and an explanation of how that balance was determined. When

a balance is determined without first deducting all credits and payments made during the

billing cycle, the fact and the amount of the credits and payments shall be disclosed.

(1026.7(a)(5))

f. Amount of finance charge and other charges. (1026.7(a)(6))

i. Finance charges. The amount of any finance charge debited or added to the account

during the billing cycle, using the term finance charge. Determine that the

components of the finance charge are individually itemized and identified to show the

amount(s) due to the application of any periodic rates and the amounts(s) of any other

type of finance charge.

NOTE: If there is more than one periodic rate, the amount of the finance charge

attributable to each rate need not be separately itemized and identified. (1026.7(a)(6)(i))

ii. Other charges. The amounts, itemized and identified by type, of any charges other

than finance charges debited to the account during the billing cycle. (1026.7(a)(6)(ii))

NOTE: Creditors may comply with paragraphs (a)(6) of section 1026.7, or with

paragraph (b)(6) of section 1026.7, at their option.

g. Annual percentage rate. At a creditor’s option, when a finance charge is imposed during

the billing cycle, the annual percentage rate(s) determined under section 1026.14(c) using

the term annual percentage rate. (1026.7(a)(7))

h. Grace period. The date by which or the time period within which the new balance or any

portion of the new balance must be paid to avoid additional finance charges.

(1026.7(a)(8))

i. Address for notice of billing errors. The address to be used for notice of billing errors.

Alternatively, the address may be provided on the billing rights statement permitted by

section 1026.9(a)(2). (1026.7(a)(9))

j. Closing date of billing cycle; new balance. The closing date of the billing cycle and the

account balance outstanding on that date. (1026.7(a)(10))

2. Rules affecting open-end (not home-secured) plans. The requirements of paragraph (b) of this

section (1 through 14 below) apply only to plans other than home-equity plans subject to the

requirements of section 1026.40. For applicable plans, determine that the creditor discloses

on the periodic statement (1026.7(b)):

a. Previous balance. The account balance outstanding at the beginning of the billing cycle.

(1026.7(b)(1))

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b. Identification of transactions. An identification of each credit transaction in accordance

with section 1026.8. (1026.7(b)(2))

c. Credits. Any credit to the account during the billing cycle, including the amount and the

date of crediting. The date need not be provided if a delay in crediting does not result in

any finance or other charge. (1026.7(b)(3))

d. Periodic rates. Each periodic rate that may be used to compute the interest charge

expressed as an annual percentage rate and using the term Annual Percentage Rate, along

with the range of balances to which it is applicable. (1026.7(b)(4))

NOTE: If no interest charge is imposed when the outstanding balance is less than a certain

amount, the creditor is not required to disclose that fact, or the balance below which no

interest charge will be imposed. The types of transactions to which the periodic rates apply

shall also be disclosed. For variable-rate plans, the fact that the APR may vary; and

A promotional rate, as that term is defined in section 1026.16(g)(2)(i), is required to be

disclosed only in periods in which the offered rate is actually applied.

e. Balance on which finance charge computed. The amount of the balance to which a

periodic rate was applied and an explanation of how that balance was determined, using

the term Balance Subject to Interest Rate. (1026.7(b)(5))

f. Charges imposed. The amounts of any charges imposed as part of a plan as stated in

section 1026.6(b)(3), grouped together, in proximity to transactions identified under

paragraph (b)(2) of this section, substantially similar to Sample G–18(A) in appendix G

to this part. (1026.7(b)(6))

i. Interest. Finance charges attributable to periodic interest rates, using the term Interest

Charge, must be grouped together under the heading Interest Charged, itemized and

totaled by type of transaction, and a total of finance charges attributable to periodic

interest rates, using the term Total Interest, must be disclosed for the statement period

and calendar year to date, using a format substantially similar to Sample G–18(A).

ii. Fees. Charges imposed as part of the plan other than charges attributable to periodic

interest rates must be grouped together under the heading Fees, identified consistent

with the feature or type, and itemized, and a total of charges, using the term Fees,

must be disclosed for the statement period and calendar year to date, using a format

substantially similar to Sample G–18(A).

a. Change-in-terms and increased penalty rate summary for open-end (not home-secured)

plans. Creditors that provide a change-in-terms notice required by section 1026.9(c), or a

rate increase notice required by section 1026.9(g), on or with the periodic statement, must

disclose the information in sections 1026.9(c)(2)(iv)(A) and (c)(2)(iv)(B) (if applicable)

or section 1026.9(g)(3)(i) on the periodic statement in accordance with the format

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requirements in section 1026.9(c)(2)(iv)(D), and section 1026.9(g)(3)(ii). See Forms G–

18(F) and G–18(G). (1026.7(b)(7))

b. Grace period. The date by which or the time period within which the new balance or any

portion of the new balance must be paid to avoid additional finance charges. If such a

time period is provided, a creditor may, at its option and without disclosure, impose no

finance charge if payment is received after the time period’s expiration. (1026.7(b)(8))

c. Address for notice of billing errors. The address to be used for notice of billing errors.

Alternatively, the address may be provided on the billing rights statement permitted by

section 1026.9(a)(2). (1026.7(b)(9))

d. Closing date of billing cycle; new balance. The closing date of the billing cycle and the

account balance outstanding on that date disclosed in accordance with section

1026.7(b)(13). (1026.7(b)(10))

e. Due date; late payment costs. With the exception of periodic statements provided solely

for charge cards and periodic statements provided for a charged-off account where

payment of the entire account balance is due immediately, determine that the creditor

disclosed (in accordance with section 1026.7(b)(13)) for a credit card account under an

open-end (not home-secured) consumer credit plan:

i. The due date for a payment (the due date must be the same day of the month for each

billing cycle). (1026.7(b)(11)(i)(A))

ii. The amount of any late payment fee and any increased periodic rate(s) (expressed as

an annual percentage rate(s)) that may be imposed on the account as a result of a late

payment. If a range of late payment fees may be assessed, verify that the card issuer

either states a range of fees or the highest fee and an indication that the fee imposed

could be lower. (1026.7(b)(11)(i)(B))

NOTE: If the rate may be increased for more than one feature or balance, the card issuer

may state the range of rates or the highest rate that could apply and at the issuer’s option

an indication that the rate imposed could be lower.

NOTE: Further, with the exception of the negative or no amortization disclosures

required by section 1026.7(b)(12)(ii), the repayment disclosures in section 1026.7(b)(12)

(as listed in step 12 below) are not required for:

iii. Charge card accounts that require payment of outstanding balances in full at the end

of each billing cycle;

iv. A billing cycle immediately following two consecutive billing cycles in which the

consumer paid the entire balance in full, had a zero outstanding balance or had a

credit balance; and

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v. A billing cycle where paying the minimum payment due for that billing cycle will pay

the entire outstanding balance on the account for that billing cycle.

f. Given those exceptions above, determine that the card issuer disclosed on the periodic

statement section 1026.7(b)(12):

i. The following statement with a bold heading: “Minimum Payment Warning: If you

make only the minimum payment each period, you will pay more in interest and it

will take you longer to pay off your balance” (1026.7(b)(12)(i)(A));

ii. The minimum payment repayment estimate, as described in appendix M1 to this part.

NOTE: If the minimum payment repayment estimate is less than two years, determine

that the card issuer disclosed the estimate in months. Otherwise, the estimate must be

disclosed in years and rounded to the nearest whole year (1026.7(b)(12)(i)(B));

iii. The minimum payment total cost estimate, as described in appendix M1 to this part,

rounded to the nearest whole dollar or to the nearest cent, at the card issuer’s option

(1026.7(b)(12)(i)(C));

iv. A statement that the minimum payment repayment estimate and the minimum

payment total cost estimate are based on the current outstanding balance shown on

the periodic statement. A statement that the minimum payment repayment estimate

and the minimum payment total cost estimate are based on the assumption that only

minimum payments are made and no other amounts are added to the balance

(1026.7(b)(12)(i)(D));

v. A toll-free telephone number where the consumer may obtain from the card issuer

information about credit counseling services (1026.7(b)(12)(i)(E)); and

vi. The disclosures required for section 1026.7(b)(12)(i)(F)(1):

A. The estimated monthly payment for repayment in 36 months, as described in

appendix M1 to this part. The estimated monthly payment for repayment in 36

months must be rounded to the nearest whole dollar or to the nearest cent, at the

card issuer’s option (1026.7(b)(12)(i)(F)(1)(i));

B. A statement that the card issuer estimates that the consumer will repay the

outstanding balance shown on the periodic statement in three years if the

consumer pays the estimated monthly payment for three years

(1026.7(b)(12)(i)(F)(1)(ii));

C. The total cost estimate for repayment in 36 months, as described in appendix M1

to this part. The total cost estimate for repayment in 36 months must be rounded

to the nearest whole dollar or to the nearest cent, at the card issuer’s option

(1026.7(b)(12)(i)(F)(1)(iii)); and

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D. The savings estimate for repayment in 36 months, as described in appendix M1 to

this part. The savings estimate for repayment in 36 months must be rounded to the

nearest whole dollar or to the nearest cent, at the card issuer’s option

(1026.7(b)(12)(i)(F)(1)(iv)).

NOTE: The disclosures (A through D above) required for section 1026.7(b)(12)(i)(F)(1)

do not apply to a periodic statement in any of the following circumstances:

1) The minimum payment repayment estimate that is disclosed on the periodic

statement pursuant to paragraph (b)(12)(i)(B) of this section after rounding is

three years or less;

2) The estimated monthly payment for repayment in 36 months, as described in

appendix M1 to this part, rounded to the nearest whole dollar or nearest cent

that is calculated for a particular billing cycle is less than the minimum

payment required for the plan for that billing cycle; and

3) A billing cycle where an account has both a balance in a revolving feature

where the required minimum payments for this feature will not amortize that

balance in a fixed amount of time specified in the account agreement and a

balance in a fixed repayment feature where the required minimum payment

for this fixed repayment feature will amortize that balance in a fixed amount

of time specified in the account agreement which is less than 36 months.

vii. If negative or no amortization occurs when calculating the minimum payment

estimate as described in appendix M1, determine that the card issuer provides the

following disclosures on each periodic statement instead of the disclosures set forth in

section 1026.7(b)(12)(i) (1026.7(b)(12)(ii)):

A. “Minimum Payment Warning: Even if you make no more charges using this

card, if you make only the minimum payment each month we estimate you will

never pay off the balance shown on this statement because your payment will

be less than the interest charged each month” (1026.7(b)(12)(ii)(A));

B. “If you make more than the minimum payment each period, you will pay less in

interest and pay off your balance sooner” (1026.7(b)(12)(ii)(B));

C. The estimated monthly payment for repayment in 36 months rounded to the

nearest whole dollar or to the nearest cent, at the creditor’s option

(1026.7(b)(12)(ii)(C));

D. A statement that the card issuer estimates that the consumer will repay the

outstanding balance shown on the periodic statement in three years if the

consumer pays the estimated monthly payment each month for three years

(1026.7(b)(12)(ii)(D)); and

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E. A toll-free telephone number where the consumer may obtain from the card issuer

information about credit counseling services consistent with section

1026.7(b)(12)(iv). (1026.7(b)(12)(ii)(E))

viii. Verify that the items required to be disclosed, as addressed in the procedures in step

12 above (required by section 1026.7(b)(12)) are disclosed in accordance with the

format requirements of section 1026.7(b)(13) and are substantially similar to the

samples provided in appendix G of Regulation Z.

ix. Determine that a card issuer provides (to the extent available from the United States

Trustee or a bankruptcy administrator) through the disclosed toll-free telephone

number the name, street address, telephone number, and website address for at least

three organizations that have been approved by the United States Trustee or a

bankruptcy administrator to provide credit counseling services in either the state in

which the billing address for the account is located or the state specified by the

consumer. (1026.7(b)(12)(iv)(A))

x. Determine that the card issuer at least annually updates the credit counseling

information it discloses for consistency with the information available from the

United States Trustee or a bankruptcy administrator. (1026.7(b)(12)(iv)(B))

g. Determine that the card issuer provided periodic statement disclosures according to the

following format requirements (1026.7(b)(13)):

i. The due date is disclosed on the front of the first page of the periodic statement and

that the amount of the late payment fee and the APR(s) are stated in close proximity

thereto.

ii. The ending balance and the repayment disclosures (required by paragraph (b)(12) of

section 1026.7 are disclosed closely proximate to the minimum payment due.

iii. The due date, late payment fee and APR, ending balance, minimum payment due, and

repayment disclosures are grouped together.

NOTE: Sample G-18(D) in appendix G of Regulation Z sets forth an example of how

these terms may be grouped.

h. For accounts with an outstanding balance subject to a deferred interest or similar

program, determine that the creditor disclosed the date by which that outstanding balance

must be paid in full in order to avoid the obligation to pay finance charges on such

balance on the front of any page of each periodic statement issued during the deferred

interest period beginning with the first periodic statement issued during the deferred

interest period that reflects the deferred interest or similar transaction. The disclosure

provided pursuant to this paragraph must be substantially similar to Sample G–18(H) in

appendix G to this part. (1026.7(b)(14))

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Subsequent Disclosure Requirements – Section 1026.9

1. Determine whether the creditor mailed or delivered the billing rights statement at least once

per calendar year, at intervals of not less than 6 months or more than 18 months, customers

and whether the institution used the short form notice with each periodic statement.

(1026.9(a)(1))

NOTE: As an alternative to the annual billing rights statement (1026.9(a)(1)), the creditor

may mail or deliver, on or with each periodic statement, a statement substantially similar to

Model Form G–4 or Model Form G–4(A) in appendix G to this part, as applicable. Creditors

offering home-equity plans subject to the requirements of section 1026.40 may use either

Model Form, at their option. (1026.9(a)(2))

2. If, 30 days after mailing or delivering the account-opening disclosures under sections

1026.6(a)(1) or (b)(3)(ii)(A), the creditor adds a credit feature or furnishes a credit access

device (other than as a renewal, resupply, or the original issuance of a credit card, or except

with regard to checks that access a credit card account) on the same finance charge terms,

determine that the creditor discloses, before the consumer uses the feature or device for the

first time, that it is for use in obtaining credit under the terms previously disclosed.

(1026.9(b)(1))

3. Determine that, except with regard to checks that access a credit card account, whenever a

credit feature is added or a credit access device is mailed or delivered to the consumer, and

the finance charge terms for the feature or device differ from disclosures previously given,

the disclosures required by sections 1026.6(a)(1) or (b)(3)(ii)(A) that are applicable to the

added feature or device are given before the consumer uses the feature or device for the first

time. (1026.9(b)(2))

4. Checks that access a credit card account. For open-end plans not subject to the requirements

of section 1026.40, if checks that can be used to access a credit card account are provided

more than 30 days after account-opening disclosures under section 1026.6(b) are mailed or

delivered, or are provided within 30 days of the account-opening disclosures and the finance

charge terms for the checks differ from the finance charge terms previously disclosed,

determine that the creditor discloses on the front of the page containing the checks the

following terms in the form of a table with the headings, content, and form substantially

similar to Sample G–19 in appendix G to this part (1026.9(b)(3)):

a. If a promotional rate applies to the checks, determine that the creditor discloses:

i. The promotional rate and the time period during which the promotional rate will

remain in effect (1026.9(b)(3)(i)(A)(1));

ii. The type of rate that will apply (such as whether the purchase or cash advance rate

applies) after the promotional rate expires, and the annual percentage rate that will

apply after the promotional rate expires. For a variable-rate account, a creditor must

disclose an annual percentage rate based on the applicable index or formula in

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accordance with the accuracy requirements set forth in paragraph (b)(3)(ii) of this

section (1026.9(b)(3)(i)(A)(2)); and

iii. The date, if any, by which the consumer must use the checks in order to qualify for

the promotional rate. If the creditor will honor checks used after such date but will

apply an annual percentage rate other than the promotional rate, the creditor must

disclose this fact and the type of annual percentage rate that will apply if the

consumer uses the checks after such date (1026.9(b)(3)(i)(A)(3)).

b. If any APR required to be disclosed pursuant to section 1026.9(b)(3)(i) is a variable rate,

determine that the creditor also disclosed the fact that the rate may vary and how the rate

is determined. Determine that the creditor identified the type of index or formula used in

setting the rate. Determine that the creditor does not disclose the value of the index and

the amount of the margin that are used to calculate the variable rate in the table and that

any applicable limitations on rate increases are not included in the table

(1026.9(b)(3)(iii)).

c. If no promotional rate applies to the checks, determine that the creditor discloses:

i. The type of rate that will apply to the checks and the applicable annual percentage

rate. For a variable-rate account, a creditor must disclose an annual percentage rate

based on the applicable index or formula in accordance with the accuracy

requirements set forth in section 1026.9(b)(3)(ii). (1026.9(b)(3)(i)(B)(1))

d. Determine that the creditor discloses:

i. Any transaction fees applicable to the checks disclosed under section

1026.6(b)(2)(iv). (1026.9(b)(3)(i)(C))

ii. Whether or not a grace period is given within which any credit extended by use of the

checks may be repaid without incurring a finance charge due to a periodic interest

rate. When disclosing whether there is a grace period, the phrase “How to Avoid

Paying Interest on Check Transactions” shall be used as the row heading when a

grace period applies to credit extended by the use of the checks. When disclosing the

fact that no grace period exists for credit extended by use of the checks, the phrase

“Paying Interest” shall be used as the row heading. (1026.9(b)(3)(i)(D))

NOTE: The disclosures in section 1026.9(b)(3)(i) must be accurate as of the time the

disclosures are mailed or delivered. A variable APR is accurate if it was in effect within

60 days of when the disclosures are mailed or delivered. (1026.9(b)(3)(ii))

5. Determine, for home-equity plans subject to the requirements of section 1026.40:

a. Whenever any term required to be disclosed under section 1026.6(a) is changed or the

required minimum periodic payment is increased, the creditor mailed or delivered written

notice of the change at least 15 days prior to the effective date of the change. If the

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consumer agreed to the change, determine that notice was provided before the change

went into effect. (1026.9(c)(1)(i))

b. If the creditor prohibits additional extensions of credit or reduces the credit limit that the

creditor mailed or delivered notice of the action not later than three business days after

such action is taken. The notice must contain the specific reasons for the action.

(1026.9(c)(1)(iii))

NOTE: Notice is not required when the change involves a reduction of any component of a

finance charge or other charge or when the change results from an agreement involving a

court proceeding. (1026.9(c)(1)(ii))

6. For plans other than home-equity plans subject to the requirements of section 1026.40,

except as provided in sections 1026.9(c)(2)(i)(B), (c)(2)(iii) and (c)(2)(v), when a significant

change in account terms as described in section 1026.9(c)(2)(ii) is made, determine that the

creditor provides a written notice of the change at least 45 days prior to the effective date of

the change to each consumer who may be affected. (1026.9(c)(2)(i)(A))

7. The 45-day timing requirement, however, does not apply if the consumer has agreed to a

particular change as described in section 1026.9(c)(2)(i)(B). For these instances, however,

determine that the creditor provided a notice in accordance with the timing requirements of

section 1026.9(c)(2)(i)(B). (1026.9(c)(2)(i)(A))

8. For open-end (not home-secured) plans, determine that increases in the rate applicable to a

consumer’s account due to delinquency, default or as a penalty described in section

1026.9(g) that are not due to a change in the contractual terms of the consumer’s account are

disclosed pursuant to section 1026.9(g) instead of section 1026.9(c)(2). (1026.9(c)(2)(i)(A))

9. When a notice of change in terms is required, determine that it is mailed or delivered no later

than the effective date of the change, if the consumer agrees to the particular change. section

1026.9(c)(2)(i)(B) applies only when a consumer substitutes collateral or when the creditor

can advance additional credit only if a change relatively unique to that consumer is made,

such as the consumer’s providing additional security or paying an increased minimum

payment amount. (1026.9(c)(2)(i)(B))

NOTE: The 45-day timing requirements discussed in step f above does not apply in certain

narrow circumstances, as described in section 1026.9(c)(2)(i)(B). The following are not

considered agreements between the consumer and the creditor for purposes of section

1026.9(c)(2)(i)(B):

a. The consumer’s general acceptance of the creditor’s contract reservation of the right to

change terms;

b. The consumer’s use of the account (which might imply acceptance of its terms under

state law);

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c. The consumer’s acceptance of a unilateral term change that is not particular to that

consumer, but rather is of general applicability to consumers with that type of account;

and,

d. The consumer’s request to reopen a closed account or to upgrade an existing account to

another account offered by the creditor with different credit or other features.

(1026.9(c)(2)(i)(B))

10. The 45-day advance notice requirement applies to changes to the following terms

(1026.9(c)(2)(ii)):

a. APR increase, including each periodic rate that may be used to compute the finance

charge on outstanding balances for purchases, a cash advance, or a balance transfer (such

rates may include any discounted initial rate, premium initial rate, or penalty rate that

may be applied to the account);

i. Variable-rate information;

ii. Discounted or premium initial rates;

iii. Penalty rates;

b. Fees for issuance or availability, including any fee based upon account activity or

inactivity;

c. Fixed finance charge or minimum interest charge, if it exceeds $1.00;

d. Transaction charge for purchases;

e. Grace period;

f. Balance computation method;

g. Cash advance fee;

h. Late payment fee;

i. Over-the-limit fee;

j. Balance transfer fee;

k. Returned payment fee;

l. Required insurance, debt cancellation, or debt suspension coverage; and

m. Increase in required minimum periodic payment, or the acquisition of a security interest.

11. Except as provided in section 1026.9(c)(2)(vi), if a creditor increases any component of a

charge, or introduces a new charge, required to be disclosed under section 1026.6(b)(3) that

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is not a significant change in account terms as described in paragraph (c)(2)(ii) of this

section, determine that the creditor either (1026.9(c)(2)(iii)):

a. Complies with the requirements of section 1026.9(c)(2)(i), or

b. Provides notice of the amount of the charge before the consumer agrees to or becomes

obligated to pay the charge, at a time and in a manner that a consumer would be likely to

notice the disclosure of the charge, either in writing or orally.

12. Ensure that the written change-in-terms notice contains the following disclosures

(1026.9(c)(2)(iv)(A)):

a. A summary of the changes made to terms required by sections 1026.6(b)(1) and (b)(2) or

section 1026.6(b)(4), a description of any increase in the required minimum payment, and

a description of any security interests being acquired by the creditor.

b. A statement that changes are being made to the account.

c. For accounts other than credit card accounts under an open-end (not home-secured)

consumer credit plan subject to section 1026.9(c)(2)(iv)(B), a statement indicating that

the consumer has the right to opt out of the changes, if applicable, and a reference to the

opt-out right provided in the notice, if applicable.

d. The date the changes will become effective.

e. If applicable, a statement that the consumer may find additional information about the

summarized changes, and other changes, in the notice.

f. In the case of a rate change, other than a penalty rate, a statement that if a penalty rate

currently applies to the consumer’s account, the new rate described in the notice will not

apply to the consumer’s account until the consumer’s account balances are no longer

subject to the penalty rate.

g. If the change in terms being disclosed is an increase in the APR, the balances to which the

increased rate will apply. If applicable, creditors should disclose a statement identifying the

balances to which the current rate will apply as of the effective date of the change.

h. If the change in terms being disclosed is an increase in an annual percentage rate for a

credit card account under an open-end (not home-secured) consumer credit plan, a

statement of no more than four principal reasons for the rate increase, listed in their order

of importance.

NOTE: The disclosed reasons must accurately describe the principal factors actually

considered by the card issuer in increasing the rate. (Comment 1026.9(c)(2)(iv)-11)

13. In addition to the disclosures in section 1026.9(c)(2)(iv)(A), if a card issuer makes a

significant change in account terms on a credit card account under an open-end (not home-

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secured) consumer credit plan, determine that the creditor provides the following information

on the notice provided pursuant to section 1026.9(c)(2)(i) (1026.9(c)(2)(iv)(B)):

NOTE: This information is not required to be provided in the case of an increase in the

required minimum periodic payment, an increase in a fee as a result of a reevaluation of a

determination made under section 1026.52(b)(1)(i) or an adjustment to the safe harbors in

section 1026.52(b)(1)(ii) to reflect changes in the Consumer Price Index, a change in an

annual percentage rate applicable to a consumer’s account, an increase in a fee previously

reduced consistent with 50 U.S.C. app. 527 (Servicemembers Civil Relief Act) or similar

federal or state statute or regulation if the amount of the increased fee does not exceed the

amount of that fee prior to the reduction, or when the change results from the creditor not

receiving the consumer’s required minimum periodic payment within 60 days after the due

date for that payment.

a. A statement that the consumer has the right to reject the change or changes prior to the

effective date of the changes, unless the consumer fails to make a required minimum

periodic payment within 60 days after the due date for that payment;

b. Instructions for rejecting the change or changes, and a toll-free telephone number that the

consumer may use to notify the creditor of the rejection; and

c. If applicable, a statement that if the consumer rejects the change or changes, the

consumer’s ability to use the account for further advances will be terminated or

suspended.

14. Changes resulting from failure to make minimum periodic payment within 60 days from due

date for credit card accounts under an open-end (not home-secured) consumer credit plan.

For a credit card account under an open-end (not home-secured) consumer credit plan

(1026.9(c)(2)(iv)(C)):

a. If the significant change required to be disclosed pursuant to section 1026.9(c)(2)(i) of

this section is an increase in an annual percentage rate or a fee or charge required to be

disclosed under sections 1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii) based on the

consumer’s failure to make a minimum periodic payment within 60 days from the due

date for that payment, determine that the notice provided pursuant to paragraph (c)(2)(i)

of this section states that the increase will cease to apply to transactions that occurred

prior to or within 14 days of provision of the notice, if the creditor receives six

consecutive required minimum periodic payments on or before the payment due date,

beginning with the first payment due following the effective date of the increase.

b. If the significant change required to be disclosed pursuant to section 1026.9(c)(2)(i) is an

increase in a fee or charge required to be disclosed under sections 1026.6(b)(2)(ii),

(b)(2)(iii), or (b)(2)(xii) based on the consumer’s failure to make a minimum periodic

payment within 60 days from the due date for that payment, determine that the notice

provided pursuant to section 1026.9(c)(2)(i) also states the reason for the increase.

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15. Determine that the summary of changes described in section 1026.9(c)(2)(iv)(A)(1) is in a

tabular format (except for a summary of any increase in the required minimum periodic

payment, a summary of a term required to be disclosed under section 1026.6(b)(4) that is not

required to be disclosed under section 1026.6(b)(1) and (b)(2), or a description of any

security interest being acquired by the creditor), with headings and format substantially

similar to any of the account-opening tables found in G–17 in appendix G. Determine that the

table discloses the changed term and information relevant to the change, if that relevant

information is required by section 1026.6(b)(1) and (b)(2). Determine that the new terms are

described in the same level of detail as required when disclosing the terms under section

1026.6(b)(2). (1026.9(c)(2)(iv)(D)(1))

16. If a notice required by section 1026.9(c)(2)(i) (change in terms) is included on or with a

periodic statement, determine that the information described in section

1026.6(c)(2)(iv)(A)(1) is disclosed on the front of any page of the statement. Determine that

the summary of changes described in section 1026.9(c)(2)(iv)(A)(1) immediately follows the

information described in section 1026.9(c)(2)(iv)(A)(2) through section

1026.9(c)(2)(iv)(A)(7) and, if applicable, sections 1026.9(c)(2)(iv)(A)(8),

1026.9(c)(2)(iv)(B), and 1026.9(c)(2)(iv)(C), and is substantially similar to the format shown

in Sample G-20 or G-21 in appendix G to this part. (1026.9(c)(2)(iv)(D)(2))

17. If a notice required by section 1026.9(c)(2)(i) is not included on or with a periodic statement,

determine that the information described in section 1026.9(c)(2)(iv)(A)(1) is disclosed on the

front of the first page of the notice or segregated on a separate page from other information

given with the notice. (1026.9(c)(2)(iv)(D)(3))

NOTE: The summary of changes required to be in a table pursuant to paragraph

(c)(2)(iv)(A)(1) of this section may be on more than one page, and may use both the front

and reverse sides, so long as the table begins on the front of the first page of the notice and

there is a reference on the first page indicating that the table continues on the following page.

18. Determine that the summary of changes described in section 1026.9(c)(2)(iv)(A)(1)

immediately follows the information described in section 1026.9(c)(2)(iv)(A)(2) through

section 1026.9(c)(2)(iv)(A)(7) and, if applicable, sections 1026.9(c)(2)(iv)(A)(8),

(c)(2)(iv)(B), and (c)(2)(iv)(C), of this section, and is substantially similar to the format

shown in Sample G-20 or G-21 in appendix G to this part. (1026.9(c)(2)(iv)(D)(3))

19. For open-end plans (other than home equity plans subject to the requirements of section

1026.40), note that a creditor is not required to provide notice under this section if

(1026.9(c)(2)(v)):

a. The change involves:

i. Charges for documentary evidence;

ii. A reduction of any component of a finance or other charge;

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iii. A suspension of future credit privileges (except as provided in section

1026.9(c)(2)(vi) of this section) or termination of an account or plan;

iv. When the change results from an agreement involving a court proceeding;

v. When the change is an extension of the grace period; or

vi. The change is applicable only to checks that access a credit card account and the

changed terms are disclosed on or with the checks in accordance with section

1026.9(b)(3) (1026.9(c)(2)(v)(A));

b. The change is an increase in an APR upon the expiration of a specified period of time,

provided that (1026.9(c)(2)(v)(B)):

i. Prior to commencement of that period, the creditor disclosed in writing to the

consumer, in a clear and conspicuous manner, the length of the period and the APR or

fee that would apply after expiration of the period;

ii. The disclosure of the length of the period and the APR or fee that would apply after

expiration of the period are set forth in close proximity and in equal prominence to

the first listing of the disclosure of the rate or fee that applies during the specified

period of time; and

iii. The APR or fee that applies after that period does not exceed the rate disclosed

pursuant to section 1026.9(c)(2)(v)(B)(1) or, if the rate disclosed pursuant to section

1026.9(c)(2)(v)(B)(1) was a variable rate, the rate following any such increase is a

variable rate determined by the same formula (index and margin) that was used to

calculate the variable rate disclosed pursuant to section 1026.9(c)(2)(v)(B)(1);

c. The change is an increase in a variable APR in accordance with a credit card or other

account agreement that provides for changes in the rate according to operation of an

index that is not under the control of the creditor and is available to the general public

(1026.9(c)(2)(v)(C)); or

d. The change is an increase in an APR, a fee or charge required to be disclosed under

sections 1026.6(b)(2)(ii), (b)(2)(iii), (b)(2)(viii), (b)(2)(ix) or (b)(2)(xii), or the required

minimum periodic payment due to the completion of a workout or temporary hardship

arrangement by the consumer or the consumer’s failure to comply with the terms of such

an arrangement, provided that (1026.9(c)(2)(v)(D)):

i. The APR or fee or charge applicable to a category of transactions or the required

minimum periodic payment following any such increase does not exceed the rate or

fee or charge or required minimum periodic payment that applied to that category of

transactions prior to commencement of the arrangement or, if the rate that applied to a

category of transactions prior to the commencement of the workout or temporary

hardship arrangement was a variable rate, the rate following any such increase is a

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variable rate determined by the same formula (index and margin) that applied to the

category of transactions prior to commencement of the workout or temporary

hardship arrangement; and

ii. The creditor has provided the consumer, prior to the commencement of such

arrangement, with a clear and conspicuous disclosure of the terms of the arrangement

(including any increases due to such completion or failure). This disclosure must

generally be provided in writing. However, a creditor may provide the disclosure of

the terms of the arrangement orally by telephone, provided that the creditor mails or

delivers a written disclosure of the terms of the arrangement to the consumer as soon

as reasonably practicable after the oral disclosure is provided.

20. For open-end plans that are not subject to the requirements of section 1026.40, if a creditor

decreases the credit limit on the account, determine that advance notice of the decrease is

provided before an over-the-limit fee or a penalty rate can be imposed solely as a result of the

consumer exceeding the newly decreased credit limit. Determine that notice is provided in

writing or orally at least 45 days prior to imposing the over-the-limit fee or penalty rate and

that it states that the credit limit on the account has been or will be decreased.

(1026.9(c)(2)(vi))

21. Determine that the disclosures contained in section 1026.60(b)(1) through (b)(7) are provided

if the account is renewed and (1) the card issuer imposes an annual or other periodic fee for

the renewal or (2) the card issuer has changed or amended any term of the account required

to be disclosed under section 1026.6(b)(1) and (b)(2) that has not previously been disclosed

to the consumer. Additionally, the disclosure provided upon renewal must disclose how and

when the cardholder may terminate the credit to avoid paying the renewal fee, if any.

(1026.9(e))

22. For plans other than home-equity plans subject to the requirements of section 1026.40

(except as provided in section 1026.9(g)(4)), determine that the creditor provides a written

notice to each consumer who may be affected when (1026.9(g)(1)):

a. A rate is increased due to the consumer’s delinquency or default; or

b. A rate is increased as a penalty for one or more events specified in the account

agreement, such as making a late payment or obtaining an extension of credit that

exceeds the credit limit.

23. Whenever any notice is required to be given pursuant to paragraph (g)(1) of this section,

determine that the creditor provided written notice of the increase in rates at least 45 days

prior to the effective date of the increase. The notice must be provided after the occurrence of

the events described in section 1026.9(g)(1)(i) and (g)(1)(ii) that trigger the imposition of the

rate increase. (1026.9(g)(2))

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24. If a creditor is increasing the rate due to delinquency or default or as a penalty, determine that

the creditor provided the following information on the notice sent pursuant to section

1026.9(g)(1) (1026.9(g)(3)(i)(A)):

a. A statement that the delinquency or default rate or penalty rate, as applicable, has been

triggered;

b. The date on which the delinquency or default rate or penalty rate will apply;

c. The circumstances under which the delinquency or default rate or penalty rate, as

applicable, will cease to apply to the consumer’s account, or that the delinquency or

default rate or penalty rate will remain in effect for a potentially indefinite time period;

d. A statement indicating to which balances the delinquency or default rate or penalty rate

will be applied;

e. If applicable, a description of any balances to which the current rate will continue to

apply as of the effective date of the rate increase, unless a consumer fails to make a

minimum periodic payment within 60 days from the due date for that payment; and

f. For a credit card account under an open-end (not home-secured) consumer credit plan, a

statement of no more than four principal reasons for the rate increase, listed in their order

of importance.

NOTE: The disclosed reasons must accurately describe the principal factors actually

considered by the card issuer in increasing the rate. (Comment 1026.9(g) - 7)

25. For a credit card account under an open-end (not home-secured) consumer credit plan, if the

rate increase required to be disclosed pursuant to paragraph (g)(1) of this section is an

increase pursuant to section 1026.55(b)(4) based on the consumer’s failure to make a

minimum periodic payment within 60 days from the due date for that payment, determine

that the notice provided pursuant to paragraph (g)(1) of this section also states that the

increase will cease to apply to transactions that occurred prior to or within 14 days of

provision of the notice, if the creditor receives six consecutive required minimum periodic

payments on or before the payment due date, beginning with the first payment due following

the effective date of the increase. (1026.9(g)(3)(i)(B))

26. If a notice required by section 1026.9(g)(1) (Increase in rates due to delinquency or default

or as a penalty) is included on or with a periodic statement, determine that the disclosure

described in paragraph (g)(3)(i) is in the form of a table and provided on the front of any

page of the periodic statement, above the notice described in paragraph (c)(2)(iv) of this

section if that notice is provided on the same statement. (1026.9(g)(3)(ii)(A))

27. If a notice required by section 1026.9(g)(1) (increase in rates) is not included on or with a

periodic statement, determine that the information described in section 1026.9(g)(3)(i) is

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disclosed on the front of the first page of the notice. Ensure that only information related to

the increase in the rate to a penalty rate is included with the notice.

NOTE: This notice may be combined with a notice described in sections 1026.9(c)(2)(iv) or

(g)(4) (A statement indicating to which balances the delinquency or default rate or penalty

rate will be applied) of this section. (1026.9(g)(3)(ii)(B))

28. Exception for Decreases in the Credit Limit. If a creditor does not provide the 45-day notice

under section 1026.9(g)(1) prior to increasing the rate for obtaining an extension of credit

that exceeds the credit limit, determine that the creditor provides at least 45 days in advance

of imposing the penalty rate a notice, in writing, that includes (1026.9(g)(4)):

a. A statement that the credit limit on the account has or will be decreased.

b. The date on which the penalty rate will apply, if the outstanding balance exceeds the

credit limit as of that date;

c. A statement that the penalty rate will not be imposed on that date, if the outstanding

balance does not exceed the credit limit as of that date;

d. The circumstances under which the penalty rate, if applied, will cease to apply to the

account, or that the penalty rate, if applied, will remain in effect for a potentially

indefinite period of time;

e. A statement indicating to which balances the penalty rate may be applied; and

f. If applicable, a description of any balances to which the current rate will continue to

apply as of the effective date of the rate increase, unless the consumer fails to make a

minimum periodic payment within 60 days from the due date for that payment.

In addition to this notice, determine that the creditor does not increase the applicable rate

to the penalty rate if the outstanding balance does not exceed the credit limit on the date

set forth in the notice. (1026.9(g)(4)(ii))

29. If a notice provided pursuant to section 1026.9(g)(4)(i) is included on or with a periodic

statement, determine that the information described in section 1026.9(g)(4)(i) is in the form

of a table and provided on the front of any page of the periodic statement

(1026.9(g)(4)(iii)(A)); or,

30. If a notice required by section 1026.9(g)(4)(i) is not included on or with a periodic statement,

determine that the information described in section 1026.9(g)(4)(i) is disclosed on the front

of the first page of the notice. Determine that only information related to the reduction in

credit limit is included with the notice, except that this notice may be combined with a notice

described in sections 1026.9(c)(2)(iv) or (g)(1). (1026.9(g)(4)(iii)(B))

31. When the consumer is given the right to reject a significant change to an account term prior

to the effective date of the change, determine whether the consumer was given the option to

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reject the change by notifying the creditor of the rejection before the effective date of the

change. (1026.9(h)(1))

32. If the creditor was notified of the rejection of a significant change to an account term,

determine that the creditor did not:

a. Apply the charge to the account;

b. Impose a fee or charge or treat the account as in default solely as a result of the rejection;

c. Require repayment of the balance on the account using a method that is LESS beneficial

to the consumer than one of the following methods:

i. The method of repayment for the account on the date on which the creditor was

notified of the rejection;

ii. An amortization period of not less than five years, beginning no earlier than the date

on which the creditor was notified of the rejection; or

iii. A required minimum periodic payment that includes a percentage of the balance that

is equal to no more than twice the percentage required on the date on which the

creditor was notified of the rejection. (1026.9(h)(2))

NOTE: These requirements do not apply if the creditor has not received the consumer’s

required minimum periodic payment within 60 days after the due date for that payment

and the creditor has provided timely change in terms disclosures. (1026.9(h)(3))

33. Determine that a statement of the maximum interest rate that may be imposed during the

term of the obligation is made for any dwelling-secured loan in which the APR may increase

during the plan. (1026.30(b))

34. For any open-end mortgage loan (credit transaction that is secured by the principal dwelling

of a consumer) that was sold, assigned, or otherwise transferred to the covered person,

determine that the covered person notifies the borrower in writing of such transfer, including

(1026.39):

a. An identification of the loan that was sold, assigned, or otherwise transferred;

b. The name, address, and telephone number of the covered person who owns the mortgage

loan;

c. The date of transfer (either the date of acquisition recognized in the books and records of

the covered person or that of the transferring party) identified by the covered person;

d. The name, address, and telephone number of an agent or party having authority, on

behalf of the covered person, to receive notice of the right to rescind and resolve issues

concerning the consumer’s payments on the mortgage loan;

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e. Where transfer of ownership of the debt to the covered person is or may be recorded in

public records or, alternatively, that the transfer of ownership has not been recorded in

public records at the time the disclosure is provided; and

f. At the option of the covered person, any other relevant information regarding the

transaction.

g. If there are multiple covered persons, contact information for each of them, unless one of

them has been authorized to receive the consumer’s notice of the right to rescind and

resolve issues concerning the consumer’s payments on the loan. (1026.39(d)-(e))

NOTE: This notice of sale or transfer must be provided for any consumer credit transaction

that is secured by the principal dwelling of a consumer. This notification is required by the

covered person even if the loan servicer remains the same. In addition, if more than one

consumer is liable on the obligation, the covered person may mail or deliver the disclosure

notice to any consumer who is primarily liable. And, if an acquisition involves multiple

covered persons who each acquire a partial interest in the loan pursuant to separate and

unrelated agreements, each covered person has a duty to ensure that disclosures related to its

acquisition are accurate and provided in a timely manner unless an exception in section

1026.39(c) applies. The parties may, but are not required to, provide a single notice that

satisfies the timing and content requirements applicable to each covered person. (Comment

1026.39(b)(5) – 2)

Disclosure Requirements for Over-the-Limit Transactions –

Section 1026.56

1. Determine that the oral, written or electronic “opt-in” notice includes all of the following

applicable items (and not any information not specified in or otherwise permitted)

(1026.56(e)(1)):

a. Fees. The dollar amount of any fees or charges assessed by the card issuer on a

consumer’s account for an over-the-limit transaction;

b. APR(s). Any increased periodic rate(s) (expressed as an APR(s)) that may be imposed on

the account as a result of an over-the-limit transaction; and

c. Disclosure of opt-in right. An explanation of the consumer’s right to affirmatively

consent to the card issuer’s payment of over-the-limit transactions, including the

method(s) by which the consumer may consent.

2. Determine that the written notice informing the consumer of the right to revoke consent

following the assessment of an over-the-limit fee or charge describes that right, including the

method(s) by which the consumer may revoke consent. (1026.56(e)(2))

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Reverse Mortgage Forms Review Procedures

(Both Open- and Closed-End)

1. Determine that the disclosures required for reverse mortgage transactions are substantially

similar to the model form in appendix K and include the items below (1026.33):

a. A statement that the consumer is not obligated to complete the reverse mortgage

transaction merely because he or she has received the disclosures or signed an

application.

b. A good faith projection of the total cost of the credit expressed as a table of “total annual

loan cost rates” including payments to the consumer, additional creditor compensation,

limitations on consumer liability, assumed annual appreciation, and the assumed loan

period.

c. An itemization of loan terms, charges, the age of the youngest borrower, and the

appraised property value.

d. An explanation of the table of total annual loan costs rates.

NOTE: Forms that include or involve current transactions, such as change in terms notices,

periodic billing statements, rescission notices, and billing error communications, are verified

for accuracy when the file review worksheets are completed.

Timing Requirements

1. Timing Requirements – Open-End Credit. Review financial institution policies,

procedures, and systems to determine, either separately or when completing the actual file

review, whether the applicable disclosures listed below are furnished when required by

Regulation Z. Take into account products that have different features, such as closed-end

loans or credit card accounts that are fixed or variable rate.

a. Credit card application and solicitation disclosures. On or with the application

(1026.60(b))

b. HELOC disclosures. At the time the application is provided or within three business days

under certain circumstances. (1026.40(b))

c. Open-end credit initial disclosures. Before the first transaction is made under the plan.

(1026.5(b)(1))

d. Card Holder Agreement. Verify that the card issuer sends to the cardholder or otherwise

make available to the cardholder a copy of the cardholder’s agreement in electronic or

paper form no later than 30 days after the issuer receives the cardholder’s request

(1026.58(e)(1)(ii)). Determine that the issuer has adequate procedures for ensuring that

this requirement is met.

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e. Periodic statement disclosures for open-end credit under section 1026.7. Required if at

the end of a billing cycle, the account has a debit or credit balance of $1 or more or if a

finance charge has been imposed (1026.5(b)(2)(i)). Also, the creditor must adopt

reasonable procedures designed to ensure that periodic statements for credit card

accounts are mailed or delivered at least 21 days prior to the payment due date and the

date on which any grace period expires (for non-credit card open-end credit, there is a 21

day rule if there is a grace period and a 14-day rule if there is no grace period).

(1026.5(b)(2)(ii)(B)(2))

f. Statement of billing rights. At least once per year. (1026.9(a))

g. Supplemental credit devices. Before the first transaction under the plan. (1026.9(b))

h. Open-end credit change in significant terms as a result of a change in contractual terms.

45 days prior to the effective change date. (1026.9(c)(2))

i. Open-end change in terms or rates due to delinquency or default or as a penalty. 45 days

prior to the effective change date. (1026.9(g))

j. Finance charge imposed at time of transaction. Prior to imposing any fee. (1026.9(d))

k. Disclosures upon renewal of credit or charge card. 30 days or one billing cycle,

whichever is less before the delivery of the periodic statement on which the renewal fee

is charged, or at least 30 days prior to the scheduled renewal date if the creditor has

changed or amended any term required to be disclosed under section 1026.6(b)(1) and

(b)(2) that has not previously been disclosed to the consumer. (1026.9(e))

l. Change in credit account insurance provider. – Certain information 30 days before the

change in provider occurs and certain information 30 days after the change in provider

occurs. The institution may provide a combined disclosure 30 days before the change in

provider occurs. (1026.9(f))

2. Timing Requirements – Closed-End Credit Secured by a Dwelling

a. Closed-end credit disclosures for transactions not subject to 1026.19(e) and (f) must be

made before consummation. (1026.17(b))

b. Disclosures for reverse mortgages. Several disclosure timing requirements apply to

reverse mortgages subject to 1026.33 and RESPA:

i. Determine whether the creditor provides early TIL disclosures within three business

days after receiving the consumer’s written application. The creditor is required to

deliver or mail the early disclosures no later than three business days after receiving

the consumer’s application and at least seven business days before consummation

(1026.19(a)(1)(i) and (iii) and 1026.19(a)(2)(i)). No fees may be charged before the

consumer receives the early disclosures except for credit report fees (1026.19(a). If

the APR stated in the early disclosures is not considered accurate under section

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1026.22 when compared to the APR at consummation, determine whether the creditor

provided corrected disclosures of all changed terms, including the APR, that the

consumer received no later than the third business day before consummation and that

the creditor delivered or placed in the mail the corrected disclosures not later than the

seventh business day before consummation. (1026.19(a)(2)(i)and (ii)

ii. Determine whether the creditor provides the disclosures required pursuant to 1026.33

(and found in paragraph d of the model form in appendix K) either three days prior to

consummation (for a closed-end transaction) or prior to the first transaction (for an

open-end credit plan). (1026.31(c)(2))

NOTE: For closed-end credit transactions secured by a dwelling not subject to the TILA-

RESPA rule, the prohibition on charging fees (other than credit report fees) before the

consumer receives the early TIL disclosure is more limited than the prohibition for

closed-end credit transactions secured by a dwelling that are subject to TILA-RESPA.

(1026.19(a)) For TILA-RESPA closed-end transactions, creditors are prohibited from

charging fees (other than credit report fees) prior to receipt of disclosures and an intent to

proceed with the transaction. (1026.19(e)(2))

c. Disclosures for high-cost mortgages. – Three business days prior to consummation or

account opening. If such disclosures became inaccurate due to a change by the creditor,

ensure that the creditor provided new, accurate disclosures no later than three business

days prior to consummation or account opening. (1026.31(c)(1))

d. Disclosures for initial rate change to an adjustable-rate mortgage securing a principal

dwelling (other than a transaction subject to 1026.19(e) and (f)) with terms of more than

one year:

i. For adjustable-rate mortgages, creditors, assignees, or servicers are generally required

to provide information regarding the first interest rate change to consumers between

210 and 240 days prior to the date the first payment at the new rate is due;

NOTE: If the first payment change occurs within the first 210 days, creditors,

assignees, or servicers are required to provide the disclosure at consummation.

(1026.20(d))

NOTE: When examining a creditor that continues to own the loan, an assignee, or a

servicer, if the entity states that another entity has the obligation to provide the

disclosures, examiners should determine whether the entity takes steps to ensure that

the other party (the creditor, assignee, or servicer, as applicable) is complying with

the obligation to provide the disclosures.

e. Additional disclosures for adjustable-rate mortgages securing a principal dwelling (other

than a transaction subject to 1026.19(e) and (f)) with a term of more than one year, where

a rate change affects the amount of payment:

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i. For adjustable-rate mortgages where the payment changes with a rate change,

disclosures must be provided to consumers between 60 and 120 days before the first

payment at the new rate is due;

ii. For adjustable-rate mortgages where the payment change is caused by a rate change

that is uniformly scheduled every 60 days (or more frequently), disclosures must be

provided to consumers between 25 and 120 days before the first payment at the new

rate;

iii. For adjustable-rate mortgages originated prior to January 10, 2015, where the interest

rate and payment are calculated based on an index that is available less than 45 days

prior to the change, disclosures must be provided between 25 and 120 days before the

first payment at the new rate is due; and

iv. For adjustable-rate mortgages where the payment adjustment occurs within 60 days

of consummation and the new interest rate after adjustment provided at

consummation was an estimate, disclosure are required as soon as practicable, but no

later than 25 days prior to the first payment at the new rate is due. (1026.20(c))

NOTE: The requirements of section 1026.20(c) do not apply to: ARMS with terms of one

year or less; first interest rate adjustments to an ARM if the first adjusted payment is due

within 210 days after consummation and the new interest rate disclosed at consummation

was not an estimate; or the creditor, assignee or servicer when the servicer is subject to

the Fair Debt Collections Practices Act (FDCPA) and the consumer has notified the

servicer to cease communication under section 805(c) of the FDCPA. (1026.20(c)(1)(ii))

f. Notice of new creditor. –On or before the 30th calendar day following the acquisition

(1026.39).

g. For private education loans subject to Subpart F (1026.46), determine that:

i. Application or solicitation disclosures were provided on or with any application or

solicitation (1026.46(d)(1)(i));

ii. Approval disclosures were provided before consummation on or with any notice of

approval provided to the consumer (1026.46(d)(2)); and

iii. Final disclosures were provided after the consumer accepts the loan and at least three

business days prior to disbursing the private education loan funds. (1026.46(d)(3))

h. Determine that the issuer provides a written over-the-limit notice prior to the assessment

of any over-the-limit fee or charge on a consumer’s account. (1026.56(d)(1)(i))

i. Determine that, if a consumer consents to the card issuer’s payment of any over-the-limit

transaction by oral or electronic means, the card issuer provides the required written

notice immediately prior to obtaining that consent. (1026.56(d)(1)(ii))

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j. Determine that the notice confirming the consumer’s consent is provided no later than the

first periodic statement sent after the consumer has consented to the card issuer’s

payment of over-the-limit transactions. The creditor must not assess an over-the-limit fee

on the consumer’s account without first providing written confirmation. (1026.56(d)(2))

k. Determine that the notice providing the consumer notice in writing of the right to revoke

consent following the assessment of an over-the-limit fee or charge is provided on the

front of any page of each periodic statement that reflects the assessment of an over-the-

limit fee or charge on a consumer’s account. (1026.56(d)(3))

l. For home-equity plans subject to the requirements of section 1026.40, whenever any term

required to be disclosed under section 1026.6(a) is changed or the required minimum

periodic payment is increased, determine that the creditor mails or delivers written notice

of the change to each consumer who may be affected. Determine that the notice is mailed

or delivered at least 15 days prior to the effective date of the change. If the change has

been agreed to by the consumer, determine that the notice is given before the effective

date of the change. (1026.9(c)(1)(i))

m. Notice to restrict credit. For home-equity plans subject to the requirements of section

1026.40, if the creditor prohibits additional extensions of credit or reduces the credit limit

pursuant to section 1026.40(f)(3)(i) or (f)(3)(vi), determine that the creditor mails or

delivers written notice of the action to each consumer who will be affected not later than

three business days after the action is taken and contains specific reasons for the action. If

the creditor requires the consumer to request reinstatement of credit privileges, determine

that the notice states that fact. (1026.9(c)(1)(iii))

Mortgage Loans Secured by Real Property—Early

Disclosures (Loan Estimates) – Section 1026.19(e)

Provision of Disclosures

1. For closed-end consumer loans secured by real property, other than a reverse mortgage

subject to section 1026.33, determine whether the creditor provides the consumer with good

faith estimates on the Loan Estimate (1026.37) or if the creditor satisfies its obligation by

ensuring that a mortgage broker providing the Loan Estimate complied with all requirements

of section 1026.19(e).

NOTE: Partial exemption. The special disclosure requirements of 1026.19(e) do not apply if

the loan is (i) a subordinate lien, (ii) a loan for buyer assistance such as down payments or

closing costs, rehabilitation loans, energy efficiency assistance, or foreclosure prevention,

(iii) a loan that does not require the payment of interest, (iv) a loan for which repayment that

is forgiven, deferred for 20 years, or deferred until the property is sold or is no longer the

consumer’s principal dwelling, or (v) a loan where the total costs of the transaction are less

than one percent of the loan and include fees only for recording, application and housing

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counseling. In addition to these requirements, the creditor must comply with other

requirements of Regulation Z, including the disclosures in section 1026.18. (1026.3(h))

Timing

1. Determine whether the creditor delivers or places in the mail the Loan Estimate not later than

the third business day after receiving the consumer’s application. As defined in section

1026.2(a)(3), an application consists of the submission for purposes of obtaining an extension

of credit of the consumer's name, income, social security number to obtain a credit report, the

property address, an estimate of the value of the property, and the mortgage loan amount

sought. (1026.19(e)(1)(iii)(A))

NOTE: When a consumer uses an online application system that allows the information to be

saved, the timing requirements for the Loan Estimate are not triggered until the application is

submitted.

2. Determine whether the creditor delivers or places in the mail the Loan Estimate not later than

the seventh business day before consummation (other than for transactions secured by a

consumer’s interest in a timeshare plan). (1026.19(e)(1)(iii)(B))

NOTE: Business day is defined differently for purposes of 1026.19(e)(1)(iii)(A) and (B). For

1026.19(e)(1)(iii)(A), business day is defined based on whether the creditor’s offices are

open to the public for carrying on substantially all of its business functions on that day. For

1026.19(e)(1)(iii)(B), a business day is all days except Sundays and federal holidays.

(1026.2(a)(6))

3. Determine whether the consumer waived the waiting period before consummation under

1026.19(e)(1)(iii)(B) by providing a dated written statement describing a bona fide personal

financial emergency, specifically modifying or waiving the waiting period, and signed by all

the consumers who are primarily liable on the obligation. (1026.19(e)(1)(v))

NOTE: Preprinted forms for this purpose are prohibited.

Shopping for Settlement Service Providers

1. Determine whether a creditor permits a consumer to shop for a settlement service and, if so,

identifies the settlement services the consumer is permitted to shop for. If so, determine

whether the creditor provides a written list identifying at least one available provider for each

settlement service for which the consumer may shop and stating that the consumer may

choose a different provider for that service. Determine that the creditor provides the written

list separately from initial Loan Estimate but in accordance with the same timing

requirements. (1026.19(e)(1)(vi))

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Pre-Disclosure Activity

1. Fee restriction. Determine that the creditor does not charge any fees before the consumer

receives the Loan Estimate and before the consumer indicated to the creditor an intent to

proceed with the transaction, except for bona fide and reasonable credit report fees.

(1026.19(e)(2)(i)(A))

2. Disclaimer on early estimates. Determine whether a creditor that provides a consumer with a

written estimate of terms or costs specific to that consumer before the consumer receives the

Loan Estimate clearly and conspicuously states on the first page in no smaller than 12-point

font “Your actual rate, payment, and costs could be higher. Get an official Loan Estimate

before choosing a loan,” and that the estimate does not use a format or content substantially

similar to the Loan Estimate (form H-24 or H-25 of appendix H). (1026.19(e)(2)(ii))

3. Verification of information. Determine whether the creditor requires a consumer to submit

documents verifying information related to the consumer's application before providing the

creditor provides the Loan Estimate. (1026.19(e)(2)(iii))

Permissible variations

1. Determine whether the creditor disclosed estimated closing costs in good faith and consistent

with the best information reasonably available to the creditor at the time the disclosures are

provided. The estimated closing costs are in good faith if the amount charged to the

consumer at closing does not exceed the estimated closing costs disclosed on the Loan

Estimate, unless the following exceptions apply: (1026.19(e)(3))

10 Percent Cumulative Increase Permitted

1. Estimates for third party services or a recording fee are in good faith if:

a. The aggregate charges do not exceed the aggregate estimate for those charges by more

than 10 percent (1026.19(e)(3)(ii)(A));

b. The third party service charge is not paid to the creditor or affiliate of the creditor

(1026.19(e)(3)(ii)(B)); and

c. The creditor permits the consumer to shop for the third party service.

(1026.19(e)(3)(ii)(C))

Variations Permitted for Certain Charges

1. An estimate of the following is in good faith if it is consistent with the best information

reasonably available to the creditor at the time it is disclosed, regardless of whether the

amount paid by the consumer exceeds the amount disclosed in the Loan Estimate

(1026.19(e)(3)(iii)):

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a. Prepaid interest (1026.19(e)(3)(iii)(A));

b. Property insurance premiums (1026.19(e)(3)(iii)(B));

c. Amounts placed into an escrow, impound, reserve, or similar account (1026.19(e)(3)(iii)(C));

d. Charges paid to third-party service providers the consumer selected that are not on the list

provided by the creditor (1026.19(e)(3)(iii)(D)); and

e. Charges paid for third-party services not required by the creditor. These charges may be

paid to affiliates of the creditor (1026.19(e)(3)(iii)(E)).

Revised Loan Estimates

1. Determine whether the creditor provides a revised estimate of a charge for any of the

following reasons (1026.19(e)(3)(iv)):

a. Changed circumstances. Changed Circumstances that cause the estimated settlement

charges to increase or, in the case of estimated charges identified in section

1026.19(e)(3)(ii), cause the aggregate amount of such charges to increase by more than

10 percent. (1026.19(e)(3)(iv)(A)) For purposes of this and the following procedure,

“changed circumstance” means:

i. An extraordinary event beyond the control of any interested party or other unexpected

event specific to the consumer or transaction (1026.19(e)(3)(iv)(A)(1));

ii. Information specific to the consumer or transaction that the creditor relied upon when

providing the Loan Estimate and that was inaccurate or changed after the disclosures

were provided (1026.19(e)(3)(iv)(A)(2)); or

iii. New information specific to the consumer or transaction that the creditor did not rely

on when providing the original Loan Estimate (1026.19(e)(3)(iv)(A)(3)).

b. Changed circumstance affecting eligibility. The consumer is ineligible for an estimated

charge previously disclosed because a changed circumstance affected the consumer's

creditworthiness or the value of the security for the loan. (1026.19(e)(3)(iv)(B))

c. Revisions requested by the consumer. The consumer requests revisions to the credit terms

or the settlement that cause an estimated charge to increase. (1026.19(e)(3)(iv)(C))

d. Interest rate dependent charges. The points or lender credits change because the interest

rate was not locked when the Loan Estimate was provided. (1026.19(e)(3)(iv)(D))

2. Determine whether, within three business days after the interest rate is locked, the creditor

provides a revised version of the Loan Estimate to the consumer with the revised interest

rate, the points disclosed pursuant to §1026.37(f)(1), lender credits, and any other interest

rate dependent charges and terms.

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3. Determine whether the consumer indicated an intent to proceed with the transaction more

than 10 business days after the Loan Estimate is provided. (1026.19(e)(3)(iv)(E))

4. Determine whether a creditor issuing a revised Loan Estimate in a new construction loan

states clearly and conspicuously that at any time prior to 60 days before consummation, the

creditor may issue revised disclosures. (1026.19(e)(3)(iv)(F))

Provision and Receipt of Revised Disclosures

1. Determine whether the creditor provides a revised Loan Estimate within three business days

of receiving information sufficient to establish a reason for a revised estimate and not later

than four business days prior to consummation. (1026.19(e)(4))

NOTE: If not provided to the consumer in person, the revised disclosure is considered to

have been received three business days after the creditor delivers or places the revised

disclosure in the mail. (1026.19(e)(4))

Special Information Booklet at Time of Application

1. Determine whether the creditor mailed or delivered a copy of the special information booklet,

“Shopping for Your Home Loan: Settlement Cost Booklet,” required by section 5 of RESPA,

within three business days after receiving the consumer’s application for a purchase

transaction, unless the creditor denies the application before the end of the three-day period.

NOTE: If the consumer uses a mortgage broker, the mortgage broker must provide the

special information booklet and the creditor need not do so. (1026.19(g))

Mortgage Loans Secured by Real Property—Final

Disclosures (Closing Disclosures) – Section 1026.19(f)

Provision of Closing Disclosures

1. Determine whether, for closed-end consumer loans secured by real property, other than a

reverse mortgage subject to section 1026.33 or loans otherwise excepted under 1026.3(h), the

creditor provides the consumer with the Closing Disclosure (1026.38), reflecting the actual

terms of the transaction. (1026.19(f)(1)(i))

NOTE: There is a partial exemption in section 1026.3(h) from the requirement to provide the

Loan Estimate and Closing Disclosure if the loan is (i) a subordinate lien, (ii) a loan for buyer

assistance such as down payments or closing costs, rehabilitation loans, energy efficiency

assistance, or foreclosure prevention, (iii) a loan that does not require the payment of interest,

(iv) a loan for which repayment that is forgiven, deferred for 20 years, or deferred until the

property is sold or is no longer the consumer’s principal dwelling, and (v) a loan where the

total costs of the transaction are less than one percent of the loan and include fees only for

recording, application and housing counseling. For those transactions, creditors must comply

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with all other applicable portions of TILA, including the disclosure requirements required

pursuant to 1026.18.

2. Determine whether the creditor ensures that the consumer receives the Closing Disclosure no

later than three business days before consummation (except for transactions secured by a

timeshare, which the creditor must ensure the consumer receives no later than

consummation). (1026.19(f)(1)(ii))

NOTE: If the creditor mails the disclosure six business days prior to consummation, it can

assume that it was received three business days after sending, and therefore three business

days prior to consummation. (1026.19(f)(1)(iii); see Comment 19(f)(1)(iii)) “Business day”

for purposes of the Closing Disclosure is the rescission-based business day definition, and

means all calendar days except Sundays and legal public holidays. (1026.2(a)(6),

1026.19(f)(1)(ii)(A))

3. Determine whether the consumer waived the waiting period before consummation by

providing a dated written statement describing a bona fide personal financial emergency,

specifically modifying or waiving the waiting period and signed by all the consumers who

are primarily liable on the obligation. (1026.19(f)(1)(iv))

NOTE: Preprinted forms for this purpose are prohibited. (1026.19(f)(1)(iv))

4. If a settlement agent provides the consumer with the Closing Disclosure, determine whether

the creditor ensures that the disclosures were provided in accordance with section 1026.19(f).

(1026.19(f)(1)(v))

Subsequent Changes

1. Determine whether the creditor provides a corrected Closing Disclosure where a disclosure

has become inaccurate before consummation, so that the consumer receives a corrected

Closing Disclosure at or before consummation. Determine whether the creditor permits the

consumer to inspect the corrected disclosure during the business day prior to consummation.

NOTE: the corrected Closing Disclosure must be completed to set forth items known to the

creditor at the time of this inspection but may omit from inspection items related only to the

seller’s transaction. (1026.19(f)(2)(i))

2. Determine whether the creditor provides a corrected Closing Disclosure and a new three-

business-day waiting period before consummation if:

a. The APR disclosed in the Loan Estimate under section 1026.38(o)(4) becomes

inaccurate, as defined in §1026.22 (1026.19(f)(2)(ii)(A));

b. The loan product is changed, causing the information disclosed in the Loan Estimate

under §1026.38(a)(5)(iii) to become inaccurate (1026.19(f)(2)(ii)(B)); or

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c. A prepayment penalty is added, causing the statement regarding a prepayment penalty

required under §1026.38(b) to become inaccurate. (1026.19(f)(2)(ii)(C))

3. Determine whether, when an event in connection with the settlement causes the Closing

Disclosure to become inaccurate during the 30-day period following consummation, and that

inaccuracy results in a change to an amount actually paid by the consumer from the amount

disclosed, the creditor delivers or places in the mail corrected disclosures not later than 30

days from receiving the information to establish that the event occurred. (1026.19(f)(2)(iii))

NOTE: A creditor does not violate section 1026.19(f)(1)(i) if the disclosures contain non-

numeric clerical errors, provided the creditor delivers or places in the mail corrected

disclosures no later than 60 days after consummation. (1026.19(f)(2)(iv))

4. Determine whether the creditor charged the consumer for any amounts that exceeded the

estimated charges beyond the applicable permissible variations set forth in section

1026.19(e)(3)(i) (no variation permitted for the charge) and (ii) (charge subject to a 10

percent aggregate limit). For any such charges, determine if the creditor refunds the excess

amounts no later than 60 days after consummation and delivers or places in the mail

corrected disclosures reflecting the refund no later than 60 days after consummation.

(1026.19(f)(2)(v))

Charges Disclosed

1. Determine whether the creditor or settlement service provider imposes a charge on the

consumer for more than the settlement service provider actually received. If the creditor

charges the average charge for settlement services, determine whether the creditor meets the

following:

a. The average charge is no more than the average amount paid for that service by or on

behalf of all consumers and sellers for a class of transactions (1026.19(f)(3)(ii)(A));

b. The class of transactions is defined by appropriate period of time, geographic area, and

type of loan (1026.19(f)(3)(ii)(B));

c. The same average charge is used for every transaction within the class

(1026.19(f)(3)(ii)(C)); and

d. The average charge is not used for any type of insurance or any charge based on the loan

amount or property value, and is not otherwise prohibited by law. (1026.19(f)(3)(ii)(D))

Transactions Involving a Seller

1. Determine whether the settlement agent provides the seller with the Closing Disclosure no

later than the day of consummation and, if during the 30-day period following

consummation, an event in connection with the settlement of the transaction occurs that

causes disclosures to become inaccurate and the inaccuracy results in a change to the amount

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actually paid by the seller from that disclosed under 1026.19(f)(4)(i), the settlement agent has

delivered or placed in the mail corrected disclosures not later than 30 days after receiving

information sufficient to establish that such an event has occurred. (1026.19(f)(4))

No Fee

1. Determine whether a creditor or servicer imposes a fee on any person as part of settlement

costs or otherwise for preparing or delivering Closing Disclosures. (1026.19(f)(5))

Electronic Disclosures

1. Assess compliance for an institution’s electronic disclosure requirements.

E-Sign Act

1. Disclosures may be provided to the consumer in electronic form, subject to compliance with

the consumer consent and other applicable provisions of the Electronic Signatures in Global

and National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). The E-Sign Act does not

mandate that institutions or consumers use or accept electronic records or signatures. It

permits institutions to satisfy any statutory or regulatory requirements by providing the

information electronically after obtaining the consumer’s affirmative consent. Before consent

can be given, consumers must be provided with the following information:

a. Any right or option to have the information provided in paper or non-electronic form;

b. The right to withdraw the consent to receive information electronically and the

consequences, including fees, of doing so;

c. The scope of the consent (for example, whether the consent applies only to a particular

transaction or to identified categories of records that may be provided during the course

of the parties’ relationship);

d. The procedures to withdraw consent and to update information needed to contact the

consumer electronically; and

e. The methods by which a consumer may obtain, upon request, a paper copy of an

electronic record after consent has been given to receive the information electronically

and whether any fee will be charged.

2. The consumer must consent electronically or confirm consent electronically in a manner that

“reasonably demonstrates that the consumer can access information in the electronic form

that will be used to provide the information that is the subject of the consent.” After the

consent, if an institution changes the hardware or software requirements such that a consumer

may be prevented from accessing and retaining information electronically, the institution

must notify the consumer of the new requirements and must allow the consumer to withdraw

consent without charge.

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3. If the financial institution makes its disclosures available to consumers in electronic form,

determine that the forms comply with the appropriate sections – §1026.5(a)(1); §1026.15(b);

§1026.16(c); §1026.17(a)(1); §1026.17(g); §1026.19(c); §1026.23(b)(1); §1026.24(d);

§1026.31(b); §1026.40(a)(3); and §1026.60(a)(2)(v).

4. Card issuers may provide credit card agreements in electronic form under section 1026.58(d)

and (e) without regard to the consumer notice and consent requirements of section 101(c) of

the E-Sign Act. (1026.58(f))

Annual Report to the CFPB – Section 1026.57

1. If the card issuer was a party to one or more college credit card agreements in effect at any

time during a calendar year, verify that the card issuer submits to the CFPB an annual report

regarding those agreements in the form and manner prescribed by the CFPB. (1026.57(d)(1))

NOTE: A college credit card agreement is any business, marketing, or promotional

agreement between a card issuer and an institution of higher education (or an affiliated

alumni organization or foundation) in connection with which credit cards are issued to

college students at that institution of higher education. (1026.57(a)(5))

2. The annual report to the CFPB must include the following (1026.57(d)(2)):

a. Identifying information about the card issuer and the agreements submitted, including the

issuer’s name, address, and identifying number (such as an RSSD ID number or tax

identification number);

b. A copy of any college credit card agreement to which the card issuer was a party that was

in effect at any time during the period covered by the report;

c. A copy of any memorandum of understanding in effect at any time during the period

covered by the report between the card issuer and an institution of higher education or

affiliated organization that directly or indirectly relates to the college credit card

agreement or that controls or directs any obligations or distribution of benefits between

any such entities;

d. The total dollar amount of any payments pursuant to a college credit card agreement from

the card issuer to an institution of higher education or affiliated organization during the

period covered by the report, and the method or formula used to determine such amounts;

e. The total number of credit card accounts opened pursuant to any college credit card

agreement during the period covered by the report; and

f. The total number of credit card accounts opened pursuant to any such agreement that

were open at the end of the period covered by the report.

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3. If the card issuer is subject to reporting, determine if the card issuer submits its annual report

for each calendar year to the CFPB by the first business day on or after March 31 of the

following calendar year. (1026.57(d)(3))

The Submission of Agreements to the CFPB

– Section 1026.58(c)

1. For card issuers that issue credit cards under a credit card account under an open-end (not

home-secured) consumer credit plan, determine that the card issuer makes quarterly

submissions to the CFPB in the form and manner specified by the CFPB that contain:

a. Identifying information about the card issuer and the agreements submitted, including the

issuer’s name, address, and identifying number (such as an RSSD ID number or tax

identification number) (1026.58(c)(1)(i));

b. The credit card agreements that the card issuer offered to the public as of the last business

day of the preceding calendar quarter that the card issuer has not previously submitted to

the CFPB (1026.58(c)(1)(ii));

c. Any credit card agreement previously submitted to the CFPB that was amended during

the preceding calendar quarter and that the card issuer offered to the public as of the last

business day of the preceding calendar quarter as described in section 1026.58(c)(3)

(1026.58(c)(1)(iii)); and

d. Notification regarding any credit card agreement previously submitted to the CFPB that

the issuer is withdrawing, as described in section 1026.58(c)(4), (c)(5), (c)(6), and (c)(7)

(1026.58(c)(1)(iv)).

2. Verify that quarterly submissions were sent to the CFPB no later than the first business day

on or after January 31, April 30, July 31, and October 31, of each year. (1026.58(c)(1))

3. If a credit card agreement that previously has been submitted to the CFPB is amended, verify

that the card issuer submits the entire amended agreement to the CFPB, in the form and

manner specified by the CFPB, by the first quarterly submission deadline after the last day of

the calendar quarter in which the change became effective. (1026.58(c)(3))

NOTE: If a credit card agreement has been submitted to the CFPB, the agreement has not

been amended and the card issuer continues to offer the agreement to the public, no

additional submission regarding that agreement is required.

4. If a card issuer no longer offers to the public a credit card agreement that previously has been

submitted to the CFPB, ensure that the card issuer notifies the CFPB by the first quarterly

submission deadline after the last day of the calendar quarter in which the issuer ceased to

offer the agreement. (1026.58(c)(4))

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NOTE: A card issuer is not required to submit any credit card agreements to the CFPB if the

card issuer had fewer than 10,000 open credit card accounts as of the last business day of the

calendar quarter. (1026.58(c)(5)(i))

5. If an issuer that previously qualified for the de minimis exception ceases to qualify,

determine that the card issuer begins making quarterly submissions to the CFPB no later than

the first quarterly submission deadline after the date as of which the issuer ceased to qualify.

(1026.58(c)(5)(ii))

6. If a card issuer that did not previously qualify for the de minimis exception qualifies for the

de minimis exception, determine that the card issuer continues to make quarterly submissions

to the CFPB until the issuer notifies the CFPB that the card issuer is withdrawing all

agreements it previously submitted to the CFPB. (1026.58(c)(5)(iii))

7. A card issuer is not required to submit to the CFPB a credit card agreement if, as of the last

business day of the calendar quarter, the agreement is offered for accounts under one or more

private label credit card plans each of which has fewer than 10,000 open accounts and is not

offered to the public other than for accounts under such a plan. (1026.58(c)(6)(i))

NOTE: A private label credit card is one that is usable only at a single merchant or affiliated

group of merchants. A private label credit card plan is all private label credit card accounts

issued by a particular issuer with credit cards usable at the same single merchant or affiliated

group of merchants. (1026.58(b)(8))

8. If an agreement that previously qualified for the private label credit card exception ceases to

qualify, determine that the card issuer submits the agreement to the CFPB no later than the

first quarterly submission deadline after the date as of which the agreement ceased to qualify.

(1026.58(c)(6)(ii))

9. If an agreement that did not previously qualify for the private label credit card exception

qualifies for the exception, determine that the card issuer continues to make quarterly

submissions to the CFPB with respect to that agreement until the issuer notifies the CFPB

that the agreement is being withdrawn. (1026.58(c)(6)(iii))

NOTE: A card issuer is not required to submit to the CFPB a credit card agreement if, as of

the last business day of the calendar quarter, the agreement is offered as part of a product test

offered to only a limited group of consumers for a limited period of time, is used for fewer

than 10,000 open accounts, and is not offered to the public other than in connection with such

a product test. (1026.58(c)(7)(i))

10. If an agreement that previously qualified for the product testing exception ceases to qualify,

determine that the card issuer submits the agreement to the CFPB no later than the first

quarterly submission deadline after the date as of which the agreement ceased to qualify.

(1026.58(c)(7)(ii))

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11. If an agreement that did not previously qualify for the product testing exception qualifies for

the exception, determine that the card issuer continues to make quarterly submissions to the

CFPB with respect to that agreement until the issuer notifies the CFPB that the agreement is

being withdrawn. (1026.58(c)(7)(iii))

12. Verify that each agreement contains the provisions of the agreement and the pricing

information in effect as of the last business day of the preceding calendar quarter.

(1026.58(c)(8)(i)(A))

13. Verify that agreements do not include any personally identifiable information relating to any

cardholder, such as name, address, telephone number, or account number.

(1026.58(c)(8)(i)(B))

14. Verify that agreements are presented in a clear and legible font. (1026.58(c)(8)(i)(D))

15. Verify that pricing information is set forth in a single addendum to the agreement that

contains only the pricing information. (1026.58(c)(8)(ii)(A))

NOTE: With respect to information other than the pricing information that may vary between

cardholders depending on creditworthiness, state of residence, or other factors, issuers may,

but are not required to, include that information in a single addendum (the optional variable

terms addendum) to the agreement separate from the pricing addendum (1026.58(c)(8)(iii)).

16. If pricing information varies from one cardholder to another depending on the cardholder’s

creditworthiness or state of residence or other factors, verify that the pricing information is

disclosed either by setting forth all the possible variations (such as purchase APRs of 13

percent, 15 percent, 17 percent, and 19 percent) or by providing a range of possible variations

(such as purchase APRs ranging from 13 percent to 19 percent). (1026.58(c)(8)(ii)(B))

17. If a rate included in the pricing information is a variable rate, verify that the issuer identifies

the index or formula used in setting the rate and the margin. (1026.58(c)(8)(ii)(C))

18. If rates vary from one cardholder to another, verify that the issuer discloses such rates by

providing the index and the possible margins (such as the prime rate plus 5 percent, 8

percent, 10 percent, or 12 percent) or range of margins (such as the prime rate plus from 5 to

12 percent). (1026.58(c)(8)(ii)(C))

NOTE: The value of the rate and the value of the index are not required to be disclosed.

19. Determine that issuers do not provide provisions of the agreement or pricing information in

the form of change-in-terms notices or riders (other than the pricing information addendum

and the optional variable terms addendum). (1026.58(c)(8)(iv))

20. Determine that changes in provisions or pricing information are integrated into the text of the

agreement, the pricing information addendum or the optional variable terms addendum, as

appropriate. (1026.58(c)(8)(iv))

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The Posting of Agreements Offered to the Public

– Section 1026.58(d)

1. Determine that the card issuer posts and maintains on its publicly available website the credit

card agreements that the issuer is required to submit to the CFPB under section 1026.58(c).

(1026.58(d)(1))

2. With respect to an agreement offered solely for accounts under one or more private label

credit card plans (and the issuer does not post and maintain the agreements on its publicly

available website), determine that the issuer posts and maintains the agreement on the

publicly available website of at least one of the merchants where cards issued under each

private label credit card plan with 10,000 or more open accounts may be used.

(1026.58(d)(1))

3. Verify that agreements posted pursuant to section 1026.58(d) conform to the form and

content requirements for agreements submitted to the CFPB specified in section

1026.58(c)(8). (1026.58(d)(2))

4. Determine that agreements are posted in an electronic format that is readily usable by the

general public. (1026.58(d)(3))

5. Verify that agreements are placed in a location on its website that is prominent and readily

accessible by the public and accessible without submission of personally identifiable

information. (1026.58(d)(3))

6. Determine that the card issuer updates the agreements posted on its website at least as

frequently as the quarterly schedule required for submission of agreements to the CFPB

under section 1026.58(c). (1026.58(d)(4))

NOTE: If the issuer chooses to update the agreements on its website more frequently, the

agreements posted on the issuer’s website may contain the provisions of the agreement and

the pricing information in effect as of a date other than the last business day of the preceding

calendar quarter.

The Posting of Agreements for “Open” Accounts

– Section 1026.58(e)

1. With respect to any open (i.e., the cardholder can obtain extensions or there is an outstanding

balance on the account that has not been charged off) credit card account, determine that the

card issuer either:

a. Posts and maintains the cardholder’s agreement on its website; or

b. Promptly provides a copy of the cardholder’s agreement to the cardholder upon the

cardholder’s request.

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2. If the card issuer makes an agreement available upon request, ensure that the issuer provides

the cardholder with the ability to request a copy of the agreement both by:

a. Using the issuer’s website, such as by clicking on a clearly identified box to make the

request (1026.58(e)(1)(ii)), and

b. Calling a readily available telephone line the number for which is displayed on the

issuer’s website and clearly identified as to purpose. (1026.58(e)(1)(ii) and (e)(2))

3. If an issuer does not maintain a website from which cardholders can access specific

information about their individual accounts determine that the issuer makes agreements

available upon request by providing the cardholder with the ability to request a copy of the

agreement by calling a readily available telephone line the number for which is

(1026.58(e)(2)):

a. Displayed on the issuer’s website and clearly identified as to purpose; or

b. Included on each periodic statement sent to the cardholder and clearly identified as to

purpose.

4. Verify that the card issuer sends to the cardholder or otherwise make available to the

cardholder a copy of the cardholder’s agreement in electronic or paper form no later than 30

days after the issuer receives the cardholder’s request. (1026.58(e)(1)(ii))

5. Determine that agreements posted on the card issuer’s website or made available upon the

cardholder’s request conform to the form and content requirements for agreements submitted

to the CFPB specified in section 1026.58(c)(8). (1026.58(e)(3)(i))

6. If the card issuer posts an agreement on its website or otherwise provides an agreement to a

cardholder electronically, verify that the agreement is posted or provided in an electronic

format that is readily usable by the general public and is placed in a location that is

prominent and readily accessible to the cardholder. (1026.58(e)(3)(ii))

7. If agreements posted or otherwise provided contain personally identifiable information

relating to the cardholder, such as name, address, telephone number, or account number,

ensure that the issuer takes appropriate measures to make the agreement accessible only to

the cardholder or other authorized persons. (1026.58(e)(3)(iii))

8. Determine that agreements posted or otherwise provided set forth the specific provisions and

pricing information applicable to the particular cardholder. (1026.58(e)(3)(iv))

9. Determine that provisions and pricing information are complete and accurate as of a date no

more than 60 days prior to (1026.58(e)(3)(iv)):

a. The date on which the agreement is posted on the card issuer’s website under section

1026.58(e)(1)(i);

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b. The date the cardholder’s request is received under section 1026.58(e)(1)(ii) or (e)(2).

NOTE: Card issuers may provide credit card agreements in electronic form under section

1026.58(d) and (e) without regard to the consumer notice and consent requirements of

section 101(c) of the Electronic Signatures in Global and National Commerce Act (E Sign

Act) (15 U.S.C. 7001 et seq.). (1026.58(f))

Advertising (Open- and Closed-End)

1. For open- and closed-end loans, sample advertising copy, including any electronic

advertising, since the previous examination and verify that the terms of credit are accurate,

clear, balanced, and conspicuous. If triggering terms are used, determine that the required

disclosures are made (1026.16 and 1026.24).

a. For advertisements for closed-end credit:

i. If a rate of finance charge was stated, determine that it was stated as an APR.

ii. If an APR will increase after consummation, verify that a statement to that fact is

made.

iii. Determine whether there are deceptive or misleading statements or practices.

b. Determine that the creditor does not offer college students any tangible item to induce

such students to apply for or open an open-end consumer credit plan offered by such

creditor, if such offer is made:

i. On the campus of an institution of higher education;

ii. Near the campus of an institution of higher education; or

iii. At an event sponsored by or related to an institution of higher education. (1026.57(c))

c. If an open-end credit advertisement refers to an APR as “fixed” (or similar term),

determine 1) that the advertisement also specifies a time period that the rate will be fixed

and 2) that the rate will not increase during that period. (1026.16(f))

d. If an open-end credit advertisement used the word “fixed” or a similar word and no time

period is specified in which the rate will be fixed, determine that the rate will not increase

while the plan is open. (1026.16(f))

e. For any advertisement of an open-end (not home-secured) plan, if an APR or fee that may

be applied to the account is an introductory rate or introductory fee, determine that the

term introductory or intro is in immediate proximity to each listing of the introductory

rate or introductory fee in a written or electronic advertisement. (1026.16(g)(3))

f. For any advertisement of an open-end (not home-secured) plan, if any APR or fee that

may be applied to the account is a promotional rate under section 1026.16(g)(2)(i) or any

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fee that may be applied to the account is a promotional fee under section

1026.16(g)(2)(iv), determine that the following information is stated in a clear and

conspicuous manner in the advertisement (1026.16(g)(4)):

i. When the promotional rate or promotional fee will end and

ii. The annual percentage rate that will apply after the end of the promotional period.

NOTE: If such rate is variable, determine that the annual percentage rate complies with

the accuracy standards in sections 1026.60(c)(2), 1026.60(d)(3), 1026.60(e)(4), or

1026.16(b)(1)(ii), as applicable. If such rate cannot be determined at the time disclosures

are given because the rate depends at least in part on a later determination of the

consumer’s creditworthiness, determine that the advertisement discloses the specific rates

or the range of rates that might apply. (1026.16(g)(4)(ii)). Further, if the promotional rate

or fee is stated in a written or electronic advertisement, determine that the information in

sections 1026.16 (g)(4)(i), and, as applicable, (g)(4)(ii), or (g)(4)(iii) are also stated in a

prominent location closely proximate to the first listing of the promotional rate or

promotional fee.

g. If a deferred interest offer is advertised for an open-end account not subject to section

1026.40, determine that the deferred interest period is stated in a clear and conspicuous

manner in the advertisement. If the phrase “no interest” or similar term regarding the

possible avoidance of interest obligations under the deferred interest program is stated,

determine that the term “if paid in full” is also stated in a clear and conspicuous manner

preceding the disclosure of the deferred interest period in the advertisement. If the

deferred interest offer is included in a written or electronic advertisement, determine that

the deferred interest period and, if applicable, the term “if paid in full” are stated in

immediate proximity to each statement of “no interest,” “no payments,” “deferred

interest,” “same as cash,” or similar term regarding interest or payments during the

deferred interest period. (1026.16(h)(3))

h. If any deferred interest offer is advertised for an open-end account not subject to section

1026.40, determine that the (h)(4)(i) and (h)(4)(ii) language (of section 1026.16(h)(4) ) is

stated in the advertisement and is similar to Sample G–24 in appendix G. If the deferred

interest offer is included in a written or electronic advertisement, determine that this

information is stated in a prominent location closely proximate to the first statement of

“no interest,” “no payments,” “deferred interest,” “same as cash,” or similar term

regarding interest or payments during the deferred interest period. (1026.16(h)(4))

NOTE: The requirements in section 1026.16(h)(4) apply to any advertisement of an open-end

credit plan not subject to section 1026.40 (requirements for home equity plans) section

1026.16(h)(1). However, the requirements do not apply to an envelope or other enclosure in

which an application or solicitation is mailed, or to a banner advertisement or pop-up

advertisement linked to an application or solicitation provided electronically. (1026.16(h)(5))

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Transactional Testing

NOTE: When verifying APR accuracies, use the OCC’s APR calculation model or other

calculation tool acceptable to your regulatory agency.

1. Review the financial institution’s closed-end and open-end transactions to ensure accuracy

and completeness.

Closed-End Credit Transactional Testing Procedures

1. For each type of closed-end loan being tested, determine the accuracy of the disclosures by

comparing the disclosures to the contract and other financial institution documents. (1026.17)

2. Determine whether the required disclosures were made before consummation of the

transaction and ensure the presence and accuracy of the items below, as applicable. (1026.18)

a. Creditor and loan originator name with Nationwide Mortgage Licensing System and

Registry (NMLSR) IDs on required documents as required under section 1026.36

b. Amount financed

c. Itemization of the amount financed (RESPA GFE may substitute)

d. Finance charge

e. APR

f. Variable rate information as follows for loans not secured by a principal dwelling or

secured by a principal dwelling with terms of one year or less:

i. Circumstances which permit rate increase

ii. Limitations on the increase (periodic or lifetime)

iii. Effect of the increase

iv. Hypothetical example of new payment terms that would result from an increase

g. Payment schedule including the number, amount, and timing of payments.

h. Total of payments

i. Demand feature

j. Total sale price (credit sale)

k. Prepayment

l. Late payment

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m. Security interest

n. Insurance and debt cancellation

o. Certain security interest charges

p. Contract reference

q. Assumption policy

r. Required deposit

s. Interest rate and payment summary for mortgage transactions

t. No-guarantee-to-refinance statement

3. For adjustable-rate mortgages, verify that the creditor, assignee, or servicer provides

disclosures in connection with the initial interest rate adjustment pursuant to the contract and

for rate changes that result in corresponding changes in payment.

4. For adjustable-rate mortgages, verify that the creditor, assignee, or servicer includes the

appropriate content (as identified in the Closed-End Credit Disclosure Forms Review

Procedures section above).

5. For adjustable-rate mortgages, verify that the creditor, assignee, or servicer provides the

disclosures consistent with timing requirements (see Timing Requirements section of the

procedures above).

NOTE: The accuracy of the adjusted interest rates and indexes should be verified by

comparing them with the contract and early disclosures. Refer to the Additional Variable

Rate Testing section of these examination procedures.

6. Determine, for each type of closed-end rescindable loan being tested, the appropriate number

of copies of the rescission notice are provided to each person whose ownership interest is or

will be subject to the security interest. The creditor must deliver two copies of the notice of

right to rescind to each consumer entitled to rescind. The rescission notice must disclose the

items below. (1026.23(b)(1))

a. Security interest taken in the consumer’s principal dwelling

b. Consumer’s right to rescind the transaction

c. How to exercise the right to rescind, with a form for that purpose, designating the address

of the creditor’s place of business

d. Effects of rescission

e. Date the rescission period expires.

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7. Ensure funding was delayed until the rescission period expired. (1026.23(c))

8. Determine if the consumer has waived the three-day right to rescind since the previous

examination. If applicable, test rescission waivers. (1026.23(e))

9. Determine whether the maximum interest rate in the contract is disclosed for any consumer

credit contract secured by a dwelling if the APR may increase after consummation.

(1026.30(a))

10. For private student loans with a right to cancel, review cancellation requests to determine if

they were properly handled. (1026.47(c))

Minimum Standards for Transactions Secured by a

Dwelling – Section 1026.43

1. Determine whether the financial institution is a creditor that originates covered transactions.

Covered transactions are transactions secured by a dwelling, including any real property

attached to a dwelling. They do not do not include: home equity lines of credit; timeshare

loans (except for the prepayment penalty provisions in section 1026.43(g)); reverse

mortgages; temporary, “bridge,” or construction loans of 12 months or less; renewable or

non-renewable construction loans of 12 months or less that are a part of a construction-to-

permanent transaction; or an extension of credit under a program administered by a Housing

Finance Agency (defined in 24 CFR 266.5), by community development or non-profit

lenders specified in section 1026.43(a)(3)(v), or in connection with certain federal emergency

economic stabilization programs. (1026.43(a))

2. Determine if a loan is a streamline refinance under section 1026.20(a) and Commentary

1026.20(a) and whether it qualifies under section 1026.43(d), below.

Refinancing Non-Standard Mortgages – Section 1026.43(d)

1. Determine whether a creditor that has refinanced a non-standard mortgage defined in section

1026.43(d)(i) (an ARM with an introductory rate fixed for a year or more, an interest-only

loan, or a negative amortization loan) into a standard mortgage as defined in section

1026.43(d)(ii) has considered whether the standard mortgage likely will prevent a default by

the consumer once the loan is recast. In addition, determine that the following conditions are

met (1026.43(d)(3)):

a. At the time of the refinance, the creditor for the standard mortgage is the current holder

of the existing non-standard mortgage or the servicer acting on behalf of the current

holder (1026.43(d)(2)(i));

b. The monthly payment for the standard mortgage is materially lower (a payment reduction

of 10 percent or more is sufficient) than the monthly payment for the non-standard

mortgage using the payment calculation rules in section 1026.43(d)(5)

(1026.43(d)(2)(ii));

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c. The creditor received the consumer’s written application for the standard mortgage no

later than two months after the non-standard mortgage had recast (1026.43(d)(2)(iii));

d. The consumer had made no more than one payment more than 30 days late on the non-

standard mortgage during the 12 months immediately before the creditor receives the

consumer’s written application for the standard mortgage (1026.43(d)(2)(iv));

e. The consumer had made no payments more than 30 days late during the six months

immediately before the creditor received the consumer’s written application for the

standard mortgage (1026.43(d)(2)(v)); and

f. If the non-standard mortgage was consummated on or after January 10, 2014, the non-

standard mortgage was made in accordance with the ability to repay or the qualified

mortgage requirements (1026.43(c) or (e)). (1026.43(d)(vi))

Ability to Repay – Section 1026.43(c)

NOTE: For all covered transactions, except streamline refinances, creditors must make a good

faith determination that the consumer will have a reasonable ability to repay the loan, and must

verify the information upon which it relied. A creditor can meet this obligation by complying

with the ability-to-repay requirement in section 1026.43(c) or by making qualified mortgages

under section 1026.43(e) and (f) (which limit certain risky loan features and practices), which are

presumed to satisfy the ability-to-repay requirements.

1. Determine whether the creditor makes a reasonable and good faith determination at or before

consummation that the consumer will have a reasonable ability to repay the loan according to

its terms, based (except as otherwise provided for loans under section 1026.43(d), (e), and (f)

for refinancing non-standard to standard mortgages, qualified mortgages, and certain balloon

qualified mortgages respectively), at a minimum, on the criteria set forth below.

(1026.43(c)(1))

2. Determine whether the creditor considered the following, at a minimum, in determining the

consumer’s ability to repay: (1026.43(c)(2))

a. The consumer’s current or reasonably expected income or assets (other than the value of

the dwelling, including any real property attached to the dwelling, that secures the loan);

(1026.43(c)(2)(i))

b. If the creditor relies on employment income, the consumer’s current employment status;

(1026.43(c)(2)(ii))

c. The consumer’s monthly payment on the covered transaction, calculated in accordance

with section 1026.43(c)(5); (1026.43(c)(2)(iii)) (see g. below)

d. The consumer’s monthly payment on any simultaneous loan that the creditor knows or

has reason to know will be made, calculated in accordance with section 1026.43(c)(6);

(1026.43(c)(2)(iv))

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e. The consumer’s monthly payment for mortgage-related obligations; (1026.43(c)(2)(v))

f. The consumer’s current debt obligations, alimony, and child support; (1026.43(c)(2)(vi))

g. The consumer’s monthly debt-to-income ratio or residual income in accordance with

section 1026.43(c)(7) and section 1026.43(c)(2)(vii) and (viii)); and

h. The consumer’s credit history (1026.43(c)(2)(viii)).

3. Determine whether the creditor verified the information it relied upon when considering the

eight factors listed above using reasonably reliable third-party records, except that special

rules apply for verification of income or assets, employment, and current debt obligations

that are not shown on the consumer’s credit report.

Income and Assets, Employment and Debt Obligations

1. For purposes of c. above, determine that the creditor verified the information that it relied on

using reliable third-party records except that:

a. A creditor may verify a consumer’s employment status orally if the creditor prepares a

written record of the information obtained orally; and (1026.43(c)(3)(ii))

b. A creditor that relies on a credit report to verify a consumer’s current obligations need

not independently verify obligations that the consumer lists on the application that are not

in the consumer’s credit report. (1026.43(c)(3)(iii))

2. For the purposes of c. above, determine whether the creditor verified the income or assets it

relied upon, by using third-party records that provide reasonably reliable evidence,

(1026.43(c)(4)) such as:

a. A tax-return transcript issued by the Internal Revenue Service (IRS); (1026.43(c)(4))

b. Copies of tax returns the consumer filed with the IRS or a state taxing authority;

(1026.43(c)(4)(i))

c. IRS Form W-2s or similar IRS forms used for reporting wages or tax withholding;

(1026.43(c)(4)(ii))

d. Payroll statements, including military Leave and Earnings Statements;

(1026.43(c)(4)(iii))

e. Financial institution records; (1026.43(c)(4)(iv))

f. Records from the consumer’s employer or a third party that obtained information from

the employer; (1026.43(c)(4)(v))

g. Records from a federal, state, or local government agency stating the consumer’s income

from benefits or entitlements; (1026.43(c)(4)(vi))

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h. Receipts from the consumer’s use of check cashing services; and (1026.43(c)(4)(vii))

i. Receipts from the consumer’s use of a funds transfer service. (1026.43(c)(4)(viii))

3. For employment status, if the creditor orally verified employment status, determine whether

the creditor prepared a written record of the information obtained orally. (1026.43(c)(3)(ii))

Monthly Payment Calculation

1. For purposes of b. 3 above, determine whether the creditor calculated the monthly payment

(except for balloon payment, interest-only and negative amortization loans) by using:

a. The fully indexed rate or any introductory interest rate, whichever is greater; and

monthly, fully amortizing payments that are substantially equal. (1026.43(c)(5))

b. For a loan with a balloon payment:

i. The maximum payment scheduled during the first five years after the date on which

the first regular periodic payment will be due for a loan that is not a higher-priced

covered transaction as defined under section 1026.43(b)(4); (1026.43(c)(5)(ii)(A)(1))

ii. The maximum payment in the payment schedule, including any balloon payment, for

a higher-priced covered transaction. (1026.43(c)(5)(ii)(A)(2))

c. For an interest-only loan:

i. The fully indexed rate or any introductory interest rate, whichever is greater; and

ii. Substantially equal, monthly payments of principal and interest that will repay the

loan amount over the term of the loan remaining as of the date the loan is recast.

(1026.43(c)(5)(ii)(B))

d. For a negative amortization loan:

i. The fully indexed rate or any introductory interest rate, whichever is greater; and

ii. Substantially equal, monthly payments of principal and interest that will repay the

maximum loan amount as defined in section 1026.43(b)(7) over the term of the loan

remaining as of the date the loan is recast. (1026.43(c)(5)(ii)(C))

Monthly Payment Calculation for Simultaneous Loans

1. For the purposes of b. 4 above, determine whether the creditor calculated the monthly

payment on any simultaneous loan that was used to determine the consumer’s repayment

ability, including any mortgage-related obligations, as follows:

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a. For a simultaneous loan that is a covered transaction, using the payment calculation rules

for covered transactions, described above (1026.43(c)(6)(i)); or

b. For a home equity line of credit, by using the periodic payment required under the terms

of the plan and the amount of credit drawn at or before consummation of the covered

transaction. (1026.43(c)(6)(ii)).

Monthly Debt-to-Income Ratio or Residual Income

1. When a creditor considers the consumer’s monthly debt-to-income ratio, determine whether

the creditor considered the ratio of the consumer’s total monthly debt obligations to the

consumer’s total monthly income. (1026.43(c)(7)(ii)(A))

a. Total monthly debt obligations means the total of: the monthly payment on the covered

transaction (as required by §1026.43(c)(2)(iii) and (c)(5)), simultaneous loans (as

required by §1026.43(c)(2)(iv) and (c)(6)), mortgage-related obligations (as required by

§1026.43(c)(2)(v)), and current debt obligations, alimony, and child support (as required

by §1026.43(c)(2)(vi)).

b. Total monthly income means the total of the consumer’s current or reasonably expected

income, including any income from assets (as required by §1026.43(c)(2)(i) and (4)).

2. If a creditor considers the consumer’s monthly residual income, determine whether the

creditor considered the consumer’s remaining income after subtracting the consumer’s total

monthly debt obligations from the consumer’s total monthly income. (1026.43(c)(7)(ii)(B))

Total monthly debt obligations and total monthly income are defined in section

1026.43(c)(7)(i)(A) and (B).

Qualified Mortgages – Section 1026.43(e)

1. Determine whether the creditor has complied with the ability-to-repay requirements of

section 1026.43(c) by making a loan that is a qualified mortgage, including a higher-priced

qualified mortgage, under the general qualified mortgage definition in section 1026.43(e) or

by making loans that are qualified mortgages because they are made pursuant to rules

promulgated by HUD or VA pursuant to 15 U.S.C. §1639c(b) for loans insured or guaranteed

loans by those agencies.

(1026.43(e))

2. Except as provided in section 1026.43(e)(4), (5), (6), or (f) (all discussed below), a qualified

mortgage is a covered transaction:

a. That provides for regular, substantially equal, periodic payments, except for the effect

any interest rate change after consummation has on adjustable-rate mortgages or step-rate

mortgages (1026.43(e)(2)(i)) that do not:

HUD issued its final QM rule, effective January 10, 2014 (78 Fed. Reg. 75215, December 11, 2013), and VA issued its interim

final QM rule, effective May 9, 2014 (79 Fed. Reg. 26620, May 9, 2014).

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i. Result in an increase of the principal balance (1026.43(e)(2)(i)(A)), or

ii. Allow balloon payments or deferment of principal payments (except for balloon-

payment qualified mortgages described in section 1026.43(f) and (e)(6));

(1026.43(e)(2)(i)(B) and (C)).

b. For which the loan term does not exceed 30 years (1026.43(e)(2)(ii));

c. For which the total points and fees (as defined in §1026.32(b)(1)(i));

i. do not exceed the applicable thresholds of: (1026.43(e)(2)(iii) and (3))

A. $100,000 or over: 3 percent of the total loan amount (see §1026.32(b)(4)(i));

B. $60,000 or over but less than $100,000: $3,000;

C. $20,000 or over but less than $60,000: 5 percent of the total loan amount;

D. $12,500 or over but less than $20,000: $1,000; or

E. Less than $12,500: 8 percent of the total loan amount.

NOTE: These numbers will be annually adjusted for inflation on January 1.

ii. For transactions consummated on or before January 10, 2021, if the creditor or

assignee determined after consummation that the points and fees exceeded the

applicable threshold, the loan is not precluded from being a qualified mortgage if:

A. The loan otherwise meets the requirements of 1026.43(e)(2), (e)(4), (e)(5), (e)(6),

or (f), as applicable;

B. The creditor or assignee paid to the consumer certain amounts, described below,

within 210 days after consummation and prior to any of the following events:

1) The consumer institutes an action in connection with the loan;

2) The consumer provides a written notice to the creditor, assignee, or servicer

that the transaction’s total points and fees exceed the applicable threshold; or

3) The consumer becomes 60 days past due on the legal obligation; and

C. The amount paid to the consumer is not less than the sum of the following:

1) The dollar amount by which the transaction’s total points and fees exceeds the

applicable limit, and

2) Interest on the amount of excess points and fees, calculated using the contract

interest rate applicable during the period from consummation until the

payment is made to the consumer; and

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D. The creditor or assignee, as applicable, maintains and follows policies and

procedures for post-consummation review of points and fees for making the

above-described payments to consumers. (1026.43(e)(3)(iii) and (iv))

NOTE: The points and fees cure provision applies to the points and fees limits for all of

the qualified mortgage types defined in Regulation Z.

d. For which the creditor underwrites the loan, taking into account the monthly payment for

mortgage-related obligations, using: (1026.43(e)(2)(iv))

i. The maximum interest rate that may apply during the first 5 years after the date on

which the first regular periodic payment will be due; and

ii. Periodic payments of principal and interest that will repay either:

A. The outstanding principal balance over the remaining term of the loan. This

should be calculated as of the date the interest rate adjusts to the maximum

interest rate that may apply during the first 5 years after the date on which the first

regular periodic payment will be due, assuming the consumer will have made all

required payments as due prior to that date; or

B. The loan amount over the loan term;

e. For which the creditor considers and verifies at or before consummation the following:

(1026.43(e)(2)(v))

i. The consumer’s current or reasonably expected income or assets other than the value

of the dwelling (including any real property attached to the dwelling) that secures the

loan, in accordance with appendix Q and sections 1026.43(c)(2)(i) and (c)(4); and

ii. The consumer’s current debt obligations, alimony, and child support in accordance

with appendix Q and sections 1026.43(c)(2)(vi) and (c)(3); and

f. For which the ratio of the consumer’s total monthly debt to total monthly income at the

time of consummation does not exceed 43 percent. For purposes of section

1026.43(e)(2)(vi), the ratio of the consumer’s total monthly debt to total monthly income

is determined: (1026.43(e)(2)(vi))

i. In accordance with the standards in appendix Q; (1026.43(e)(2)(vi)(A)), except

ii. The creditor calculates the consumer’s monthly payment on: (1026.43(e)(2)(vi)(B))

A. The covered transaction, including the monthly payment for mortgage-related

obligations, in accordance with section 1026.43(e)(2)(iv) (see also a.4 above) and

B. Any simultaneous loan that the creditor knows or has reason to know will be

made, in accordance with sections 1026.43 (c)(2)(iv) and (c)(6) (see also h. in

“Ability to Repay” above).

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Temporary Category of Qualified Mortgages

– Section 1026.43(e)(4)

1. Determine whether the creditor has complied with the ability-to-repay requirements of

section 1026.43(c) by making loans that

a. Meet the requirements of section 1026.43(e)(2)(i) through (iii) (i.e., have substantially

equal, periodic payments; restrictions on loan features; a maximum 30-year term; and

points and fees— generally limited to a 3 percent threshold); and are

b. Eligible (except with regard to matters wholly unrelated to ability to repay) to be

purchased, guaranteed, or insured by the listed federal government sponsored entities or

agencies.

Small Creditor Portfolio Loan Qualified Mortgages

– Section 1026.43(e)(5)

1. Determine whether a creditor has complied with the ability-to-repay requirements of section

1026.43(c) by making a qualified mortgage as follows:

a. The creditor satisfies the creditor requirements of section 1026.35(b)(2)(iii)(B), and (C),

which require that: (1026.43(e)(5)(D))

i. During the preceding calendar year, the creditor, together with its affiliates, originated

500 or fewer first-lien covered transactions; and

ii. As of the end of the preceding calendar year, the creditor had total assets of less than

$2 billion (this threshold will adjust annually).

NOTE: This category of qualified mortgages does not require a small creditor to operate

predominantly in a rural or underserved area.

The temporary QM rule does not apply to HUD loans or to VA loans because they are qualified mortgages pursuant to 12

U.S.C. §1639c(b)(3)(B)(ii)(I)-(II), which authorizes HUD and VA to promulgate QM rules. HUD issued its final QM rule,

effective January 10, 2014 (78 Fed. Reg. 75215

, December 11, 2013), and VA issued its interim final QM rule, effective May 9,

2014 (79 Fed. Reg. 26620, May 9, 2014).

Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac),

operating under the conservatorship or receivership of the Federal Housing Finance Agency pursuant to section 1367(a) of the

Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(a)); or any limited-life regulatory

entity succeeding the charter of either the Fannie Mae or Freddie Mac pursuant to

§1367(i) of the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (12 U.S.C. 4617(i)); the U.S. Department of Housing and Urban Development under

the National Housing Act; U.S. Department of Veterans Affairs; the U.S. Department of Agriculture pursuant to 42 U.S.C.

1472(h); or the Rural Housing Service. This provision expires on the effective date of a rule issued by each respective agency

pursuant to its authority under TILA

§129C(b)(3)(ii) to define a qualified mortgage. These special rules in §1026.43(e)(4) are

available only for covered transactions consummated on or before January 10, 2021.

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b. The creditor makes a loan that meets the requirements for a qualified mortgage in section

1026.43(e)(2), other than section 1026.43(e)(2)(vi), and without regard to the standards in

appendix Q: (1026.43(e)(5)(A)), and

NOTE: This means, among other things, that the loan does not have negative amortization,

interest-only, or balloon payment features (1026.43(e)(2)(i)); has a loan term of 30 years or

less (((1026.43(e)(2)(ii)); points and fees are under certain thresholds (generally 3 percent)

(1026.43(e)(2)(iii)); and the creditor underwrites the loan, taking into account the monthly

payment for mortgage related obligations (1026.43(e)(2)(iv)). Further, the creditor considers

and verifies at or before consummation: the consumer’s current or reasonably expected

income or assets other than the value of the dwelling (including any real property attached to

the dwelling) that secures the loan, in accordance with the general repayment ability

standards; and the consumer’s current debt obligations, alimony, and child support in

accordance with the general repayment ability standards (1026.43(e)(5)(B))

c. Considers at or before consummation, the consumer’s monthly debt-to-income ratio or

residual income and verifies the debt obligations and income used to determine that ratio

in accordance with the repayment ability requirements of section 1026.43(c)(7), except

that the calculation of the payment for determining the consumer’s total monthly debt

obligations in section 1026.43(c)(7)(i)(A) is determined in accordance with section

1026.43(e)(2)(iv) (based on the maximum interest rate in the first five years after the date

the first periodic payment is due) instead of section 1026.43(c)(5) (fully indexed rate);

(1026.43(e)(5)(B))

d. The loan was not subject to a forward commitment at consummation, except to a person

that satisfies the requirements of sections 1026.35(b)(2)(iii) (B) and (C) (i.e., small

creditors) (1026.43(e)(5)(C)).

2. Determine whether the small creditor portfolio mortgage does not have a qualified mortgage

status because it was subject to a forward commitment at consummation, or the creditor has

transferred it in any circumstances other than where the transfer was:

a. Three years or more after consummation;

b. To a creditor that satisfies the requirements of section 1026.43(e)(5)(i)(D) of this section

(i.e., small creditors under section 1026.35(b)(2)(iii)(B) and (C));

c. Made pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, or to

actions or instructions of a conservator, receiver, or bankruptcy trustee, or to orders by or

agreements with a state or federal governmental agency with jurisdiction to examine the

creditor; or

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d. Made pursuant to a merger of the creditor and another person or the acquisition of the

creditor by another person, or the creditor’s acquisition of another person.

(1026.43(e)(5)(ii).

NOTE: If a small creditor portfolio qualified mortgage has lost its qualified mortgage status,

the creditor must have complied with the general ability-to-repay requirements under section

1026.43(c).

Balloon-Payment Qualified Mortgages Made by Certain

Small Creditors – Section 1026.43(f)

1. Determine whether a creditor has complied with the ability-to-repay requirements of section

1026.43(c) by making a qualified mortgage that provides for a balloon payment as follows:

a. The creditor satisfies the creditor requirements of section 1026.35(b)(2)(iii)(A),(B), and

(C), which require that: (1026.43(f)(1)(vi))

i. During any of the three preceding calendar years, the creditor extended more than 50

percent of its first-lien covered transactions on properties that are located in “rural” or

“underserved” counties;

ii. During the preceding calendar year, the creditor, together with its affiliates, originated

500 or fewer first-lien covered transactions; and

iii. As of the end of the preceding calendar year, the creditor had total assets of less than

$2 billion (this threshold will adjust annually).

b. Makes a loan that meets the requirements for a qualified mortgage in section

1026.43(e)(2)(i)(A) (substantially equal payments or ARMs or step-rate mortgages that

do not increase the principal balance), (e)(2)(ii) (loan term 30 years or less), (e)(2)(iii)

(points and fees under certain thresholds), and (e)(2)(v) (income, assets, and obligations

are considered and verified), but without regard to the standards in appendix Q:

(1026.43(f)(1)(iv)(A));

c. Determines that the consumer can make all of the scheduled payments under the loan and

the monthly payments for all mortgage-related obligations (excluding the balloon

payment) from the consumer’s current or reasonably expected income or assets (other

than the dwelling that secures the loan); (1026.43(f)(1)(ii))

d. Considers at or before consummation, the consumer’s monthly debt-to-income ratio or

residual income and verifies the debt obligations and income used to determine that ratio

in accordance with the repayment ability requirements of section 1026.43(c)(7), except

that the calculation of the payment for determining the consumer’s total monthly debt

obligations in section 1026.43(c)(7)(i)(A) is based on the scheduled payments for the

balloon-payment qualified mortgage in accordance with section 1026.43(f)(1)(iv)(A),

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together with the consumer’s monthly payments for all mortgage-related obligations

other than the balloon payment; (1026.43(f)(1)(iii))

e. The legal obligation provides for:

i. Scheduled payments that are substantially equal, calculated using an amortization

period that does not exceed 30 years, with

ii. An interest rate that does not increase over the term of the loan, and

iii. A loan term of five years or longer; (1026.43(f)(1)(iv)(A)-(C))

f. The loan was not subject to a forward commitment at consummation, except to a person

that satisfies the requirements of sections 1026.35(b)(2)(iii)(A), (B), and (C) (i.e., small

creditors serving rural or underserved counties).

2. Determine whether the balloon-payment qualified mortgage does not have qualified

mortgage status because it was subject to a forward commitment at consummation, or the

creditor has transferred it in any circumstances other than where the transfer was:

a. Three years or more after consummation;

b. To a creditor that satisfies the requirements of section 1026.43(f)(1)(vi) of this section

(i.e., meets the definition of 1026.35(b)(2)(iii)(A)-(C), establishing criteria for small

creditors serving rural or underserved counties);

c. Made pursuant to a capital restoration plan or other action under 12 U.S.C. 1831o, or to

actions or instructions of a conservator, receiver or bankruptcy trustee, or to orders by or

agreements with a state or federal governmental agency with jurisdiction to examine the

creditor; or

d. Due to a merger of the creditor with another person or the acquisition of the creditor by

another person or another person by the creditor. (1026.43(f)(2)(i) and (iv))

NOTE: If a balloon-payment qualified mortgage has lost its qualified mortgage status, the

creditor must have complied with the general ability-to-repay requirements under section

1026.43(c).

Temporary Balloon-Payment Qualified Mortgages Made by

Small Creditors – Section 1026.43(e)(6)

1. Determine whether a creditor has complied with the ability-to-repay requirements of section

1026.43(c) by making a qualified mortgage that meets the requirements of the small creditor

balloon-payment qualified mortgage definition in section 1026.43(f) (above), except that the

creditor requirement in section 1026.35(b)(2)(iii)(A) (operate predominantly in a rural or

underserved area) does not apply.

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NOTE: This temporary qualified mortgage category applies only to loans that are

consummated on or before January 10, 2016.

Prepayment Penalties – Section 1026.43(g)

1. Determine whether a mortgage is a covered transaction (which excludes HELOCs and

timeshares but, for purposes of the prepayment penalty provisions, includes reverse

mortgages, temporary loans, and loans made by certain community development, non-profit,

and other lenders otherwise excluded from ability-to-repay provisions under section

1026.43(a)). If yes, then the loan may not have a prepayment penalty unless:

a. It is a qualified mortgage under sections 1026.43(e)(2), (e)(4), (e)(5), (e)(6), or (f);

b. The prepayment penalty is otherwise allowed by law;

c. The mortgage has an APR that cannot increase after consummation; and

d. The loan is not a higher-priced mortgage loan, as defined in section 1026.35(a).

(1026.43(g)(1)).

NOTE: Covered transactions are generally prohibited from having prepayment penalties

unless certain conditions are met.

2. Determine if the prepayment penalty improperly exceeds the following percentages of the

outstanding balance prepaid:

a. 2 percent during the first two years following consummation;

b. 1 percent during the third year following consummation; and

c. 0 percent thereafter. (1026.43(g)(2))

3. Determine whether a creditor offering a consumer a mortgage with a prepayment penalty has

also offered the consumer an alternative without a prepayment penalty and the alternative:

(1026.43(g)(3))

a. Has an APR that cannot increase after consummation and has the same type of interest

rate (fixed or step rate) as the loan with a prepayment penalty;

b. Has the same loan term as the loan with a prepayment penalty;

c. Satisfies the periodic payment conditions under section 1026.43(e)(2)(i);

d. Satisfies the points and fees conditions under section 1026.43(e)(2)(iii), based on the

information known to the creditor at the time of the offer; and

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e. Is a loan for which the creditor has a good faith belief that the consumer likely qualifies,

based on the information known to the creditor at the time the creditor offers the loan

without a prepayment penalty. (1026.43(g)(3))

4. Determine whether a creditor offering a loan with a prepayment penalty through a mortgage

broker:

a. Presents the mortgage broker an alternative covered transaction without a prepayment

penalty that satisfies the requirements of section 1026.43(g)(3) (see c. above); and

b. Establishes by agreement that the mortgage broker must present to the consumer an

alternative covered transaction without a prepayment penalty offered by the creditor that

satisfies the requirements of section 1026.43(g) (see c. above); or another creditor, if the

other creditor offers a lower interest rate or a lower total dollar amount of discount points

and origination points or fees. (1026.43(g)(4))

5. Determine whether a creditor that is a loan originator, as defined in section 1026.36(a)(1),

who presents a covered transaction with a prepayment penalty offered by another person to

whom the loan would be assigned after consummation also presents the consumer an

alternative covered transaction without a prepayment penalty that satisfies the requirements

of section 1026.43(g), offered by the assignee; or another person offering a lower interest rate

or a lower total dollar amount of origination discount points and points or fees.

(1026.43(g)(5))

Evasion of Minimum Standards for Loans Secured By a

Dwelling – Section 1026.43(h)

1. Determine whether the creditor has structured credit secured by a dwelling that does not meet

the definition of open-end credit in section 1026.2(a)(20) as an open-end plan to evade the

requirements for minimum standards for loans secured by a dwelling.

High-Cost Mortgages, Reverse Mortgages, and Higher-

Priced Mortgages Loans – Sections 1026.32, 1026.33,

and 1026.35

1. Determine whether the financial institution originates consumer credit transactions subject to

Subpart E of Regulation Z; specifically, high-cost mortgages (1026.32), reverse mortgages

(1026.33), and “higher-priced mortgage loans” (1026.35).

2. In addition to reviewing high-cost mortgages, reverse mortgages, and higher-priced mortgage

loans for compliance with requirements in other subparts of Regulation Z (for example,

disclosure timing requirements under section 1026.19(a)), review such mortgages to ensure

the following:

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a. Required disclosures are provided to consumers in addition to, not in lieu of, the

disclosures contained in other subparts of Regulation Z. (1026.31(a))

b. Disclosures are clear and conspicuous, in writing, and in a form that the consumer may

keep. (1026.31(b))

c. Disclosures are furnished at least three business days prior to consummation or account

opening of a high-cost mortgage or a closed-end reverse mortgage transaction (or at least

three business days prior to the first transaction under an open-end reverse mortgage).

(1026.31(c))

d. Disclosures reflect the terms of the legal obligation between the parties. (1026.31(d))

e. If the transaction involves more than one creditor, that only one creditor provided the

disclosures. Where the obligation involves multiple consumers, ensure that the

disclosures were provided to any consumer who is primarily liable on the obligation.

Further, for rescindable transactions, verify that the disclosures were provided to each

consumer who has the right to rescind. (1026.31(e))

f. The APR is accurately calculated and disclosed in accordance with the requirements and

within the tolerances allowed in section 1026.22 for closed-end credit transactions and

section 1026.6(a) for open-end credit plans. (1026.31(g))

3. For high-cost mortgages (1026.32), ensure that, in addition to other required disclosures, the

creditor discloses the following at least three business days prior to consummation or account

opening (See model disclosure at App. H-16):

a. Notice containing the prescribed language. (1026.32(c)(1))

b. The APR. (1026.32(c)(2))

c. Regular payment and balloon payment. (1026.32(c)(3)).

d. For a closed-end credit transaction, the amount of regular loan payment and the amount

of any balloon payment. The disclosed regular payment should be treated as accurate if it

is based on an amount borrowed that is deemed accurate under section 1026.32(c)(5).

(1026.32(c)(3))

e. For an open-end credit plan:

i. An example showing the first minimum periodic payment for the draw period, the

first minimum periodic payment for any repayment period, and the balance

outstanding at the beginning of any repayment period. (1026.32(c)(3)(ii)(A))

NOTE: The example must be based on the assumption that the consumer borrows the full

credit line at account opening and does not obtain any additional extensions of credit, that

the consumer makes only the minimum periodic payments during the draw period and

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any repayment period, and that the APR used to calculate the example payments remains

the same during the draw period and any repayment period. Creditors must provide the

minimum period payment example based on the APR, except that if an introductory APR

applies, the creditor must use the rate that will apply to the plan after the introductory rate

expires. (§1026.32(c)(3)(ii)(A)-(C))

ii. If the credit contract provides for a balloon payment, a disclosure of that fact and an

example showing the amount of the balloon payment based on the assumptions

described in the note above. (1026.32(c)(3)(ii)(B))

iii. A statement that the example payments show the first minimum periodic payments at

the current annual percentage rate if the consumer borrows the maximum credit

available when the account is opened and does not obtain any additional extensions of

credit, or substantially similar statement. (1026.32(c)(3)(ii)(C))

iv. A statement that the example payments are not the consumer’s actual payments and

that the actual minimum periodic payments will depend on the amount the consumer

borrows, the interest rate applicable to that period, and whether the consumer pays

more than the required minimum periodic payment, or a substantially similar

statement. (1026.32(c)(3)(ii)(D))

f. For variable rate transactions, a statement that the interest rate and monthly payment may

increase, and the amount of the single maximum monthly payment allowed under the

contract based on the maximum rate required to be disclosed under section 1026.30.

(1026.32(c)(4))

g. For a closed-end credit transaction, the total amount the consumer will borrow (the face

amount of the note) and if this amount includes financed charges that are not prohibited

under section 1026.34(a)(10), that fact. This disclosure should be treated as accurate if

within $100 of the actual amount borrowed. For an open-end credit plan, the credit limit

for the plan when the account is opened. (1026.32(c)(5))

4. For high-cost mortgages (1026.32), ensure that the creditor follows these additional rules

concerning the disclosures required by section 1026.32(c):

a. Determine if a new disclosure is required if, subsequent to providing the additional

disclosure but prior to consummation or account opening, the creditor changes any terms

that make the disclosures inaccurate. For example, if a consumer finances the payment of

premiums or other charges as permitted under section 1026.34(a)(10) and, as a result, the

monthly payment differs from the payment previously disclosed, re-disclosure is required

and a new three-day waiting period applies. (1026.31(c)(1)(i))

b. Determine if a creditor provides new disclosures by telephone when the consumer

initiates a change in terms, then prior to or at consummation or account opening the

creditor must provide new written disclosures and both parties must sign a statement that

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these new disclosures were provided by telephone at least three days prior to

consummation or account opening. (1026.31(c)(1)(ii))

c. If a consumer waives the right to a three-day waiting period to meet a bona fide personal

financial emergency, the consumer’s waiver must be a dated written statement (not a pre-

printed form) describing the emergency and bearing the signature of all the consumers

entitled to the waiting period (a consumer can waive only after receiving the required

disclosures and prior to consummation or account opening). (1026.31(c)(1)(iii))

5. For high-cost mortgages (1026.32) determine that the creditor has not included any of the

following loan terms:

a. A payment schedule that provides for a balloon payment (with exceptions).

(1026.32(d)(1)(i)-(iii))

b. Negative amortization. (1026.32(d)(2))

c. Advance payments from the proceeds of more than 2 periodic payments. (1026.32(d)(3))

d. Increased interest rate after default. (1026.32(d)(4))

e. A rebate of interest, arising from a loan acceleration due to default, calculated by a

method less favorable than the actuarial method. (1026.32(d)(5))

f. Prepayment penalty as defined in section 1026.32(b)(6).

g. A due-on-demand clause that permits the creditor to terminate the loan in advance of

maturity and accelerate the balance, except in cases of fraud or material

misrepresentation by the consumer, failure by the consumer to meet the repayment terms

of the agreement for any outstanding balance, or action or inaction by the consumer that

adversely affects the creditor’s security interest in the loan. (1026.32(d)(8))

6. For high-cost mortgages under section 1026.32, determine that the creditor is not engaged in

the following acts and practices:

a. Home improvement contracts – Paying a contractor under a home improvement contract

from the proceeds of a mortgage unless certain conditions are met. (1026.34(a)(1))

b. Notice to assignee – Selling or otherwise assigning a high-cost mortgage without

furnishing the required statement to the purchaser or assignee. (1026.34(a)(2))

c. Refinancing within one year of extending credit – Within one year of making a high-cost

mortgage, a creditor may not refinance any high-cost mortgage to the same consumer into

another high-cost mortgage that is not in the consumer’s interest. This also applies to

assignees that hold or service the high-cost mortgage. Commentary to 1026.34(a)(3) has

examples applying the refinancing prohibition and addressing “consumer’s interest.”

(1026.34(a)(3))

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d. Extending high-cost mortgage credit without regard to the consumer’s repayment ability.

(Temporary or bridge loans with a term of 12 months or less are exempt from this

requirement.) (1026.34(a)(4)):

i. For closed-end credit transactions that are high-cost mortgages, ensure the creditor is

complying with the repayment ability requirements set forth in section 1026.43

ii. For open-end credit plans that are high-cost mortgages, ensure the creditor is not

extending credit without regard to the consumer’s repayment ability as of account

opening, including the consumer’s current and reasonably expected income, current

obligations, assets other than collateral, and employment. A creditor must determine

repayment ability for open-end high-cost mortgages by:

A. Verifying amounts of income or assets that it relies on to determine repayment

ability, including expected income or assets, by the consumer’s Internal Revenue

Service Form W-2, tax returns, payroll receipts, financial institution records, or

other third-party documents that provide reasonably reliable evidence of the

consumer’s income or assets.

B. Verifying the consumer’s current obligations, including any mortgage-related

obligations that are required by another credit obligation undertaken prior to or at

account opening and secured by the same dwelling that secures the high-cost

mortgage.

iii. Alternatively determines whether the creditor complies with the repayment ability

requirement by:

A. Verifying repayment ability as described above;

B. Determining the consumer’s repayment ability by using the largest required

minimum periodic payment based on the assumptions that:

1) The consumer borrows the full credit line at account opening with no

additional extensions of credit;

2) The consumer makes only required minimum periodic payments during the

draw period and any repayment period

3) If the annual percentage rate can increase during the plan, the maximum

percentage rate that is included in the contract; and

C. Assessing the consumer’s repayment ability, taking into account at least one of

the following: the ratio of total debt obligations to income (including any

mortgage-related obligations that are required by another credit obligation

undertaken prior to or at account opening, and are secured by the same dwelling

that secures the high-cost mortgage transaction, or the income the consumer will

have after paying debt obligations. (1026.34(a)(4)).

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e. Pre-loan counseling – Determine whether the creditor extending a high-cost mortgage

received written certification confirming that the consumer received approved home

ownership counseling after receiving the initial GFE or, for open-end credit plans, the

initial TILA disclosure required by section 1026.40, or if neither of those disclosures are

provided, after receiving the disclosures required by section 1026.32(c). (1026.34(a)(5)).

Requirements include:

i. Verify that home ownership counseling was not provided by an employee or affiliate

of the creditor

ii. If the creditor paid fees associated with homeownership counseling, confirm that the

payment was not contingent upon the consumer obtaining the high-cost mortgage or

receipt of a counseling certification

iii. Verify that the counseling certificate contains the name of the consumer, date of

counseling, name and address of the counselor, and statements required by section

1026.34(a)(5)(iv).

7. Late Fees – For high-cost mortgages, confirm that late payment charges are disclosed in the

terms of the loan contract or open-end credit agreement and that such fees do not exceed four

percent of the amount past due. No such charge may be imposed more than once for a single

late payment. (1026.34(a)(8))

Higher-Priced Mortgage Loans: Appraisals

1. For higher-priced mortgage loans secured by principal dwelling that are not exempt under

section 1026.35(c)(2), determine whether, before consummation, the creditor obtained a

written appraisal from a state-licensed or certified appraiser that included a physical visit to

the interior of the dwelling. (1026.35(c)(3))

NOTE: Section 1026.35(c)(2) exempts several types of loans from the appraisal

requirements, including qualified mortgages under section 1026.43.

2. Determine whether the creditor is deemed to comply with the requirement by:

a. Ordering that the appraiser perform the appraisal in conformity with the Uniform

Standards of Professional Appraisal Practice and title XI of FIRREA and any

implementing regulations. (1026.35(c)(3)(ii)(A))

b. Verifying through the National Registry that the appraiser who signed the appraiser’s

certification was a certified or licensed appraiser in the state in which the appraised

The higher-priced mortgage loans appraisal requirement was adopted pursuant to an interagency rulemaking conducted by the

Board, the CFPB, the FDIC, FHFA, NCUA and OCC. The Board codified the rule at 12 CFR 226.43, and the OCC codified the

rule at 12 CFR Part 34 and 12 CFR Part 164. There is no substantive difference among these three sets of rules.

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property is located as of the date the appraiser signed the appraiser’s certification.

(1026.35(c) (3)(ii)(B))

c. Confirming that the appraisal includes elements set forth in appendix N.

(1026.35(c)(ii)(3)(C))

d. Having no actual knowledge contrary to the facts or certifications contained in the written

appraisal.

3. Assess whether the creditor exercised reasonable diligence in determining if a second interior

appraisal was necessary. A creditor can exercise reasonable diligence by basing its

determination on written source documents such as:

a. A copy of the recorded deed from the seller.

b. A copy of a property tax bill.

c. A copy of any owner’s title insurance policy obtained by the seller.

d. A copy of the RESPA settlement statement from the seller’s acquisition.

e. A property sales history report or title report from a third-party reporting service.

f. Sales price data recorded in multiple listing services.

g. Tax assessment records or transfer tax records obtained from local governments.

h. A written appraisal performed in compliance with section 1026.35(c)(3)(i) for the same

transaction.

i. A copy of a title commitment report detailing the seller’s ownership of the property.

j. A property abstract (1026.35(c)(4)(i) and (vi); see appendix O).

4. For higher-priced mortgage loans that are not exempt under section 1026.35(c)(2) or section

1026.35(c)(4)(vii), determine whether an additional written interior appraisal from a state

certified or licensed appraiser was both required and performed because the seller acquired

the property 180 days or less before the consumer’s purchase agreement, and the sales price

increased:

a. Greater than 10 percent over the previous purchase price, if acquired 90 or fewer days

prior to the consumer’s purchase agreement; or (1026.35(c)(4)(i)(A)) or

b. Greater than 20 percent over the previous purchase price, if acquired 91 to 180 days prior

to the consumer’s purchase agreement. (1026.35(C)(4)(i)(B))

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NOTE: Section 1026.35(c)(4)(vii) provides for eight exemptions from the second appraisal

requirement, such as for extensions of credit to finance the acquisition of property from a

local, state, or federal government agency.

5. For higher-priced mortgage loans (that are not exempt under section 1026.35(c)(2) or section

1026.35(c)(4)(vii)) where the creditor is required to obtain a second interior appraisal:

a. Confirm that the creditor obtained an appraisal from a different state certified or licensed

appraiser than the one who conducted the first appraisal. (1026.35(c)(4)(ii))

b. Confirm that the creditor charged the consumer for only one of the appraisals.

(1026.35(c)(4)(v))

NOTE: Reviewing the HUD-1 may assist in identifying whether a second appraisal fee was

charged to the consumer.

c. For higher-priced mortgage loans that are not exempt under section 1026.35(c)(2),

determine that the creditor provided a written disclosure in a timely manner informing

consumers that an appraisal may be necessary and that there is a cost associated with the

appraisal, as specified in section 1026.35(c)(5).

i. Disclosures must be provided to consumers within three business days after receipt of

an application for a higher-priced mortgage loan. A creditor can meet this

requirement by placing the disclosure in the mail within three business days after

receipt of the application for a higher-priced mortgage loan. (1026.35(c)(5)(ii))

ii. If the loan becomes a higher-priced mortgage loan during the application process, but

after initial receipt of the application, a creditor has three business days from the time

the loan became a higher priced mortgage loan to provide the necessary disclosure.

(1026.35(c)(5)(ii))

d. Confirm that the creditor provided consumers with a free copy of any written appraisal

performed in connection with a higher-priced mortgage loan that is not exempt under

section 1026.35(c)(2). (1026.35(c)(6))

i. Determine whether the creditor is providing consumers with a copy of their

appraisal(s) no later than three business days prior to consummation of the loan;

(1026.35(c)(6)(ii)(A)) or

ii. If the loan is not consummated, determine whether the creditor is providing

consumers with a copy of the appraisal(s) within 30 days after determining that the

loan will not be consummated. (1026.35(c)(6)(ii)(B))

NOTE: The creditor can satisfy this disclosure requirement by providing the

disclosure required in Regulation B, 12 CFR 1002.14(a)(2), related to a free copy of

the appraisal. (1026.35(c)(5)). However, unlike the waiver provision in Regulation B,

a consumer may not waive the timing requirement to receive a copy of the appraisal

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under §1026.35(c)(6)(i). In addition, the creditor must use the earliest applicable

timing requirement to comply with each regulation’s appraisal/valuation disclosure

requirements.

Higher-Priced Mortgage Loans: Escrow Accounts

1. For most higher-priced mortgage loans secured by a first lien on a principal dwelling escrow

accounts must be established before consummation for property taxes and premiums for

mortgage-related insurance required by the creditor. (1026.35(b)(1))

2. For higher-priced mortgage loans where the creditor did not establish an escrow account,

determine whether the transaction or the creditor would fall into an exemption.

(1026.35(b)(2))

a. Is the transaction secured by shares in a cooperative (1026.35(b)(2)(i)(A));

b. Is the transaction to finance the initial construction of the dwelling (1026.35(b)(2)(i)(B));

c. Is the transaction a temporary or “bridge” loan with a term less than 12 months

(1026.35(b)(2)(i)(C));

d. Is the transaction a reverse mortgage transaction under section 1026.33

(1026.35(b)(2)(i)(D));

NOTE: There is a limited exemption for transactions secured by a dwelling in a

condominium, planned unit development, or other “common interest community” where

a dwelling ownership requires participation in a governing association that is obligated to

maintain a master insurance policy insuring all dwellings. In these common interest

communities, creditors must maintain an escrow account for the payment of taxes only.

(1026.35(b)(2)(ii))

e. Does the creditor, or loan originator, qualify for an exemption under sections

1026.35(b)(2)(iii)(A)-(D):

i. During any of the three preceding calendar years, it made over half its covered

transactions in counties that meet the definition of “rural” or “underserved” as laid

out in section 1026.35(b)(2)(iv);

ii. Together with any affiliates, it did not make more than 500 covered transactions in

the preceding calendar year;

iii. It had less than $2 billion in total assets as of the end of the preceding calendar year;

and

iv. Neither the creditor nor its affiliate maintains an escrow account of the type described

in section 1026.35(b)(1) for any extension of consumer credit secured by real

property or a dwelling that the creditor or its affiliate currently services, other than:

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A. Escrow accounts established for first-lien higher-priced mortgage loans on or after

April 1, 2010, and before January 1, 2014; or

B. Escrow accounts established after consummation as an accommodation to

distressed consumers to assist such consumers in avoiding default or foreclosure.

NOTE: The asset threshold will adjust automatically each year, based on the year-to-

year change in the average of the Consumer Price Index for Urban Wage Earners and

Clerical Workers, not seasonally adjusted, for each 12-month period ending in

November, with rounding to the nearest million dollars (see comment 35(b)(2)(iii)-

1.iii for the current threshold).

3. Evasion of requirements: Ensure that the creditor does not structure a higher-priced mortgage

loan as an open-end plan (“spurious open-end credit”) to evade the requirements of

Regulation Z. (1026.35(d))

Prohibited Payments to Loan Originators

1. Determine that, in connection with a closed-end consumer credit transaction secured by a

dwelling,

no loan originator receives and no person pays to a loan originator, directly or

indirectly, compensation

that is based on:

NOTE: The term “loan originator” means, a person who, in expectation of direct or indirect

compensation or other monetary gain or for direct or indirect compensation or other

monetary gain: takes an application, offers, arranges, assists a consumer in obtaining or

applying to obtain, negotiates, or otherwise obtains or makes an extension of consumer credit

for another person; or through advertising or other means of communication represents to the

public that such person can or will perform any of these activities. The term “loan originator”

includes an employee, agent, or contractor of the creditor or loan originator organization if

the employee, agent, or contractor meets this definition. The term “loan originator” also

includes a creditor that engages in loan origination activities if the creditor does not finance

the transaction at consummation out of the creditor’s own resources, including by drawing on

a bona fide warehouse line of credit or out of deposits held by the creditor.

NOTE: A person is not a loan originator who does not take a consumer credit application or

offer or negotiate credit terms available from a creditor to that consumer based on the

consumer’s financial characteristics, but who performs purely administrative or clerical tasks

on behalf of a person who does engage in such activities. An employee of a manufactured

home retailer who does not take a consumer credit application, offer or negotiate credit

terms, or advise a consumer on credit terms is not a loan originator. For purposes of section

Sections 1026.36(d) and (e) do not apply to a home-equity line of credit subject to section 1026.40 or to a loan that is secured

by a consumer’s interest in a timeshare plan described in 11 U.S.C. 101(53D). (1026.36(b))

Compensation includes salaries, commissions, and any financial or similar incentive, such as an annual or periodic bonus or

awards of merchandise, services, trips, or similar prizes. See 12 CFR §1026.36(a)(3) and comment 1026.36(a)-5.

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1026.36(a), “credit terms” include rates, fees or other costs, and a consumer’s financial

characteristics include any factors that may influence a credit decision, such as debts,

income, assets or credit history.

a. A term of a transaction, the terms of multiple transactions by an individual loan

originator, or the terms of multiple transactions by multiple individual loan originators, or

NOTE: For purposes of section 1026.36(d)(1) only, a “term of a transaction” is any right or

obligation of the parties to a credit transaction. The amount of credit extended is not a term of

a transaction or a proxy for a term of a transaction, provided that compensation received by

or paid to a loan originator, directly or indirectly, is based on a fixed percentage of the

amount of credit extended; however, such compensation may be subject to a minimum or

maximum dollar amount. (1026.36(d)(1)(ii))

b. A proxy

for a term of a transaction. (1026.36(d)(1)(i))

2. Determine that a loan originator that receives a contribution to a defined contribution, tax-

advantaged plan that meets the applicable requirements of the Internal Revenue Code does

not receive a contribution that is directly or indirectly based on the terms of the individual

loan originator’s transactions. (1026.36(d)(1)(iii))

3. Determine whether an individual loan originator receives compensation pursuant to a non-

deferred, profits-based compensation plan only if:

a. The compensation paid to an individual loan originator is not directly or indirectly based

on the terms of that individual loan originator’s transactions that are subject to section

1026.36(d); and

b. At least one of the following conditions is satisfied:

i. The compensation paid to an individual loan originator does not, in the aggregate,

exceed 10 percent of the individual loan originator’s total compensation

corresponding to the time period for which the compensation under the non-deferred

profits-based compensation plan is paid; or

ii. The individual loan originator was a loan originator for ten or fewer transactions

consummated during the 12-month period preceding the date of the compensation

determination.

Prohibition on Dual Compensation

1. If any loan originator receives compensation directly from a consumer in a closed-end

consumer credit transaction secured by a dwelling, determine that (1026.36(d)(2)):

A factor that is not itself a term of a transaction is a proxy for a term of the transaction if the factor consistently varies with

that term over a significant number of transactions, and the loan originator has the ability, directly or indirectly, to add, drop, or

change the factor in originating the transaction. (1026.36(d)(1)(i))

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a. No loan originator receives compensation, directly or indirectly, from any person other

than the consumer in connection with the transaction (1026.36(d)(2)(i)(A)(1)) except that

a loan originator organization may receive compensation from a consumer and pay

compensation to its individual loan originator ; and

b. No person who knows or has reason to know of the consumer-paid compensation to the

loan originator (other than the consumer) pays any compensation to a loan originator,

directly or indirectly, in connection with the transaction. (1026.36(d)(2)(i)(A)(2))

NOTE: Loan originator organizations are permitted to compensate their employees if the

organization receives compensation directly from a consumer, subject to the prohibition

on payments to loan originators in section 1026.36(d)(1).

Prohibition on Steering

1. Determine that, in connection with a consumer credit transaction secured by a dwelling, a

loan originator does not direct or “steer” a consumer to consummate a transaction based on

the fact that the originator will receive greater compensation from the creditor in that

transaction than in other transactions the originator offered or could have offered to the

consumer, unless the consummated transaction is in the consumer’s interest. (1026.36(e)(1))

NOTE: The rule provides a safe harbor to facilitate compliance with the prohibition on steering

in section 1026.36(e)(1). The loan originator is deemed to comply with the anti-steering

prohibition if the consumer is presented with loan options that meet all of the following

conditions for each type of transaction in which the consumer expressed an interest:

a. The loan originator obtains loan options from a significant number of the creditors with

which the originator regularly does business and, for each type of transaction in which

the consumer expressed an interest, presents the consumer with loan options that include

(1026.36(e)(3)(i)):

i. The loan with the lowest interest rate; (1026.36(e)(3)(i)(A))

ii. The loan with the lowest interest rate without negative amortization, a prepayment

penalty, interest-only payments, a balloon payment in the first seven years of the life

of the loan, a demand feature, shared equity, or shared appreciation; or, in the case of

a reverse mortgage, a loan without a prepayment penalty, or shared equity or shared

appreciation; and (1026.36(e)(3)(i)(B))

iii. The loan with the lowest total dollar amount of discount points, origination points or

origination fees (or, if two or more loans have the same total dollar amount of

discount points, origination points or origination fees, the loan with the lowest interest

The term ‘‘type of transaction’’ refers to whether: (i) A loan has an APR that cannot increase after consummation; (ii) A loan

has an APR that may increase after consummation; or (iii) A loan is a reverse mortgage. (1026.36(e)(2))

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rate that has the lowest total dollar amount of discount points, origination points or

origination fees). (1026.36(e)(3)(i)(C))

b. The loan originator has a good faith belief that the options (presented to the consumer

that are set forth, above) are loans for which the consumer likely qualifies.

(1026.36(e)(3)(ii))

c. For each type of transaction, if the originator presents to the consumer more than three

loans, the originator highlights the loans that satisfy options 1.i, 1.ii, and 1.iii above.

(1026.36(e)(3)(iii))

NOTE: If the requirements set forth in section 1026.36(e) are met, the loan originator

can, without steering, present fewer than three loans. (1026.36(e)(4))

Loan Originator Qualifications

and Documentation

1. Determine whether the loan originator organization complies with all applicable state law

requirements for legal existence and foreign qualification. (1026.36(f)(1))

2. Determine whether the loan originator organization ensures that individual loan originators

who work for it (e.g., employees, under a brokerage agreement) are licensed or registered as

required by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE

Act), its implementing regulations (12 CFR §1007 and §1008), and any state SAFE Act law.

(1026.36(f)(2))

3. For individual loan originators who are its employees and who are not required to be licensed

and are not licensed as a loan originator under section 1008.103 or state SAFE Act

implementing law, determine whether the loan originator organization, prior to allowing the

individual to act as a loan originator:

a. Obtained a copy of the individual’s background check through the Nationwide Mortgage

Licensing System and Registry (NMLSR) or a criminal background check from a law

enforcement agency or commercial service; (1026.36(f)(3)(i)(A))

b. Obtained a credit report from a consumer reporting agency in compliance with FCRA

section 604(b); (1026.36(f)(3)(i)(B))

c. Obtained information from the NMLSR, or from the individual as applicable, about

administrative, civil, or criminal findings against the individual; (1026.36(f)(3)(i)(C))

d. Determined on the basis of obtained information or any other information reasonably

available that the individual has not been convicted of, plead guilty or nolo contendere to

a felony in a domestic or military court during the preceding seven year period;

(1026.36(f)(3)(ii)(A)(1))

For the purposes of §§1026.36(f) and (g), all creditors are loan originators.

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e. Determined on the basis of obtained information or any other information reasonably

available that the individual has not been convicted of, plead guilty or nolo contendere to

a felony involving an act of fraud, dishonesty, breach of trust, or money laundering, at

any time; (1026.36(f)(3)(ii)(A)(1))

f. Confirmed that if the individual has a felony conviction and is employed as an individual

loan originator, that the FDIC (or FRB, as applicable), NCUA, or Farm Credit

Administration has provided consent to employ the individual under their own statutory

authorities; (1026.36(f)(ii)(A)(2) (iii))

g. Confirmed that the individual demonstrated financial responsibility, character, and

general fitness such as to warrant a determination that the individual loan originator will

operate honestly, fairly, and efficiently; (1026(f)(3)(ii)(B))

h. Provides periodic training covering federal and state law requirements that apply to the

individual loan originator’s loan origination activities. (1026.36(f)(3)(iii))

NOTE: Paragraph (c) only applies to an individual loan originator hired on after January

1, 2014 (or an individual loan originator the loan originator organization hired before this

date but for whom there were no applicable statutory or regulatory background standards

in effect at the time of hire or used to screen the individual) or an individual loan

originator regardless of when hired who, based on reliable information known to the loan

originator organization, likely does not meet the qualification standards.

4. Verify that the loan originator organization and individual loan originator include their names

and NMLSR IDs on all required loan documentation, including: (1026.36(g))

a. The credit application;

b. The disclosures required by §1026.19(e) and (f);

c. The note or loan contract; and

d. The security instrument.

Policies and Procedures for Depository Institutions to

Ensure and Monitor Compliance

1. Verify that loan originator organizations that are depositories (including credit unions) have

established and maintain written policies and procedures reasonably designed (i.e.,

appropriate to the nature, size, complexity and scope of the mortgage lending activities of the

depository and its subsidiaries) to ensure that the depository, its subsidiaries and their

collective employees comply with the loan originator requirements of section 1026.36(d)–

(g). (1026.36(j))

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Prohibition on Mandatory Arbitration Clauses and Waiver

of Certain Consumer Rights

1. Verify that the contract or other agreement for a consumer credit transaction secured by a

dwelling (including a home equity line of credit secured by the consumer’s principal

dwelling) does not include terms that require arbitration or any other non-judicial procedure

to resolve any controversy or settle any claims arising out of the transaction. (1026.36(h)(1))

2. Verify that the contract or other agreement relating to a consumer credit transaction secured

by a dwelling (including a home equity line of credit secured by the consumer’s principal

dwelling) has not been applied or interpreted to bar a consumer from bringing a claim in

court pursuant to any provision of law for damages or other relief in connection with any

alleged violation of any federal law. (1026.36(h)(2))

Prohibition on Financing Credit Insurance

1. Determine that the creditor does not finance, directly or indirectly, premiums or fees for

credit insurance (including credit life, credit disability, credit unemployment, or credit

property insurance, or any other accident, loss-of-income, life, or health insurance or direct

or indirect payment for debt cancellation/suspension) on the transaction secured by a

dwelling (including a home equity line of credit secured by a principal dwelling).

(1026.36(i))

NOTE: Credit unemployment insurance is not subject to this prohibition where the premiums

are reasonable, the creditor receives no direct or indirect compensation in connection with the

premiums, and the premiums are paid under a separate insurance contract and are not paid to

an affiliate of the creditor. Additionally, this prohibition does not apply to credit insurance

that is paid in full monthly.

Negative Amortization Counseling

1. Verify that the creditor received documentation that first-time borrowers received pre-loan

counseling from a HUD certified or approved counselor on each negative amortizing

mortgage loan to prior to originating the loan. (1026.36(k))

NOTE: This restriction does not apply to reverse mortgages covered under section 1026.33

or transactions secured by a timeshare plan. For more information, please see the

commentary to section 1026.36(k).

Servicing Requirements for Certain Home Mortgages

Subject to Subpart E

1. Determine whether the creditor, assignee, or servicer provides consumers with reasonably

prompt periodic statements for closed-end loans secured by a dwelling. (1026.41)

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NOTE: This requirement does not apply to reverse mortgages under section 1026.33;

timeshare plans; fixed-rate loans where the servicer currently provides consumers with

coupon books that contain account payment, fees, and contact information specified under

section 1026.41(e)(3); small servicers under section 1026.41(e)(4); or, as specified in section

1026.41(e)(5), for mortgages while the consumer is a debtor in bankruptcy under Title 11 of

the US Code. A small servicer is defined as (1) a servicer that, together with any affiliates,

services 5,000 or fewer loans, for all of which the servicer or any affiliate is the creditor or

assignee; (2) a servicer that is a housing finance agency under 24 CFR 226.5; or (3) a

nonprofit entity (defined in §1026.41(e)(4)(ii)(C)(1)) that services 5,000 or fewer mortgage

loans, including any mortgage loans serviced on behalf of associated nonprofit entities

(defined in §1026.41(e)(4)(ii)(C)(2)), for all of which the servicer or an associated nonprofit

is the creditor. Small servicer status is generally based on the loans serviced by the servicer

and any affiliates as of January 1 for the remainder of the year. However, to determine small

servicer status under the nonprofit small servicer definition, a nonprofit servicer should be

evaluated based on the mortgage loans serviced by the servicer (and not those serviced by

associated nonprofit entities) as of January 1 for the remainder of the calendar year. Servicers

that cease to qualify as a small servicer will have the later of six months after the date they

ceased to qualify, or until the next January 1 to come into compliance.

NOTE ALSO: When examining a creditor or assignee that continues to own the loan, or a

servicer, if the entity states that another entity has the obligation to provide the disclosures,

examiners should determine whether the examined entity takes steps to ensure that the other

party (a creditor, assignee, or servicer) is complying with the obligation to provide the

disclosures.

2. Verify that the periodic statements contain:

a. The payment due date; the amount of any late payment fee, and the date on which that fee

will be imposed; and the amount due (the latter shown more prominently than other

disclosures on the page and, if the transaction has multiple payment options, the amount

due under each of the payment options), grouped together in close proximity to each

other and located at the top of the first page; (1026.41(d)(1))

b. The monthly payment amount, including a breakdown of how it will be applied to

principal, interest, and escrow, and if a mortgage loan has multiple payment options

along with information regarding how each payment will affect the principal, a

breakdown of each of the payment options; the total sum of any fees or charges imposed

since the last statement; and any payment amount past due, grouped together in close

proximity to each other and located at the top of the first page. (1026.41(d)(2))

c. The total of all payments received since the last statement, including a breakdown

showing how the payment was applied to principal, interests, escrow, fees, and charges,

and any amount sent to a suspense or unapplied funds account grouped together in close

proximity to each other and located at the top of the first page; (1026.41(d)(3)(i))

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d. The total of all payments received for the calendar year, including a breakdown of how

those payments were applied to principal, interest, escrow, fees. and charges and any

amount currently held in a suspense or unapplied funds account, grouped together in

close proximity to each other and located at the top of the first page; (1026.41(d)(3)(ii))

e. A list of transaction activity that occurred since the last statement, including the date,

amount, and brief description of the transaction. Transaction activity includes any activity

that caused a credit or debit to the amount currently due; (1026.41(d)(4))

f. For statements where a partial payment was received and the creditor or servicer held the

partial payment in a suspense or unapplied funds account, information explaining what

must be done for the funds to be applied to the balance, located on the front page or a

separate page of the statement or in a separate letter; (1026.41(d)(5))

g. A toll-free number, and if applicable, an email address, that consumers may use to obtain

account information located on the front page; (1026.41(d)(6))

h. The amount of the outstanding principal balance; (1026.41(d)(7)(i))

i. The current interest rate for the mortgage; (1026.41(d)(7)(ii))

j. The date that the interest may change (if applicable); (1026.41(d)(7)(iii))

k. Information regarding whether the loan contains a prepayment penalty;

(1026.41(d)(7)(iv))

l. The web address to the CFPB or HUD’s list of homeownership counselors or counseling

organizations and HUD’s toll-free telephone number to obtain contact information for

counselors or counseling organizations; (1026.41(d)(7)(v))

m. For consumers more than 45 days delinquent, creditors, assignees, or servicers also must

provide on the first page or on a separate page of the statement or in a separate letter:

i. The date that the consumer’s account became delinquent; (1026.41(d)(8)(i))

ii. A notification of the possible risks, such as foreclosure, and expenses that may occur

if the consumer does not become current; (1026.41(d)(8)(ii))

iii. An account history showing the shorter of the previous six months or from the time

the account was last current, the amount of payment that is past due from each billing

cycle; (1026.41(d)(8)(iii))

NOTE: If any payment was accepted as a full payment, the creditor or servicer must

show that the payment was credited to the consumer’s account and the date that the

payment was credited.

iv. A notice indicating any loss mitigation program that the consumer has agreed to;

(1026.41(d)(8)(iv))

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v. A notice of whether the servicer has initiated foreclosure proceedings;

(1026.41(d)(8)(v))

vi. The total payment amount needed to bring the account current; and

(1026.41(d)(8)(vi))

vii. A reference to homeownership counseling information required under section

1026.41(d)(7)(v). (1026.41(d)(8)(vii))

3. For high-cost mortgages, ensure the creditor or servicer does not charge any fee to modify,

renew, extend, or amend a high-cost mortgage, or to defer any payment due under the terms

of the mortgage. (1026.34(a)(7))

4. For high-cost mortgages, determine whether the creditor or servicer charged a late payment

greater than four percent of the payment past due. (1026.34(a)(8)(i))

5. For high-cost mortgages, determine that the creditor or servicer did not impose any late fee or

delinquency charge in connection with a payment, when the only delinquency was

attributable to late fees or delinquency charges assessed on an earlier payment, and the

payment is otherwise a full payment for the applicable period and is paid on its due date or

within any applicable grace period (§1026.34(a)(8)(iii)).

6. For high-cost mortgages, determine whether the creditor or servicer assessed any fees for

providing consumers with a payoff statement related to the high-cost mortgage.

(1026.34(a)(9))

NOTE: Creditors or servicers are permitted to assess a processing fee if the payoff statement

is provided by courier or by fax, the fee is comparable to fees for similar services provided

for non-high-cost mortgages, and the creditor or servicer discloses that payoff statements are

available by an alternative method free of charge. Additionally, within a calendar year, if the

creditor or servicer has already provided four payoff statements in compliance with section

1026.34(a)(9), it may assess fees for additional statements.

7. For high-cost mortgages, determine that the creditor or servicer is providing payoff

statements within five business days after receiving a request from the consumer (or

consumer’s authorized representative). (1026.34(a)(9)(v))

8. For higher-priced mortgage loans that are subject to the escrow account requirements, ensure

the creditor or servicer maintains the consumer’s escrow account for a minimum of five years

after consummation of the loan, unless: (1026.35(b)(3))

a. The creditor or servicer terminated the escrow account upon termination of the

underlying debt obligation (1026.35(b)(3)(i)(A)); or

b. The creditor or servicer terminated the escrow account upon request from the consumer,

no earlier than five years after consummation of the loan. (1026.35(b)(3)(i)(B))

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NOTE: Upon request from the consumer, the creditor or servicer must verify that the

unpaid principal balance of the higher-priced mortgage loan is less than 80 percent of the

original value of the property securing the loan and that the consumer is not delinquent or

in default on the loan, prior to cancelling the escrow account. (1026.35(b)(3)(ii))

9. For consumer credit transactions secured by a consumer’s principal dwelling, determine that

the creditor or servicer credited consumer’s periodic payments as of the date the payment

was received or ensured that any delay in crediting did not result in any charge to the

consumer or in the reporting of any negative information to a consumer reporting agency.

(§1026.34(a)(8)-(9) and 1026.36(c)(1)(i))

10. For consumer credit transactions secured by a consumer’s principal dwelling, determine

whether the creditor or servicer uses a suspense or unapplied payment account for partial

payments.

a. For creditors or servicers that use suspense or unapplied payment accounts for

consumers’ partial payments, verify that the creditor or servicer discloses to consumers

that amount held in the suspense account on the periodic statement required by section

1026.41(d)(3) if one is required (1026.36(c)(1)(ii)(A)); and

b. Verify that creditors or servicers credit a periodic payment to the consumer’s account

once the amount in the suspense account equals a periodic payment.

(1026.36(c)(1)(ii)(B))

11. For consumer credit transactions secured by a consumer’s principal dwelling, and for

creditors or servicers that accept non-conforming payments from consumers, verify that the

creditor or servicer credited the non-conforming payment to the consumer’s account as of

five days after receipt of the payment. (1026.36(c)(1)(iii))

12. Determine whether there were any of the following prohibited acts or practices in connection

with credit secured by a consumer’s principal dwelling (1026.36(c)):

a. Imposing on the consumer any late fee or delinquency charge in connection with a

payment, when the only delinquency was attributable to late fees or delinquency charges

assessed on an earlier payment, and the payment is otherwise a periodic payment for the

applicable period and is received on its due date or within any applicable courtesy period

(1026.36(c)(2)); or,

13. For consumer credit transactions secured by a dwelling (including a home equity line of credit

secured by a dwelling), verify that the creditor, assignee, or servicer provided, within a

reasonable time, but no later than seven business days after receiving a written request from the

consumer or person acting on behalf of the consumer, an accurate statement of the total

outstanding balance that would be required to pay the consumer’s obligation in full as of a

specific date except when a delay is because a loan is in bankruptcy or foreclosure, the loan is a

reverse or shared appreciation mortgage, or because of a natural disaster, in which case the

payoff statement must be provided within a reasonable period of time. (§1026.36(b) and (c)(3))

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Valuation Independence

1. Determine that the covered person did not attempt to directly or indirectly cause the value

assigned to the consumer’s principal dwelling to be based on any factor other than the

independent judgment of a person that prepares valuations. Examples of such attempts

include (1026.42(c)):

a. Seeking to influence a person that prepares a valuation to report a minimum or maximum

value for the consumer’s principal dwelling;

b. Withholding or threatening to withhold timely payment to a person that prepares a

valuation or performs valuation management functions because the person does not value

the consumer’s principal dwelling at or above a certain amount;

c. Implying to a person that prepares valuations that current or future retention of the person

depends on the amount at which the person estimates the value of the consumer’s

principal dwelling;

d. Excluding a person that prepares a valuation from consideration for future engagement

because the person reports a value for the consumer’s principal dwelling that does not

meet or exceed a predetermined threshold; and

e. Conditioning the compensation paid to a person that prepares a valuation on

consummation of the covered transaction.

2. Determine that the valuation does not materially misrepresent the value of the consumer’s

principal dwelling. (1026.42(c)(2)(i))

NOTE: A misrepresentation is material if it is likely to significantly affect the value assigned

to the consumer’s principal dwelling. A bona fide error shall not be a misrepresentation.

3. Determine that a valuation was not falsified or materially altered. (1026.42(c)(2)(ii))

NOTE: An alteration is material if it is likely to significantly affect the value assigned to the

consumer’s principal dwelling.

4. Determine that the covered person does not induce a person to materially misrepresent or

falsify the value of a consumer’s principal dwelling (in violation of section 1026.42(c)(2)(i)

or (ii)). (1026.42(c)(2)(iii))

5. Prohibition on conflicts of interest. To the extent applicable, determine that the person who

prepared the valuations or performed the valuation management functions for a covered

transaction did not have a direct or indirect interest, financial or otherwise, in the property or

transaction for which the valuation is or will be performed. (1026.42(d)(1)(i))

NOTE: No person violates this section solely because that the person is an employee or

affiliate of the creditor, or provides a settlement service in addition to preparing valuations or

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performing valuation management functions, or based solely on the fact that the person’s

affiliate performs another settlement service, as long as the conditions discussed below ((f),

(g), and (h)) are met. If they are not met, whether the conflicts of interest provisions are

violated by the above persons or entities depends on all of the facts and circumstances. In

other words, the conditions in (f), (g), and (h) are a safe harbor, but not required.

6. For any consumer credit transaction secured by the consumer’s principal dwelling in which

the creditor had assets of more than $250 million as of December 31st for both of the past

two calendar years, determine that a person subject to section 1026.42(d)(1)(i) who is

employed by or affiliated with the creditor does not have a conflict of interest in violation of

section 1026.42(d)(1)(i) based solely on the person’s employment or affiliate relationship

with the creditor if (1026.42(d)(2)):

a. The compensation of the person preparing a valuation or performing valuation

management functions is not based on the value arrived at in any valuation;

b. The person preparing a valuation or performing valuation management functions reports

to a person who is not part of the creditor’s loan production function, as defined in

section 1026.42(d)(5)(i), and whose compensation is not based on the closing of the

transaction to which the valuation relates; and

c. No employee, officer or director in the creditor’s loan production function, as defined in

section 1026.42(d)(5)(i), is directly or indirectly involved in selecting, retaining,

recommending or influencing the selection of the person to prepare a valuation or

perform valuation management functions, or to be included in or excluded from a list of

approved persons who prepare valuations or perform valuation management functions.

7. For any covered transaction in which the creditor had assets of $250 million or less as of

December 31st for either of the past two calendar years, determine that a person subject to

section 1026.42(d)(1)(i) who is employed by or affiliated with the creditor does not have a

conflict of interest in violation of section 1026.42(d)(1)(i) based solely on the person’s

employment or affiliate relationship with the creditor if (1026.42(d)(3)):

a. The compensation of the person preparing a valuation or performing valuation

management functions is not based the value arrived at in any valuation; and

b. The creditor requires that any employee, officer or director of the creditor who orders,

performs, or reviews a valuation for a covered transaction abstain from participating in

any decision to approve, not approve, or set the terms of that transaction.

8. For any covered transaction, determine that a person who prepares a valuation or performs

valuation management functions in addition to performing another settlement service for the

transaction, or whose affiliate performs another settlement service for the transaction, does

not have a conflict of interest in violation of section 1026.42(d)(1)(i) as a result of the person

or the person’s affiliate performing another settlement service for the transaction if

(1026.42(d)(4)):

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a. The creditor had assets of more than $250 million as of December 31st for both of the

past two calendar years and the conditions in paragraph (d)(2)(i)-(iii) are met; or

b. The creditor had assets of $250 million or less as of December 31st for either of the past

two calendar years and the conditions in paragraph (d)(3)(i)-(ii) are met.

9. If the creditor did know at or before consummation of a violation of sections 1026.42(c) or

(d) in connection with a valuation, determine that the creditor did not extend credit based on

the valuation, unless the creditor documented that it acted with reasonable diligence to

determine that the valuation did not materially misstate or misrepresent the value of the

consumer’s principal dwelling. (1026.42(e))

NOTE: For purposes of section 1026.42(e), a valuation materially misstates or misrepresents

the value of the consumer’s principal dwelling if the valuation contains a misstatement or

misrepresentation that affects the credit decision or the terms on which credit is extended.

10. Customary and reasonable compensation. For any covered transaction, determine that the

creditor and its agents compensated a fee appraiser for performing appraisal services at a rate

that is customary and reasonable for comparable appraisal services performed in the

geographic market of the property being appraised. (1026.42(f)(1))

NOTE: For purposes of section 1026.42(f), “agents” of the creditor do not include any fee

appraiser as defined in section 1026.42(f)(4)(i). An “agent” could be an appraisal

management company to which the creditor has outsourced the valuation function.

11. If the creditor reasonably believes an appraiser has not complied with the Uniform Standards

of Professional Appraisal Practice or ethical or professional requirements for appraisers

under applicable state or federal statutes or regulations, determine that the creditor referred

the matter within a reasonable period of time to the appropriate state agency if the failure to

comply is material. (1026.42(g)(1))

NOTE: For purposes of section 1026.42(g), a failure to comply is material if it is likely to

significantly affect the value assigned to the consumer’s principal dwelling.

Open-End Credit Transactional Testing Procedures

1. For each open-end credit product tested, determine the accuracy of the disclosures by

comparing the disclosure with the contract and other financial institution documents.

(1026.5(c))

2. Review the financial institution’s policies, procedures, and practices to determine whether it

provides appropriate disclosures for creditor-initiated direct mail applications and

solicitations to open charge card accounts, telephone applications and solicitations to open

charge card accounts, and applications and solicitations made available to the general public

to open charge card accounts. (1026.60(b), (c), and (d))

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3. Determine for all home equity plans with a variable rate that the APR is based on an

independent index. Further, ensure home equity plans are terminated or terms changed only

if certain conditions exist. (1026.40(f))

4. Determine that, if any consumer rejected a home equity plan because a disclosed term

changed before the plan was opened, all fees were refunded. Verify that non-refundable fees

were not imposed until three business days after the consumer received the required

disclosures and brochure. (1026.40(g) and (h))

5. Review consecutive periodic billing statements for each major type of open-end credit

activity offered (overdraft and home-equity lines of credit, credit card programs, etc.).

Determine whether disclosures were calculated accurately and are consistent with the initial

disclosure statement furnished in connection with the accounts (or any subsequent change in

terms notice) and the underlying contractual terms governing the plan(s).

6. Determine whether the consumer was given notice of the right to reject the significant

change, with the exception of:

a. An increase in the required minimum periodic payment (1026.9(c)(2)(iv)(B)),

b. A change in the APR (1026.9(c)(2)(iv)(B)),

c. A change in the balance computation method necessary to comply with section 1026.54,

which sets forth certain limitations on the imposition of finance charges as a result of a

loss of a grace period, or

d. Increase in fee pursuant to evaluation under section 1026.52 or adjustment to safe harbors

e. Increase in fees previously reduced under SCRA

f. When the change results from the creditor not receiving the required minimum periodic

payment within 60 days after the due date for that payment. (1026.9(c)(2)(iv)(B))

7. Determine that the creditor did not increase the rate applicable to the consumer’s account to

the penalty rate if the outstanding balance did not exceed the credit limit on the date set forth

in the notice. (1026.9(g)(4))

8. Determine, for each type of open-end rescindable loan being tested, the appropriate number

of copies of the rescission notice are provided to each person whose ownership interest is or

will be subject to the security interest and perform the procedures 12, 13, and 14 under

Closed-End Credit section. (1026.15(b), (c) and (e))

9. Additional variable rate testing: Verify that when accounts were opened or loans were

consummated that loan contract terms were recorded correctly in the financial institution’s

calculation systems (e.g., its computer). Determine the accuracy of the following recorded

information:

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a. Index value,

b. Margin and method of calculating rate changes,

c. Rounding method, and

d. Adjustment caps (periodic and lifetime).

10. Using a sample of periodic disclosures for open-end variable rate accounts (e.g., home equity

accounts) and closed-end rate change notices for adjustable rate mortgage loans:

a. Compare the rate-change date and rate on the credit obligation to the actual rate-change

date and rate imposed.

b. Determine that the index disclosed and imposed is based on the terms of the contract

(example: the weekly average of one-year Treasury constant maturities, taken as of 45

days before the change date). (§1026.7(a) and 1026.20(c)(2))

c. Determine that the new interest rate is correctly disclosed by adding the correct index

value with the margin stated in the note, plus or minus any contractual fractional

adjustment. (§1026.7(g) and 1026.20 (c)(1))

d. Determine that the new payment disclosed (1026.20(c)(4)) was based on an interest rate

and loan balance in effect at least 25 days before the payment change date (consistent

with the contract). (1026.20(c))

Crediting a Consumer’s Account – Section 1026.10

1. Ensure that the creditor credits payment to a consumer’s account as of the date of receipt,

except when a delay in crediting does not result in a finance charge or other charge.

(1026.10(a))

2. If a creditor specifies requirements for payments, determine that they are reasonable and

enable most consumers to make conforming payments. (1026.10(b))

3. Except as provided by section 1026.10(b)(4)(ii), if a creditor specifies, on or with the

periodic statement, requirements for the consumer to follow in making payments as

permitted under section 1026.10, but accepts a payment that does not conform to the

requirements, determine that the payment is credited within five days of receipt.

(1026.10(b)(4)(i))

4. If the creditor promotes a method for making payments, determine that the creditor considers

such payments conforming payments in accordance with section 1026.10(b) and that they are

credited to the consumer’s account as of the date of receipt, except when a delay in crediting

does not result in a finance charge or other charge. (1026.10(b)(4)(ii))

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5. If the creditor sets a cut-off time for payments to be received by mail, by electronic means,

by telephone, or in person, verify that the cut-off time is 5 p.m. or later on the payment due

date at the location specified by the creditor for the receipt of such payments.

(1026.10(b)(2)(ii))

6. For in-person payments on a credit card account under an open-end (not home-secured)

consumer credit plan at a financial institution branch or office that accepts such payments, a

card issuer shall not impose a cut-off time earlier than the close of business for any such

payments made in person at any branch or office of the card issuer at which such payments

are accepted. However, a card issuer may impose a cut-off time earlier than 5 p.m. for such

payments, if the close of business of the branch or office is earlier than 5 p.m.

(1026.10(b)(3)(i))

7. If a creditor fails to credit a payment as required and imposes a finance or other charge,

ensure that the creditor credits the charge(s) to the consumer’s account during the next billing

cycle. (1026.10(c))

8. If (due to a weekend or holiday, for example) a creditor does not receive or accept payments

by mail on the due date for payments, determine that the creditor treats as timely a payment

received on the next business day. (1026.10(d)(1))

NOTE: If a creditor accepts or receives payments made on the due date by a method other

than mail, such as electronic or telephone payments, the creditor is not required to treat a

payment made by that method on the next business day as timely.

9. For credit card accounts under an open-end (not home-secured) consumer credit plan,

determine that the creditor does not impose a separate fee to allow consumers to make a

payment by any method, such as mail, electronic, or telephone payments, unless such

payment method involves an expedited service by a customer service representative of the

creditor. (1026.10(e))

NOTE: For purposes of section 1026.10(e), the term “creditor” includes a third party that

collects, receives, or processes payments on behalf of a creditor.

10. If a card issuer makes a material change in the address for receiving payments or procedures

for handling payments, and such change causes a material delay in the crediting of a payment

to a consumer’s account during the 60-day period following the date on which such change

took effect, ensure that the card issuer does not impose any late fee or finance charge for a

late payment on the credit card account during the 60-day period following the date on which

the change took effect. (1026.10(f))

Treatment of Credit Balances, Account Termination

– Section 1026.11

1. Determine institution’s treatment of credit balances. Specifically, if the account’s credit

balance is in excess of $1, the institution must take the actions listed below. (1026.11)

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a. Credit the amount to the consumer’s account; and

b. Either:

i. Refund any part of the remaining credit balance within seven business days from

receiving a written request from the consumer; or

ii. If no written request is received and the credit remains for more than six months,

make a good faith effort to refund the amount of the credit to the consumer by cash,

check, money order, or credit to a deposit account of the consumer. No further action

is required if the consumer’s current location is not known to the creditor and cannot

be traced through the consumer’s last known address or telephone number.

2. Determine that institution has not terminated an account prior to its expiration date solely

because the consumer did not incur a finance charge. However, a creditor is not prohibited

from closing an account that, for three consecutive months, no credit has been extended (such

as by purchase, cash advance, or balance transfer) and the account has had no outstanding

balance. (1026.11(b))

3. Determine that, for credit card accounts under an open-end (not home-secured) consumer

credit plan, the card issuer has adopted reasonable written policies and procedures designed

to ensure that an administrator of an estate of a deceased account holder can determine the

amount of and pay any balance on the account in a timely manner. (1026.11(c)(1)(i))

NOTE: This does not apply to the account of a deceased consumer if a joint account holder

remains on the account.

4. Ensure that, upon request by the administrator of an estate, the card issuer provides the

administrator with the amount of the balance on a deceased consumer’s account in a timely

manner. (1026.11(c)(2)(i))

NOTE: Providing the amount of the balance on the account within 30 days of receiving the

request is deemed to be timely.

5. Verify that, after receiving a request from the administrator of an estate for the amount of the

balance on a deceased consumer’s account, the card issuer does not impose any fees on the

account (such as a late fee, annual fee, or over the-limit fee) or increase any annual

percentage rate, except as provided by section 1026.55(b)(2) (i.e., due to the operation of an

index). (1026.11(c)(3)(i))

6. Determine that, if payment in full of the disclosed balance, pursuant to section 1026.11(c)(2),

is received within 30 days after disclosure, the card issuer waives or rebates any additional

finance charge due to a periodic interest rate. (1026.11(c)(3)(ii))

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Special Credit Card Provisions and Billing Error Resolution

– Sections 1026.12 and 13

1. Review a sample of billing error resolution files and a sample of consumers who have

asserted a claim or defense against the financial institution for a credit card dispute regarding

property or services. Verify the following (§1026.12 and 1026.13):

a. Credit cards are issued only upon request;

b. Liability for unauthorized credit card use is limited to $50;

c. Disputed amounts are not reported delinquent unless remaining unpaid after the dispute

has been settled;

d. Offsetting credit card indebtedness is prohibited; and

e. Errors are resolved within two complete billing cycles.

Ability to Make the Required Minimum Payments

– Section 1026.51

1. Determine that the card issuer does not open a credit card account for a consumer under an

open-end (not home-secured) consumer credit plan, or increase any credit limit applicable to

such account, unless the card issuer considers the ability of the consumer to make the

required minimum periodic payments under the terms of the account based on the

consumer’s income or assets and current obligations. (1026.51(a)(1)(i))

2. Verify that the card issuer establishes and maintains reasonable written policies and

procedures to consider a consumer’s income or assets and current obligations. Reasonable

policies and procedures to consider a consumer’s ability to make the required payments

include a consideration of at least one of the following: (1026.51(a)(1)(ii))

a. The ratio of debt obligations to income;

b. The ratio of debt obligations to assets; or

c. The income the consumer will have after paying debt obligations.

NOTE: Reasonable written policies and procedures may include treating any income and

assets to which the consumer has a reasonable expectation of access as the consumer’s

income or assets, or may be limited to consideration to the consumer’s independent income

and assets.

3. Confirm that the card issuer does not issue a credit card to a consumer who does not have any

income or assets, and that the credit does not issue a credit card without reviewing any

information about a consumer’s income, assets, or current obligations. (1026.51(a)(1)(ii))

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NOTE: A card issuer may consider the consumer’s income or assets based on information

provided by the consumer, in connection with the credit card account or any other financial

relationship the card issuer or its affiliates has with the consumer, subject to any applicable

information-sharing rules, and information obtained through third parties, subject to any

applicable information-sharing rules. A card issuer may also consider information obtained

through any empirically derived, demonstrably and statistically sound model that reasonably

estimates a consumer’s income or assets. (Comment 1026.51(a)-5)

4. Determine that the card issuer uses a reasonable method for estimating the minimum periodic

payments the consumer would be required to pay under the terms of the account.

(1026.51(a)(2)(i))

5. A card issuer’s estimate of the minimum periodic payment is compliant (i.e., receives the

benefit of a safe harbor) if it uses the following method (1026.51(a)(2)(ii)):

a. The card issuer assumes utilization, from the first day of the billing cycle, of the full

credit line that the issuer is considering offering to the consumer; and

b. The card issuer uses a minimum payment formula employed by the issuer for the product

the issuer is considering offering to the consumer or, in the case of an existing account,

the minimum payment formula that currently applies to that account, provided that:

i. If the applicable minimum payment formula includes interest charges, the card issuer

estimates those charges using an interest rate that the issuer is considering offering to

the consumer for purchases or, in the case of an existing account, the interest rate that

currently applies to purchases; and

ii. If the applicable minimum payment formula includes mandatory fees, the card issuer

must assume that such fees have been charged to the account.

6. Rules affecting young consumers: If the card issuer opens a credit card account under an

open-end (not home-secured) consumer credit plan for a consumer less than 21 years old,

verify that the issuer requires that such consumers:

a. Submit a written application; and

b. Either possess an independent ability to make the required minimum periodic payments

on the proposed extension of credit in connection with the account under section

1026.51(b)(1)(i)) or provide a signed agreement of a cosigner, guarantor, or joint

applicant who is at least 21 years old who has the ability to make the required minimum

periodic payments on such debts, and be either jointly liable with the consumer for any

debt on the account, or secondarily liable for any debt on the account incurred by the

consumer before the consumer has attained the age of 21 pursuant to section

1026.51(b)(1)(ii)(A) and (B).

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7. If a credit card account was opened for such consumer without a cosigner, guarantor, or joint

applicant pursuant to section 1026.51(b)(1), determine that the issuer does not increase the

credit limit on the account before the consumer turns 21 unless:

a. At the time of the contemplated increase, the consumer has an independent ability to

make the required minimum periodic payments; or

b. A cosigner, guarantor, or joint accountholder who is at least 21 years old and has the

ability to make the required minimum periodic payments agrees in writing to assume

liability for any debt incurred on the account. (1026.51(b)(2)(i))

8. If a credit card account was opened for such a consumer with a cosigner, guarantor, or joint

applicant pursuant to section 1026.51(b)(1)(ii), determine that the issuer does not increase the

credit limit on such account before the consumer attains the age of 21 unless the cosigner,

guarantor, or joint accountholder who assumed liability at account opening agrees in writing

to assume liability on the increase. (1026.51(b)(2))

Limitations on Fees – Section 1026.52

1. During the first year after the opening of a credit card account under an open-end (not home-

secured) consumer credit plan, determine whether the card issuer required the consumer to

pay covered fees in excess of the 25 percent of the credit limit in effect when the account is

opened. (1026.52(a)(1))

NOTE: The 25 percent limitation on fees does not apply to fees assessed prior to opening the

account.

NOTE ALSO: An account is considered opened no earlier than the date on which the account

may first be used by the consumer to engage in transactions.

Covered fees include fees (Comment 1026.52(a)(2)-1):

a. For the issuance or availability of credit, including any fees based on account activity or

inactivity;

b. For insurance, debt cancellation or debt suspension coverage, if the insurance or debt

cancellation or suspension coverage is required by the terms of the account;

c. The consumer is required to pay to engage in transactions using the account, such as:

i. Cash advance fees;

ii. Balance transfer fees;

iii. Foreign transaction fees; and

iv. Fees for using the account for purchases.

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d. Fees the consumer is required to pay for violating the terms of the account, except to the

extent they are specifically excluded (see below);

e. Fixed finance charges; and

f. Minimum charges imposed if a charge would otherwise have been determined by

applying a periodic interest rate to a balance except for the fact that such charge is

smaller than the minimum.

NOTE: Section 1026.52(a) does not authorize the imposition or payment of fees or charges

otherwise prohibited by law. (1026.52(a)(3)

2. Fees not covered by this limitation include: (1026.52(a)(2)(i)

a. Late payment fees, over-the-limit fees, and returned-payment fees; or

b. Fees that the consumer is not required to pay with respect to the account, such as:

i. An expedited payment fee;

ii. Fees for optional services like travel insurance;

iii. Fees for reissuing a lost or stolen card; or

iv. Statement reproduction fees.

3. Review penetration rates of various optional services to determine if they are truly optional

and therefore not covered by the 25 percent limitation.

4. Ensure that the card issuer does not impose a fee for violating the terms or other requirements

of a credit card account under an open-end (not home-secured) consumer credit plan unless

the dollar amount of the fee is consistent with sections 1026.52(b)(1) and (b)(2). (1026.52(b))

5. Determine that a card issuer imposes a fee for violating the terms or other requirements of a

credit card account under an open-end (not home-secured) consumer credit plan only if the

dollar amount of the fee is consistent with either section 1026.52(b)(1)(i) or section

1026.52(b)(1)(ii). (1026.52(b)(1))

6. Cost determination. A card issuer may impose a fee for a particular violation (e.g., late

payment) if the card issuer has determined that the fee represents a reasonable proportion of

the total costs incurred by the issuer as a result of that type of violation. If a card issuer is

relying on a cost determination instead of the safe harbors (see below), review

(1026.52(b)(1)(i)):

a. The number of violations of a particular type experienced by the card issuer during a

prior period of reasonable length (e.g., a 12-month period).

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b. The costs incurred by the card issuer during that period as a result of those violations.

Losses and associated costs (including the cost of holding reserves against potential

losses and the cost of funding delinquent accounts) must be excluded from this analysis.

c. If used by the card issuer when making its determination:

i. The number of fees imposed by the card issuer as a result of the type of violation

during the period that the issuer reasonably estimates it will be unable to collect.

ii. Reasonable estimates for an upcoming period of changes in the number of violations

of the relevant type, the resulting costs, and the number of fees that the card issuer

will be unable to collect.

d. If applicable, whether the items in paragraph 1-3 have been reevaluated by the card issuer

at least once during the prior 12 months. If as a result of the reevaluation the card issuer

determines that a lower fee represents a reasonable proportion of the total costs incurred

by the card issuer as a result of that type of violation, determine that the card issuer

begins imposing the lower fee within 45 days after completing the reevaluation.

NOTE: If as a result of the reevaluation the card issuer determines that a higher fee

represents a reasonable proportion of the total costs incurred by the card issuer as a result

of that type of violation, the card issuer may begin imposing the higher fee after

complying with the notice requirements in section 1026.9. (1026.52(b)(1)(i))

7. Safe harbors. A card issuer may impose a fee for violating the terms or other requirements of

the account if the dollar amount of the fee does not exceed, as applicable

(§1026.52(b)(1)(ii)(A)-(C)):

a. $25.00,

b. $35.00 if the card issuer previously imposed a fee pursuant to section

1026.52(b)(1)(ii)(A) for a violation of the same type that occurred during the same billing

cycle or one of the next six billing cycles or

c. Three percent of the delinquent balance on a charge card account that requires payment

of outstanding balances in full at the end of each billing cycle if the card issuer has not

received the required payment for two or more consecutive billing cycles.

NOTE: The dollar amounts in paragraphs 1 and 2 above will be adjusted annually by the

CFPB to the extent that changes in the Consumer Price Index warrant an increase or

decrease of a whole dollar.

8. Determine that the card issuer does not impose a fee for violating the terms or other

requirements of a credit card account under an open-end (not home-secured) consumer credit

plan that exceeds the dollar amount associated with the violation. (1026.52(b)(2)(i)(A))

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9. Determine that a card issuer does not impose a fee for violating the terms or other

requirements of a credit card account under an open end (not home-secured) consumer credit

plan when there is no dollar amount associated with the violation. For purposes of section

1026.52(b)(2)(i), there is no dollar amount associated with the following violations

(1026.52(b)(2)(i)(B)):

a. Transactions that the card issuer declines to authorize;

b. Account inactivity; and

c. The closure or termination of an account.

10. Determine that the card issuer does not impose more than one fee for violating the terms or

other requirements of a credit card account under an open-end (not home-secured) consumer

credit plan based on a single event or transaction. (1026.52(b)(2)(ii))

Allocation of Payments – Section 1026.53

1. Determine whether, when a consumer makes a payment in excess of the required minimum

periodic payment, the card issuer allocates the excess amount:

a. First to the balance with the highest APR, and

b. Any remaining portion to the other balances in descending order based on the

applicable APR.

2. For balances on a credit card account subject to a deferred interest or similar program,

determine whether the card issuer allocated any amount paid by the consumer in excess of

the required minimum periodic payment:

a. Consistent with the general requirement discussed in (a) above, except that, during the

two billing cycles immediately preceding expiration of the deferred interest period, the

excess amount must have been allocated first to the balance subject to the deferred

interest or similar program and any remaining portion allocated to any other balances

consistent with section 1026.53(a) (1026.53(b)(1)(i)), or

b. In the manner requested by the consumer (1026.53(b)(1)(ii)).

3. When a balance on a credit card account is secured, the card issuer may at its option allocate

any amount paid by the consumer in excess of the required minimum periodic payment to

that balance if requested by the consumer. (1026.53(b)(2))

Loss of a Grace Period – Section 1026.54

1. Determine whether the card issuer imposed finance charges as a result of the loss of a grace

period on a credit card account under an open-end (not home-secured) consumer credit plan

based on:

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a. Balances for days in billing cycles that precede the most recent billing cycle, a prohibited

practice; or

b. Any portion of a balance subject to a grace period that was repaid prior to the expiration

of the grace period. (1026.54).

2. With respect to the prohibition in a.2 above, issuers are not required to follow any specific

methodology, but an issuer is in compliance if it applies the consumer’s payment to the

balance subject to the grace period and calculates interest charges on the amount of the

balance that remains unpaid. (Comment 1026.54(a)(1)-5)

Exceptions: This rule does not apply to adjustments to the finance charge as a result of:

a. The resolution of a dispute under section 1026.12, unauthorized use, or section 1026.13,

billing error; or

b. The return of a payment.

Limitations on Increasing Annual Percentage Rates, Fees,

and Charges – Section 1026.55

1. a. With respect to a credit card account under an open-end (not home-secured) consumer

credit plan, determine that the card issuer did not increase an APR or fee or charge required

to be disclosed under sections 1026.6(b)(2)(ii) (fee for issuance or availability (e.g., an

annual fee)), (b)(2)(iii) (fixed finance charge or minimum interest charge), or (b)(2)(xii) (fee

for required insurance, debt cancellation, or debt suspension coverage), unless as permitted

by one of the six exceptions:

a. Temporary rate, fee, or charge exception;

b. Variable rate exception;

c. Advance notice exception;

d. Delinquency exception;

e. Workout and temporary hardship arrangement; and

f. Servicemembers Civil Relief Act exception (1026.55(a)-(b)).

2. To assess whether the temporary rate, fee, or charge exception applies (1026.55(b)(1)),

determine whether:

a. The card issuer increased the APR, fee, or charge upon the expiration of a specified

period of six months or longer and

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b. Prior to the commencement of that period, the card issuer disclosed in writing to the

consumer, in a clear and conspicuous manner, the length of the period and the APR, fee,

or charge that would apply after expiration of the period.

3. If the temporary rate exception applies, determine that the card issuer:

a. Did not apply an APR, fee, or charge to transactions that occurred prior to the period that

exceeds the APR, fee, or charge that applied to those transactions prior to the period;

b. Provided the required notice, but did not apply an APR, fee, or charge (to transactions

that occurred within 14 days after provision of the notice) that exceeds the APR, fee, or

charge that applied to that category of transactions prior to provision of the notice; and

c. Did not apply an annual percentage rate to transactions that occurred during the period

that exceeds the increased APR, fee, or charge.

4. If the variable rate exception applies (1026.55(b)(2)), determine that the card issuer did not

increase an APR unless:

a. The increase in the APR is due to an increase in the index; and

b. The annual percentage rate varies according to an index that is not under the card issuer’s

control and is available to the general public.

NOTE: For purposes of qualifying under this exception, an index is considered under the

card issuer’s control if the card issuer applies a minimum rate or floor below which the rate

cannot decrease. However, because there is no disadvantage to consumers, issuers are not

prevented from setting a maximum rate or ceiling. (Comment 1026.55(b)(2) – 2(ii))

5. If the advance notice exception applies (1026.55(b)(3)), determine that the card issuer:

a. Did not apply that increased APR, fee, or charge to transactions that occurred prior to

provision of the notice;

b. Did not apply the increased APR, fee, or charge to transactions that occurred prior to or

within 14 days after provision of the notice; and

c. Did not increase the APR, fee, or charge during the first year after the account is opened.

6. If the delinquency exception applies (1026.55(b)(4)), determine that the card issuer:

a. Disclosed in a clear and conspicuous manner in the required notice a statement of the

reason for the increase, and

b. Will cease the increase if the card issuer receives six consecutive required minimum

periodic payments on or before the payment due date, beginning with the first payment

due following the effective date of the increase.

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7. If the delinquency exception applies and the card issuer received six consecutive required

minimum periodic payments on or before the payment due date beginning with the first

payment due following the effective date of the increase, determine that the card issuer

reduces any APR, fee, or charge (increased pursuant to the delinquency exception) to the

original APR, fee, or charge that applied prior to the increase with respect to transactions that

occurred prior to or within 14 days after provision of the required notice.

8. If the workout and temporary hardship arrangement exception applies (1026.55(b)(5)),

determine that:

a. Prior to commencement of the arrangement (except as provided in section

1026.9(c)(2)(v)(D)) the card issuer provided the consumer with a clear and conspicuous

written disclosure of the terms of the arrangement (including any increases due to the

completion or failure of the arrangement); and

b. Upon the completion or failure of the arrangement, the card issuer did not apply to any

transactions that occurred prior to commencement of the arrangement an APR, fee, or

charge that exceeds the APR, fee, or charge that applied to those transactions prior to

commencement of the arrangement.

9. If the Servicemembers Civil Relief Act exception applies (1026.55(b)(6)), determine that the

card issuer increased the APR, fee, or charge only after 50 U.S.C. app. 527 or a similar

federal or state statute or regulation no longer applied. Further, determine that the issuer did

not apply to any transactions that occurred prior to the decrease an APR, fee, or charge that

exceeded the APR, fee, or charge that applied to those transactions prior to the decrease.

10. For protected balances (1026.55(c)), determine that the card issuer did not require repayment

using a method that is less beneficial to the consumer than one of the following methods:

a. The method of repayment for the account before the effective date of the increase;

b. An amortization period of not less than five years, beginning no earlier than the effective

date of the increase; or

c. A required minimum periodic payment that includes a percentage of the balance that is

equal to no more than twice the percentage required before the effective date of the

increase.

11. If a card issuer promotes the waiver or rebate of finance charges due to a periodic interest

rate or fees or charges (§1026.6(b)(2)(ii), (b)(2)(iii), or (b)(2)(xii)) and applies the waiver or

rebate to a credit card account under an open-end (not home-secured) consumer credit plan,

any cessation of the waiver or rebate on that account constitutes an increase in an annual

percentage rate, fee, or charge for purposes of section 1026.55.

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Requirements for Over-the-Limit Transactions

– Section 1026.56

1. Joint Relationships. Determine that, if two or more consumers are jointly liable on a credit

card account under an open-end (not home-secured) consumer credit plan, the card issuer

treats the affirmative consent of any of the joint consumers as affirmative consent for that

account. Similarly, determine that the card issuer treats a revocation of consent by any of the

joint consumers as revocation of consent for that account. (1026.56(f))

2. Notwithstanding a consumer’s affirmative consent to a card issuer’s payment of over-the-

limit transactions, determine that the card issuer does not (1026.56(j)):

a. Impose more than one over-the-limit fee or charge on a consumer’s credit card account

per billing cycle, and, in any event, only if the credit limit was exceeded during the

billing cycle. In addition, the card issuer may not impose an over-the-limit fee or charge

on the consumer’s credit card account for more than three billing cycles for the same

over-the-limit transaction where the consumer has not reduced the account balance below

the credit limit by the payment due date for either of the last two billing cycles.

NOTE: There is an exception to the latter prohibition if another over-the-limit transaction

occurred in the last two billing cycles.

b. Impose an over-the-limit fee or charge solely because of the card issuer’s failure to

promptly replenish the consumer’s available credit following the crediting of the

consumer’s payment following the crediting of the consumer’s payment under section

1026.10.

c. Condition the amount of a consumer’s credit limit on the consumer affirmatively

consenting to the card issuer’s payment of over-the-limit transactions if the card issuer

assesses a fee or charge for such service.

d. Impose an over-the-limit fee or charge for a billing cycle if a consumer exceeds a credit

limit solely because of fees or interest charged by the card issuer (defined as charges

imposed as part of the plan under section 1026.6(b)(3)) to the consumer’s account during

that billing cycle.

Reevaluation of Rate Increases – Section 1026.59

1. If a card issuer increases an APR that applies to a credit card account under an open-end (not

home-secured) consumer credit plan, based on the credit risk of the consumer, market

conditions, or other factors, or increased such a rate on or after January 1, 2009, and 45 days’

advance notice of the rate increase is required pursuant to section 1026.9(c)(2) or (g),

determine that the card issuer (1026.59(a)(1)):

a. Evaluates the factors described in section 1026.59(d); and

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b. Based on its review of such factors, reduces the APR applicable to the consumer’s

account, as appropriate.

2. If a card issuer is required to reduce the rate applicable to an account pursuant to section

1026.59(a)(1), determine that the card issuer reduces the rate not later than 45 days after

completion of the evaluation described in section 1026.59(a)(1). (1026.59(a)(2)(i))

NOTE: Any reduction in an APR required pursuant to section 1026.59(a)(1) of this section

shall apply to (1026.59(a)(2)(ii)):

a. Any outstanding balances to which the increased rate described in section 1026.59(a)(1)

has been applied; and

b. New transactions that occur after the effective date of the rate reduction that would

otherwise have been subject to the increased rate.

3. Determine that the card issuer has reasonable written policies and procedures in place to

conduct the review described in section 1026.59(a). (1026.59(b))

4. Determine that a card issuer that is subject to section 1026.59(a) conducts the review

described in section 1026.59(a)(1) not less frequently than once every six months after the

rate increase. (1026.59(c))

5. Except as provided in section 1026.59(d)(2), determine that the card issuer reviews either

(1026.59(d)(1)):

a. The factors on which the increase in an APR was originally based; or

b. The factors that the card issuer currently considers when determining the APRs

applicable to similar new credit card accounts under an open-end (not home-secured)

consumer credit plan.

6. For rate increases imposed between January 1, 2009 and February 21, 2010, determine that

an issuer considered the factors described in section 1026.59(d)(1)(ii) when conducting the

first two reviews required under section 1026.59(a), unless the rate increase subject to section

1026.59(a) was based solely upon factors specific to the consumer, such as a decline in the

consumer’s credit risk, the consumer’s delinquency or default, or a violation of the terms of

the account. (1026.59(d)(2))

7. If an issuer increases a rate applicable to a consumer’s account pursuant to section

1026.55(b)(4) based on the card issuer not receiving the consumer’s required minimum

periodic payment within 60 days after the due date, note that the issuer is not required to

perform the review described in section 1026.59(a) prior to the sixth payment due date after

the effective date of the increase. However, if the APR applicable to the consumer’s account

is not reduced pursuant to section 1026.55(b)(4)(ii), determine that the card issuer performs

the review described in section 1026.59(a). Determine that the first such review occurs no

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later than six months after the sixth payment due following the effective date of the rate

increase. (1026.59(e))

8. The obligation to review factors described in sections 1026.59(a) and (d) ceases to apply

(1026.59(f)):

a. If the issuer reduces the APR applicable to a credit card account under an open-end (not

home-secured) consumer credit plan to the rate applicable immediately prior to the

increase, or, if the rate applicable immediately prior to the increase was a variable rate, to

a variable rate determined by the same formula (index and margin) that was used to

calculate the rate applicable immediately prior to the increase; or

b. If the issuer reduces the APR to a rate that is lower than the rate described in section

1026.59(f)(1) of this section.

9. Except as provided in section 1026.59(g)(2), section 1026.59 applies to credit card accounts

that have been acquired by the card issuer from another card issuer. (1026.59(g))

10. Determine that a card issuer that complies with this section by reviewing the factors

described in section 1026.59(d)(1)(i) reviews the factors considered by the card issuer from

which it acquired the accounts in connection with the rate increase. (1026.59(g)(1))

11. If, not later than six months after the acquisition of such accounts, a card issuer reviews all of

the credit card accounts it acquires in accordance with the factors that it currently considers

in determining the rates applicable to its similar new credit card accounts (1026.59(g)(2)):

a. Except as provided in section 1026.59(g)(2)(iii), determine that the card issuer conducts

reviews described in section 1026.59(a) for rate increases that are imposed as a result of

its review under this paragraph.

b. Except as provided in section 1026.59(g)(2)(iii), note that the card issuer is not required

to conduct reviews in accordance with section 1026.59(a) for any rate increases made

prior to the card issuer’s acquisition of such accounts.

c. Note that if as a result of the card issuer’s review, an account is subject to, or continues to

be subject to, an increased rate as a penalty, or due to the consumer’s delinquency or

default, the requirements of section 1026.59(a) apply.

Servicemembers Civil Relief Act exception: Note that the requirements of Section 1026.59 do

not apply to increases in an APR that was previously decreased pursuant to the

Servicemembers Civil Relief Act (50 U.S.C. app. 527), provided that such a rate increase is

made in accordance with section 1026.55(b)(6). (1026.59(h)(1))

Charged off accounts exception: Note that the requirements of section 1026.59 do not apply

to accounts that the card issuer has charged off in accordance with loan-loss provisions.

(1026.59(h)(2))

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NOTE: Appendix G to part 1026 is amended by revising Forms G-10(B), G-10(C), G-10(E),

G-17(B), G-17(C), G-18(B), G-18(D), G-18(F), G-18(G), G-20, G-21, G-22, G- 25(A), and

G-25(B).

Administrative Enforcement

1. If there is non-compliance involving understated finance charges or understated APRs

subject to reimbursement under the FFIEC Policy Guide on Reimbursement (policy guide):

a. Document the date on which the administrative enforcement of the TILA policy

statement would apply for reimbursement purposes by determining the date of the

preceding examination.

b. If the non-compliance involves indirect (third-party paper) disclosure errors and affected

consumers have not been reimbursed.

c. Prepare comments, discussing the need for improved internal controls to be included in

the report of examination.

d. Notify your supervisory office for follow up with the regulator that has primary

responsibility for the original creditor.

e. If the non-compliance involves direct credit:

i. Make an initial determination whether the violation is a pattern or practice.

ii. Calculate the reimbursement for the loans or accounts in an expanded sample of the

identified population.

iii. Estimate the total impact on the population based on the expanded sample.

iv. Inform management that reimbursement may be necessary under the law and the policy

guide, and discuss all substantive facts including the sample loans and calculations.

v. Inform management of the financial institution’s options under section 130 of the

TILA for avoiding civil liability and of its option under the policy guide and section

108 (e)(6) of the TILA for avoiding a regulatory agency’s order to reimburse

affected borrowers.

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HIGH-COST MORTGAGE (Section 1026.32) WORKSHEET

Borrower’s Name:

Loan Number:

COVERAGE

Yes No

Is the transaction secured by the consumer’s principal

dwelling?

[§1026.2(a)(19), §1026.32(a)(1)]

If the answer is No, STOP HERE. The transaction is not a high-cost mortgage.

Is the transaction:

1. A reverse mortgage transaction [§1026.32(a)(2)(i)]

2. A transaction to finance the initial construction of a

dwelling [§1026.32(a)(2)(ii)]

3. A transaction originated and financed by a Housing

Finance Agency [§1026.32(a)(2)(iii)]

4. A transaction originated under the USDA’s rural

development section 502 direct loan program

[§1026.32(a)(2)(iv)]

If the answer is Yes to Box 1, 2, 3 or 4, STOP HERE. If No, continue to Test 1, APR.

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TEST 1 – APR

A. Determine the APR for testing high-cost mortgage coverage:

1. For fixed-rate transactions, calculate the APR using the interest rate

in effect on the date the interest rate for the transaction was set.

2. For transactions where the interest rate varies with an index, use the

greater of the introductory interest rate (if any) or the fully-indexed

rate (i.e., the interest rate that results from adding the maximum

margin permitted at any time during the term of the transaction to

the value of the index rate in effect on the date the interest rate for

the transaction was set).

3. For transactions where the interest rate may or will vary other than

in accordance with an index, such as in a step-rate loan, use the

maximum rate that the applicant may pay during the term of the

transaction.

[§1026.32(a)(3)]

B. Determine the Average Prime Offer Rate (APOR):

Determine the APOR for a comparable transaction as of the last rate

lock on the transaction. Determine the APOR for a HELOC by

identifying the most closely comparable closed-end transaction. APOR

tables are published at http://www.ffiec.gov/ratespread/aportables.htm.

[§1026.32(a)(1)(i) and comments 32(a)(1)(i)-1 through -3]

C. Add one of the following amounts to APOR (Box B), as

applicable:

1. 6.5 percentage points for most first-lien transactions;

2. 8.5 percentage points for first-lien transactions secured by personal

property (e.g., manufactured housing titled as personal property,

RVs, houseboats) where the loan amount is less than $50,000; or

3. 8.5 percentage points for subordinate-lien transactions

[§1026.32(a)(1)(i)(A)-(C)]

Yes

D. Is Box A greater than Box C?

If Yes, the transaction is a high-cost mortgage. If No, continue to Test 2, Points

and Fees.

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HIGH-COST MORTGAGE (Section 1026.32) WORKSHEET

TEST 2 – POINTS AND FEES

STEP 1: Identify all charges payable in connection with the transaction and known

at or before consummation or account opening.

A. Items included in the finance charge (1026.4(a) and (b)), except for the

following:

• Interest, including per-diem interest, and time-price differential;

• All federal or state government-sponsored MIPs, e.g., up-front and annual FHA

premiums, VA funding fees, and USDA guarantee fees;

• All monthly or annual PMI premiums;

• Up-front PMI premiums if the premiums are refundable on a prorated basis and

the refund is automatically issued upon loan satisfaction. However, include any

portion of the PMI premium that exceeds the up-front MIP for FHA loans;

• Bona fide third-party charges not retained by the creditor, loan originator, or an

affiliate of either, unless specifically required to be included under Boxes A-H

;

and

• Up to 1 or 2 bona fide discount points, if eligible.

[§1026.32(b)(1)(i) (closed-end); §1026.32(b)(2)(i) (open-end)]

Finance Charge Items Amount Subtotals

Origination Charge/Points (unless excluded as bona fide)

Mortgage Broker Fee

Application Fee (if not charged to all applicants)

Loan Administration Fee

Rate-Lock Fee

Test 2, Step 1, Boxes A-F and I (i.e., calculating points and fees for closed-end transactions) and Test 2, Step 2,

Box A (i.e., calculating total loan amount for closed-end transactions) are the same tests used for the points and fees

calculation for qualified mortgages.

Bona fide third-party charges not retained by creditor or loan originator, or an affiliate of either are excluded,

unless these charges are included as PMI premiums, real estate-related fees, or credit-related insurance premiums.

[§ 1026.32(b)(1)(i)(D)]

Discount points are bona fide if two conditions are met: 1) They must buy down the interest rate from the pre-

discount rate, and 2) they must do so by an amount consistent with industry norms. The number of bona fide

discount points that may be excluded depends on the pre-discount rate on the loan. Up to two bona fide discount

points may be excluded if the interest rate before payment of those discount points did not exceed APOR by more

than one percentage point. Up to one bona fide discount point may be excluded if the interest rate before payment of

the discount point did not exceed APOR by more than two percentage points. [§§ 1026.32(b)(1)(i)(E)-(F);

1026.32(b)(3).]

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Commitment Fee

Underwriting Fee

Loan-Level Price Adjustments (LLPAs) (if paid upfront)

Non-Refundable Up-front PMI Premiums in Excess of

Up-front MIP for FHA loans

Other Fees Included in the Finance Charge

Subtotal

Loan originator compensation –

Include all compensation paid directly or

indirectly by a consumer or creditor to a loan originator (1026.36(a)(1)) that can be

attributed to the transaction at the time the rate is set, but exclude:

• payments by consumers to mortgage brokers that were counted under Box A;

• compensation paid by a creditor or mortgage broker to a loan originator

employee; and

• compensation paid by a manufactured home retailer to its employee.

[§1026.32(b)(1)(ii) (closed-end); §1026.32(b)(2)(ii) (open-end)]

Subtotal

C. Certain non-finance charges under §1026.4(c)(7) – Include fees only if the

amount of the fee is unreasonable, or the creditor receives direct or indirect

compensation from the charge, or the charge is paid to an affiliate of the creditor.

[§1026.32(b)(1)(iii) (closed-end); §1026.32(b)(2)(iii) (open-end)]

Title Examination

Title Insurance

Property Survey

Document Preparation Charge

Notary and Credit Report

Appraisal

Fee for “Initial” Flood Hazard Determination

Pest Inspection

Any Other Fees Under §1026.4(c)(7)

Subtotal

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D. Premiums or other charges for optional or required insurance payable at or

before consummation or account opening

[§1026.32(b)(1)(iv) (closed-end); §1026.32(b)(2)(iv) (open-end)]

Credit life

Credit disability

Credit unemployment

Credit property

Any other life, accident, health, loss-of-income insurance

(if creditor is a beneficiary)

Debt cancellation or suspension

Subtotal

E. Maximum prepayment penalty

[§1026.32(b)(1)(v) (closed-end); §1026.32(b)(2)(v) (open-end)]

Subtotal

F. For a refinance transaction with the current holder, its servicer, or an affiliate

of either, prepayment penalty paid in connection with terminating prior

transaction

[§1026.32(b)(1)(vi) (closed-end); §1026.32(b)(2)(vi) (open-end)]

Subtotal

G. For open-end transactions, participation fees payable at or before account

opening

[§1026.32(b)(2)(vii)]

Subtotal

H. For open-end transactions, per-transaction fee charged for drawing on credit

line (assume at least one)

[§1026.32(b)(2)(viii)]

Subtotal

Total Points & Fees:

Add Subtotals for A-F (Closed-End) or

A-H (Open-End)

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TEST 2 – POINTS AND FEES (continued)

STEP 2: Determine the Total Loan Amount (1026.32(b)(4))

A. Closed-End Transaction

1. Determine the Amount Financed (1026.18(b))

o The full amount of principal repayable under the terms of the

note or other loan contract

o Minus: Prepaid finance charges (1026.2(a)(23))

o Equals: Amount Financed

2. Deduct from the Amount Financed costs that are included in

points and fees under Step 1, Boxes C, D, or F

3. Total Loan Amount (1 minus 2)

B. Open-End Transaction

1. Credit limit for the plan when the account is opened

TEST 2 – POINTS AND FEES (continued)

STEP 3: Perform High-Cost Fee Calculation

Determine which points and fees threshold applies according to the note amount

(threshold cut-offs are adjusted annually for inflation) (1026.32(a)(1)(ii)(A)-(B))

(use the dollar amount corresponding to the year of origination or account opening)

Transactions for $20,000 or more (2014)

Calculate 5 percent of the total loan amount

(Step 2, Box A (closed-end) or Box B (open-end))

Total Points & Fees (Step 1, Box I)

Does Box B exceed Box A?

Yes

Transactions for less than $20,000 (2014)

A. A. Calculate 8 percent of the total loan amount (Step 2,

Box A (closed-end) or Box B (open-end))

B. Annually adjusted dollar amount (1026.32(a)(1)(ii)(B))

2014: $1,000 (use the dollar amount corresponding to the

year of origination or account opening)

Total Points & Fees (Step 1, Box I)

D. Does Box C exceed the lesser of Box A or Box B?

Yes No

If Yes, the transaction is a high-cost mortgage. If No, continue to Test 3,

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Prepayment Penalty.

TEST 3 – Prepayment Penalty

STEP 1: Determine whether the transaction has a

prepayment penalty (1026.32(b)(6)(i)-(ii))

Yes No

If No, STOP HERE, the transaction is not a high-cost mortgage. If Yes, continue to

Step 2.

STEP 2: Determine the amount and duration of any prepayment penalty

A. Can prepayment penalties be imposed for longer than 36

months after consummation or account opening?

B. Can prepayment penalties exceed two percent of the

amount prepaid?

If Yes, the transaction is a high-cost mortgage and is in violation of the prohibition

against prepayment penalties for high-cost mortgages (1026.32(d)(6)). If No, the

transaction is not a high-cost mortgage.

If the creditor used an accounting method whereby it kept unearned interest charged for any period between

payoff and the end of the month, this would be a prepayment penalty under the rule. In this case, the maximum

prepayment penalty would be the maximum amount of interest that could be charged for the “phantom” (post-

payoff) accrual period. For this purpose, the examiner would need to assume that the consumer makes the final

payoff on the day of the month that yields the longest period of post-payoff interest that could be charged under the

terms of the credit contract and is charged interest for the entire month, and that amount would be the maximum

unearned interest prepayment penalty.